rkda-8ka_20210517.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

(Amendment No. 1) 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report: May 17, 2021

(Date of earliest event reported)

 

Arcadia Biosciences, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

001-37383

 

81-0571538

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

202 Cousteau Place, Suite 105

Davis, CA 95618

(Address of principal executive offices, including zip code)

(530) 756-7077

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

RKDA

NASDAQ CAPITAL MARKET

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company 

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

 

 


 

 

Introductory Note

 

On May 21, 2021, Arcadia Biosciences, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) reporting that on May 17, 2021, the Company completed its acquisition of certain assets (“Asset Acquisition”) of Eko Holdings, LLC, a California limited liability company (“Eko”), Lief Holdings, LLC, a California limited liability company (“Lief”), and Live Zola, LLC, a California limited liability company (“LiveZola”).

 

In accordance with and as permitted by Section 9.01(a)(3) of Form 8-K, the Company is filing this amendment to the Initial Form 8-K to provide the required financial statements and pro forma financial information that were not filed with the Initial Form 8-K.

 

Item 9.01

Financial Statements and Exhibits.

 

 

(a)

Financial Statements of Business Acquired

 

The audited consolidated financial statements of Rever Holdings, LLC (“Rever Holdings”) for the year ended December 31, 2020 and the related notes for such financial statements, and the unaudited condensed consolidated financial statements for Rever Holdings for the three months ended March 31, 2021 and the related notes for such financial statements, are attached as Exhibit 99.1 and 99.2, respectively, hereto and incorporated herein by reference.  Rever Holdings is the sole member and holding company for Lief and Eko.

 

The audited financial statements for the Coconut Water Line of LiveZola for the year ended December 31, 2020 and the related notes for such financial statements, and the unaudited financial statements for the Coconut Water Line of LiveZola for the three months ended March 31, 2021 and the related notes for such financial statements, are attached as Exhibit 99.3 and 99.4, respectively, hereto and incorporated herein by reference.  The Company acquired the Coconut Water line of business of LiveZola in the Asset Acquisition.

 

 

(b)

Pro Forma Financial Information

 

Unaudited pro forma condensed combined financial statements, which include a pro forma condensed combined balance sheet as of March 31, 2021 and pro forma condensed combined statements of operations for the year ended December 31, 2020 and the three months ended March 31, 2021 and the notes related thereto, are attached as Exhibit 99.5 hereto and incorporated herein by reference.

 

 

(d)

Exhibits

 

Exhibit

Number

 

Description

23.1

 

Consent of Armanino LLP.

23.2

 

Consent of CohnReznick LLP.

99.1

 

Audited consolidated financial statements of Rever Holdings, LLC for the year ended December 31, 2020.

99.2

 

Unaudited condensed consolidated financial statements of Rever Holdings, LLC for the three months ended March 31, 2021.

99.3

 

Audited financial statements for the Coconut Water Line of LiveZola, LLC for the year ended December 31, 2020.

99.4

 

Unaudited financial statements for the Coconut Water Line of LiveZola, LLC for the three months ended March 31, 2021.

99.5

 

Pro Forma Financial Information listed in Item 9.01(b).

 

 


 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

ARCADIA BIOSCIENCES, INC.

 

 

 

 

 

 

Date: August 2, 2021

 

By:

 

 

/s/ PAMELA HALEY

 

 

 

Name:

 

Pamela Haley

 

 

 

Title:

 

Chief Financial Officer

 

 

rkda-ex231_8.htm

Exhibit 23.1

Consent of Independent Certified Public Accountants

 

We consent to the incorporation by reference in Registration Statements Nos. 333-229047, 333-232858, and 333-235446 on Form S-1, Registration Statements Nos. 333-224061, 333-224893, 333-239641 and 333-252659 on Form S-3, and Registration Statement Nos. 333-204215, 333-210023, 333-216545, 333-223805, 333-232072, 333-237438 and 333-256599 on Form S-8 of Arcadia Biosciences, Inc. of our report dated July 28, 2021 with respect to the consolidated financial statements of Rever Holdings, LLC. for the year ended December 31, 2020, incorporated by reference in this Current Report on Form 8-K/A of Arcadia Biosciences, Inc.

 

 

 

/s/ Armanino, LLP

 

 

Bellevue, Washington

 

 

 

August 2, 2021

 

 

 

rkda-ex232_9.htm

Exhibit 23.2

INDEPENDENT AUDITOR’S CONSENT

 

We consent to the incorporation by reference in Registration Statements on Form S-1 (File Nos. 333-229047, 333-232858, and 333-235446), Form S-3 (File Nos. 333-224061, 333-224893, 333-239641 and 333-252659) and Form S-8 (File Nos. 333-204215, 333-210023, 333-216545, 333-223805, 333-232072, 333-237438 and 333-256599) of Arcadia Biosciences, Inc. of our report dated July 9, 2021 with respect to the financial statements of the Coconut Water Line of Live Zola, LLC, for the year ended December 31, 2020, which is incorporated by reference in this Current Report on Form 8-K/A of Arcadia Biosciences, Inc. on August 2, 2021.

 

/s/ CohnReznick LLP

Los Angeles, California

 

August 2, 2021

rkda-ex991_10.htm

 

EXhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVER HOLDINGS, LLC.

Consolidated Financial Statements

For The Year Ended And As Of

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

rever holdings, LLC.

INDEX TO cONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page

INDEPENDENT AUDITOR'S REPORT

 

3

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheet

 

4

Consolidated Statement of Operations

 

5

Consolidated Statement of Changes in Member's Deficit

 

6

Consolidated Statement of Cash Flows

 

7

Notes to the Consolidated Financial Statements

 

8

 

 

 

 

 

 

 

 

 

 

 

 


 

 

INDEPENDENT AUDITOR'S REPORT

 

To the Board of Directors and Member of Rever Holdings, LLC.

San Jose, California

We have audited the accompanying consolidated financial statements of Rever Holdings, LLC. (the ''Company''), which comprise the consolidated balance sheet as of December 31, 2020, and the related consolidated statement of operations, changes in member's deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rever Holdings, LLC. as of December 31, 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ ArmaninoLLP

Bellevue, Washington

July 28, 2021

3


 

 

Rever holdings, LLC.

CONSOLIDATED BALANCE SHEET

 

 

 

December 31,

 

 

 

2020

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

306,948

 

Accounts receivable, net

 

 

451,648

 

Inventories

 

 

1,489,522

 

Prepaids and other current assets

 

 

18,398

 

Total current assets

 

 

2,266,516

 

Right-of-use asset

 

 

495,428

 

Property, plant and equipment, net

 

 

203,896

 

Intangible assets, net

 

 

60,665

 

Other assets

 

 

110,331

 

Total assets

 

$

3,136,836

 

LIABILITIES AND MEMBER'S DEFICIT

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

 

$

889,101

 

Accounts payable - related party

 

 

4,341,428

 

Accrued and other current liabilities

 

 

69,503

 

Current portion of lease liabilities

 

 

122,006

 

Notes payable

 

 

248,396

 

Current Liabilities

 

 

5,670,434

 

Lease liabilities

 

 

495,522

 

Total liabilities

 

 

6,165,956

 

Commitments and Contingencies - Note 10

 

 

 

 

Member's deficit

 

 

 

 

Member's capital

 

 

661,000

 

Accumulated deficit

 

 

(3,690,120

)

Total member's deficit

 

 

(3,029,120

)

Total liabilities and member's deficit

 

$

3,136,836

 

 

See the accompanying notes to these consolidated financial statements.

4


 

rever holdings, llc.

CONSOLIDATED STATEMENT OF OPERATIONS

 

 

 

Year ended

 

 

 

December 31,

 

 

 

2020

 

Revenue

 

$

4,277,478

 

Cost of goods sold

 

 

3,285,720

 

Gross profit

 

 

991,758

 

Operating expenses:

 

 

 

 

Sales and marketing

 

 

1,053,931

 

General and administration

 

 

1,472,667

 

Total operating expenses

 

 

2,526,598

 

Loss from operations

 

 

(1,534,840

)

Other income (expenses):

 

 

 

 

Other income

 

 

50,040

 

Other expense

 

 

(466,198

)

Total other expenses

 

 

(416,158

)

Net loss

 

$

(1,950,998

)

 

See the accompanying notes to these consolidated financial statements.

5


 

rever holdings, llc.

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S DEFICIT

 

 

 

Member's

Capital

 

 

Accumulated

Deficit

 

 

Total

 

 

 

 

 

 

 

Member's

Deficit

 

Balance at December 31, 2019

 

$

661,000

 

 

$

(1,739,122

)

 

$

(1,078,122

)

Net loss

 

 

 

 

 

(1,950,998

)

 

 

(1,950,998

)

Balance at December 31, 2020

 

$

661,000

 

 

$

(3,690,120

)

 

$

(3,029,120

)

 

See the accompanying notes to these consolidated financial statements.

6


 

rever holdings, llc.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Year Ended December 31,

 

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(1,950,998

)

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

 

 

 

 

Depreciation expense

 

 

54,150

 

Amortization of intangible assets

 

 

15,168

 

Other income PPP loan forgiveness

 

 

(50,040

)

Change in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

129,744

 

Inventories

 

 

(803,055

)

Prepaids and other current assets

 

 

(3,190

)

Other assets

 

 

(12,457

)

Accounts payable

 

 

539,199

 

Accounts payable - related party

 

 

1,853,702

 

Accrued and other current liabilities

 

 

60,261

 

Lease liabilities

 

 

56,251

 

Net cash used in operating activities

 

 

(111,265

)

Cash flow from investing activities

 

 

 

 

Purchases of property, plant and equipment

 

 

(87,527

)

Net cash used in investing activities

 

 

(87,527

)

Cash flow from financing activities

 

 

 

 

Proceeds from issuance of note payable

 

 

298,436

 

Net cash provided by financing activities

 

 

298,436

 

Net increase in cash and cash equivalents

 

 

99,644

 

Cash and cash equivalents, beginning of the year

 

 

207,304

 

Cash and cash equivalents, end of the year

 

$

306,948

 

Supplemental cash flow information

 

 

 

 

Cash paid for interest

 

$

826

 

 

See the accompanying notes to these consolidated financial statements.

 

7


 

 

rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

Note 1: Description of Business Nature of Operations

 

On December 20, 2018 Rever Holdings, LLC. ("the Company", "Rever") was created by Left Coast Ventures, Inc. ("LCV") the sole member, as a holding company for recently registered Eko Holdings, LLC. ("Eko") and Lief Holdings, LLC. ("Lief").  Eko and Lief were created to manufacture brand development, and distribution CBD infused products including third party CBD infused products. Wholly owned, licensed, and/or distributed brands within the Rever's portfolio include: SoulSpring™ CBD, and Provault™ CBD.

 

Note 2: Summary of Significant Accounting Policies

 

Basis of Presentation 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and the accounting policies set out below have been applied. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein.

 

Principles of Consolidation

The accompanying consolidated financial statements include the assets, liabilities, revenue and expenses of all wholly-owned and majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

 

Risk and Uncertainties

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closings of businesses and shelter in place orders. In response, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes significant provisions to provide relief and assistance to affected organizations. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and shelter in place orders and the ultimate impact of the CARES Act and other governmental initiatives.  Certain accounting judgments and estimates performed by the Company require consideration of forecasted financial information in the context of the information reasonably available and the unknown future impact of the COVID-19 pandemic could result in a material adverse impact to the consolidated financial statements in future periods.

 

Cash and Cash Equivalents

Cash and cash equivalents are considered to be all highly liquid investments with original maturities of three months or less.

 

8


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 2: Summary of Significant Accounting Policies (continued)

 

Accounts Receivable

Accounts receivable represent amounts earned but not yet collected and are carried at their estimated collectible amounts.

 

The Company follows the allowance method of recognizing uncollectible accounts receivable.  The Company assesses all information available, including past due status, credit ratings, current market and customer financial conditions, and the existence of third-party insurance. Bad debt expense for the year ended December 31, 2020 totaled $32,809. As of December 31, 2020, the Company provided an allowance for doubtful accounts of $957.

 

Inventories

Inventories of the Company's finished goods and raw materials are valued at the lower of cost or net realizable value ("NRV"). Inventories are carried at NRV whenever such becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. Cost is determined using the weighted average cost basis. Products for resale are valued at cost. The cost of inventory includes direct product costs, direct labor costs, and an allocation of manufacturing overhead costs. The allowance account is reviewed on a regular basis to reflect the accurate valuation in the financial records. Inventory items identified to be obsolete and unusable are written off and charged as expense in the period such losses are identified.  The Company has never recorded a write-down of inventory.

 

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization related to assets used in production is recorded in cost of goods sold. Depreciation and amortization related to non-production assets is recorded through operating expenses. Depreciation and amortization are calculated on a straight-line basis over the estimated useful life of the asset as follows:

 

Computer equipment

 

2years

Machinery and equipment

 

4years

Leasehold improvements

 

4years

 

Impairment of Long-lived Assets

Long-lived assets, such as property, plant and equipment and intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, and quoted market values, as considered necessary. The Company recognized no impairment charges on long-lived assets for the year ended December 31, 2020.

 

Intangible Assets

Intangible assets are acquired at fair value at the acquisition date. Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.

Tradenames recognized upon acquisition are amortized on a straight-line basis over the expected useful life of 6 years.

 

9


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 2: Summary of Significant Accounting Policies (continued)

 

Revenue Recognition

The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"). The Company enters into contracts that can include various products, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through solution partners and resellers.

 

Revenues are recognized upon the application of the following steps:

 

1. Identification of a contract or contracts with a customer;

2. Identification of performance obligation(s) in the contract;

3. Determination of the transaction price;

4. Allocation of the transaction price to the performance obligations in the contract; and

5. Recognition of revenue when, or as, the performance obligation is satisfied.

 

Contracts with customers are at the point of sale and while often include transfer multiple products to a customer; they do not require future obligations. The Company generally considers each transaction as a separate performance obligation. Products are generally sold without a right of return, except for the extremely rare instance of a significant product defect identified upon delivery, which is not considered a separate performance obligation.

 

The Company allocates the transaction price for each contract to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation. The Company uses judgment in determining the SSP for products. The Company typically determines an SSP range for its products which are reassessed on a periodic basis or when facts and circumstances change. For all performance obligations (multiple products), the Company is able to determine SSP based on the observable prices of products sold separately in comparable circumstances to similar customers.

 

In certain instances, the Company may provide incentives and discounts. The discounts are generally applied to promotional products. The discounts are determinable and fixed at the inception of the contract and accounted for as a reduction of the purchase price. Contracts do not include a significant financing component.

 

The majority of customer contracts, which may be in the form of purchase orders, or contracts contain performance obligations for delivery of agreed upon products. Typically, when a customer contract contains multiple performance obligations, satisfaction of these obligations occurs simultaneously, at a single point in time (or within the same accounting period). Transfer of control typically occurs at the time of delivery and title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment. Thus, the Company generally recognizes revenue upon delivery of the product.

 

All shipping and handling activities are performed before the customers obtain control of products and accounted for as cost of goods sold.

 

The Company does not have any customer contracts that contain future deliverables that meet the definition of unsatisfied performance obligations in accordance with Topic 606.

 


10


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 2: Summary of Significant Accounting Policies (continued)

 

Fair Value Measurements

The Company determines the fair value of its financial instruments in accordance with the provisions of FASB ASC 820, Fair Value Measurement, which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:  

 

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or  indirectly, for substantially the full term of the asset or liability;

 

Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable inputs reflect the assumptions that market participants would use in pricing the asset or liability.

 

The carrying values of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximated their fair values due to the short period of time to maturity or repayment.

 

Advertising Costs

Advertising costs are expensed as incurred and included in sales and marketing expense in the accompanying consolidated statements of operations. Advertising costs totaled $4,479 for the year ended December 31, 2020.

 

Income Taxes

The Company is a limited liability company that is treated as a partnership for U.S. federal and state income tax purposes. Accordingly, the Company is not subject to federal or state income taxes. The income or loss of the Company is included in the return of its member. Therefore, no provision, liability, or benefit for income taxes has been included in the consolidated financial statements. The Company does not have any unrecognized tax benefits as of December 31, 2020.  As of December 31, 2020, the Company did not accrue any interest or penalties related to uncertain tax positions.

 

Leases

ASC 842, Leases ("ASC 842"), requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASC 842, a lessee is required to recognize assets and liabilities for leases with terms of more than 12 months. Lessor accounting remains substantially similar to current U.S. GAAP. ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease.

 

Effective October 1, 2019, the Company adopted ASC 842 using the modified retrospective method. Under the available practical expedient, the Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, the Company elected a short-term lease exception policy on all classes of underlying assets, permitting the Company to not apply the recognition requirements of ASC 842 to short-term leases (i.e. leases with terms of 12 months or less).

 


11


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 2: Summary of Significant Accounting Policies (continued)

 

Leases (continued)

Right-Of-Use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the corresponding obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the ROU asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Note 3: Concentration of Credit Risk

 

Financial instruments that subject the Company to potential concentrations of credit risk consist principally of cash and trade accounts receivable. The Company maintains its cash primarily in U.S. bank accounts, which at times may exceed federally insured limits. At December 31, 2020, the Company did not have any uninsured cash and cash equivalents.

 

There were two customers that accounted for more than 10% of the Company's accounts receivables as of
December 31, 2020. There were four customers that accounted for more than 10% of the Company's revenue for the year ended December 31, 2020.

 

Note 4: Related Party Transactions

 

In the normal course of business, the Company enters into various unsecured and non-interest bearing transactions between related parties. The majority of related party activity relates to operational funding requests and services provided. Balance sheet netting is performed on an individual related party basis when the right of offset exists based on historical precedence.  

 

At December 31, 2020, the Company had amounts due to Left Coast Ventures (parent company), of $4,341,428 for short-term working capital advances which is recorded in "Accounts payable – related party" on the accompanying balance sheet and are considered short-term.

 

Note 5: Inventories

 

Inventories consist of raw materials and finished goods. Finished goods consist of distillates & crude oil extracted from cannabis plant material as well as cannabis flower held for resale, and raw materials consist of the harvested cannabis plant material.

 

At December 31, 2020, inventories consisted of the following:

 

Raw materials

 

$

94,225

 

Finished goods

 

 

1,395,297

 

Total inventory

 

$

1,489,522

 

 

12


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 6: Property, Plant and Equipment

 

At December 31, 2020, property, plant and equipment consisted of the following:

 

Computer Equipment

 

$

10,358

 

Machinery and Equipment

 

 

207,060

 

Leasehold Improvements

 

 

69,300

 

Total

 

 

286,718

 

Less: accumulated depreciation

 

 

(82,822

)

 

 

$

203,896

 

 

For the year ended December 31, 2020, depreciation expense was $54,150.

 

Note 7: Intangible Assets

 

At December 31, 2020, intangible assets consisted of the following:

 

Tradenames

 

$

91,000

 

Less: Accumulated amortization

 

 

(30,335

)

 

 

$

60,665

 

 

Amortization expense for the year ended December 31, 2020 was $15,168. Estimated amortization expense for each of the ensuing years through December 31, 2024 is $15,168 per year (except for 2024 which will be $15,161).

 

Note 8: Leases

 

Operating Leases

The Company leases its business facilities from third parties under operating agreements. The leases expire under various terms through 2024.

 

As of December 31, 2020, the Company's right-of-use assets were $495,428, the Company's current maturities of operating lease liabilities were $122,006, and the Company's noncurrent lease liabilities were $495,522.

 

The table below presents lease related terms and discount rates as of December 31, 2020.

 

Weighted average remaining lease term

 

 

 

 

Operating leases

 

 

41

 

Weighted average discount rate

 

 

 

 

Operating leases

 

 

25.0

%

 

13


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 8: Leases (continued)

 

The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2020 are as follows:  

 

2021

 

 

256,740

 

2022

 

 

264,438

 

2023

 

 

272,370

 

2024

 

 

115,692

 

Total lease payments

 

 

909,240

 

Less: Interest

 

 

(291,712

)

 

 

$

617,528

 

Less operating lease liablitiy, current portion

 

 

(122,006

)

Operating lease liablity, long term

 

$

495,522

 

 

 

For the year ended December 31, 2021, total lease expenses was $305,509.

 

Note 9: Notes Payable

 

On May 3, 2020, the Company was granted a Paycheck Protection Program loan ("PPP Loan") from Wells Fargo Bank, National Association in the aggregate amount of $248,396, pursuant to the PPP Loan. The PPP Loan proceeds were received on May 11, 2020.

Additional loan amount of $50,040 was received during the second quarter of 2020.  On December 28, 2020, this amount was forgiven by the Small Business Administration ("SBA") and the Company recorded $50,040 of other income related to the forgiveness of the PPP Loan.

 

The Paycheck Protection Program, ("PPP"), established under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") enacted on March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities ("Qualified Expenses"), and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP Loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.

 

The Company used the proceeds for purposes consistent with the PPP and believes that its use of the loan proceeds met the conditions for forgiveness of the PPP Loan. The Company accounted for the PPP Loan as a loan in accordance with ASC 470, Debt.

 

Note 10: Commitments and Contingencies

 

Litigation

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Company accrues for adverse outcomes as they become probable and estimable. There is one pending litigation against the Company.    

 

14


rever holdings, llc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

Note 11: Subsequent Events

 

The Company has evaluated subsequent events through July 28, 2021, the date the consolidated financial statements were available to be issued.

 

On November 24, 2020 LCV entered into a definitive transaction agreement with TPCO Holding Corp ("TPCO"), formerly Subversive Capital Acquisition Corp., whereby TPCO will acquire all of the outstanding shares of LCV. The acquisition of LCV closed on January 15, 2021.

 

Concurrently with the closing of the transaction above, the Company entered into a definitive transaction agreement with LCV whereby LCV acquired all of the issued and outstanding units from the existing members of the Company. The acquisition of the Company closed on January 15, 2021.

 

On May 14, 2021, the PPP Loan from May 3, 2020, in the amount of $248,396 was forgiven by the SBA and the Company recorded full amount as other income related to the forgiveness of the PPP Loan.

 

On May 17, 2021, the Company entered into an Asset Purchase Agreement ("Transaction") to sell the operating assets and corresponding liabilities of the company combined with the coconut water business line of products, including certain assets and liability of the business line to a third party ("Buyer"). Consideration for the Transaction amounted to $4,000,000 in cash and 827,400 shares of the Buyer's common stock.

 

15

rkda-ex992_91.htm

Exhibit 99.2

 

 

 

 

 

 

 

REVER HOLDINGS, LLC

 

 

Condensed Consolidated Financial Statements

As Of March 31, 2021 And For The

Three Months Ended March 31, 2021

 

 

 

 

 

 

 


 

 

rever holdings, LLC

 

INDEX TO condensed CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

 

 

 

Unaudited Condensed Consolidated Balance Sheet

3

 

 

Unaudited Condensed Consolidated Statement of Operations

4

 

 

Unaudited Condensed Consolidated Statement of Cash Flows

5

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

6

 

 

 

 


 

 

Rever holdings, LLC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

March 31,

 

 

 

2021

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

533,342

 

Accounts receivable, net

 

 

446,139

 

Inventories

 

 

1,143,471

 

Prepaids and other current assets

 

 

114,911

 

Total current assets

 

 

2,237,863

 

 

 

 

 

 

Right-of-use asset

 

 

718,013

 

Property, plant and equipment, net

 

 

213,887

 

Intangible assets, net

 

 

60,033

 

Other assets

 

 

110,318

 

Total assets

 

$

3,340,114

 

 

 

 

 

 

LIABILITIES AND MEMBERS DEFICIT

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

 

$

782,499

 

Accounts payable - related party

 

 

5,558,349

 

Accrued and other current liabilities

 

 

456,539

 

Current portion of lease liabilities

 

 

192,608

 

Notes payable

 

 

248,396

 

Current Liabilities

 

 

7,238,391

 

 

 

 

 

 

Lease liabilities

 

 

525,405

 

Total liabilities

 

 

7,763,796

 

 

 

 

 

 

Commitments and Contingencies - Note 10

 

 

 

 

 

 

 

 

 

Member's deficit

 

 

 

 

Member's capital

 

 

661,000

 

Accumulated deficit

 

 

(5,084,683

)

Total members' deficit

 

 

(4,423,683

)

Total liabilities and members' deficit

 

$

3,340,113

 

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

 

 

3


 

 

rever holdings, llc.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

 

 

 

Three months

 

 

 

ended March 31,

 

 

 

2021

 

Revenue

 

$

518,532

 

Cost of goods sold

 

 

1,318,257

 

Gross profit

 

 

(799,725

)

 

 

 

 

 

Operating expenses:

 

 

 

 

Sales and marketing

 

 

303,586

 

General and administration

 

 

434,466

 

Total operating expenses

 

 

738,052

 

Loss from operations

 

 

(1,537,777

)

 

 

 

 

 

Other income (expenses):

 

 

 

 

Other income

 

 

 

Other expense

 

 

(1,359

)

Total other expenses

 

 

(1,359

)

Net loss

 

 

(1,539,136

)

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

 

 

4


 

 

rever holdings, llc.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

 

 

Three Months

 

 

 

Ended March 31,

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

 

(1,539,136

)

Adjustments to reconcile net loss to net cash provided operating activities:

 

 

 

 

Depreciation expense

 

 

18,021

 

Amortization of intangible assets

 

 

632

 

Change in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

5,509

 

Inventories

 

 

346,051

 

Prepaids and other current assets

 

 

(96,513

)

Other assets

 

 

13

 

Accounts payable

 

 

(106,601

)

Accounts payable - related party

 

 

1,216,921

 

Accrued and other current liabilities

 

 

387,036

 

Lease liabilities

 

 

22,473

 

Net cash provided by operating activities

 

 

254,406

 

Cash flow from investing activities

 

 

 

 

Purchases of property, plant and equipment

 

 

(28,012

)

Net cash used in investing activities

 

 

(28,012

)

Net increase in cash and cash equivalents

 

 

226,394

 

Cash and cash equivalents, beginning of the year

 

 

306,948

 

Cash and cash equivalents, end of the year

 

$

533,342

 

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

 

 

 

5


 

rever holdings, llc.

NOTES TO FINANCIAL STATEMENTS

 

 

Note 1: Description of Business Nature of Operations

 

On December 20, 2018 Rever Holdings, LLC. ("the Company", "Rever") was created by Left Coast Ventures, Inc. ("LCV") the sole member, as a holding company for recently registered Eko Holdings, LLC. ("Eko") and Lief Holdings, LLC. ("Lief").  Eko and Lief were created to manufacture brand development, and distribution CBD infused products including third party CBD infused products. Wholly owned, licensed, and/or distributed brands within the Rever's portfolio include: SoulSpring™ CBD, and Provault™ CBD.

 

Note 2: Summary of Significant Accounting Policies

 

Basis of Presentation

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and the accounting policies set out below have been applied. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the assets, liabilities, revenue and expenses of all wholly-owned and majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest or is the primary beneficiary.  All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

 

Revenue Recognition

 

The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASU 2014-09, Revenue from Contracts with Customers ("Topic 606").  The Company enters into contracts that can include various products, which are generally capable of being distinct and accounted for as separate performance obligations.  Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.  The revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through solution partners and resellers.

 

Revenues are recognized upon the application of the following steps:

 

1. Identification of a contract or contracts with a customer;

2. Identification of performance obligation(s) in the contract;

3. Determination of the transaction price;

4. Allocation of the transaction price to the performance obligations in the contract; and

5. Recognition of revenue when, or as, the performance obligation is satisfied.

 

Contracts with customers are at the point of sale and while often include transfer multiple products to a customer; they do not require future obligations.  The Company generally considers each transaction as a separate performance obligation.  Products are generally sold without a right of return, except for the extremely rare instance of a significant product defect identified upon delivery, which is not considered a separate performance obligation.

 

The Company allocates the transaction price for each contract to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation.  The Company uses judgment in determining the

 

6


 

rever holdings, llc.

NOTES TO FINANCIAL STATEMENTS

 

SSP for products.  The Company typically determines an SSP range for its products which are reassessed on a periodic basis or when facts and circumstances change.  For all performance obligations (multiple products), the Company is able to determine SSP based on the observable prices of products sold separately in comparable circumstances to similar customers.

 

In certain instances, the Company may provide incentives and discounts.  The discounts are generally applied to promotional products.  The discounts are determinable and fixed at the inception of the contract and accounted for as a reduction of the purchase price. Contracts do not include a significant financing component.

 

The majority of customer contracts, which may be in the form of purchase orders, or contracts contain performance obligations for delivery of agreed upon products.  Typically, when a customer contract contains multiple performance obligations, satisfaction of these obligations occurs simultaneously, at a single point in time (or within the same accounting period).  Transfer of control typically occurs at the time of delivery and title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment.  Thus, the Company generally recognizes revenue upon delivery of the product.

 

All shipping and handling activities are performed before the customers obtain control of products and accounted for as cost of goods sold.

 

The Company does not have any customer contracts that contain future deliverables that meet the definition of unsatisfied performance obligations in accordance with Topic 606.

 

Leases

 

ASC 842, Leases ("ASC 842"), requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  Under ASC 842, a lessee is required to recognize assets and liabilities for leases with terms of more than 12 months.  Lessor accounting remains substantially similar to current U.S. GAAP. ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease.

 

Effective October 1, 2019, the Company adopted ASC 842 using the modified retrospective method. Under the available practical expedient, the Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor.  Further, the Company elected a short-term lease exception policy on all classes of underlying assets, permitting the Company to not apply the recognition requirements of ASC 842 to short-term leases (i.e. leases with terms of 12 months or less).

 

Right-Of-Use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the corresponding obligation to make lease payments arising from the lease.  Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  Variable lease payments are not included in the calculation of the ROU asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.  As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.  The Company uses the implicit rate when readily determinable.  The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Note 3: Concentration of Credit Risk

 

Financial instruments that subject the Company to potential concentrations of credit risk consist principally of cash and trade accounts receivable.  The Company maintains its cash primarily in U.S. bank accounts, which at times may exceed federally insured limits.  At March 31, 2021, the Company did have approximately $29,500 uninsured cash and cash equivalents.

 

 

7


 

rever holdings, llc.

NOTES TO FINANCIAL STATEMENTS

 

 

There were four customers that accounted for more than 10% of the Company's accounts receivables as of
March 31, 2021.  There were three customers that accounted for more than 10% of the Company's revenue for the year ended March 31, 2021.

 

Note 4: Related Party Transactions

 

In the normal course of business, the Company enters into various unsecured and non-interest bearing transactions between related parties.  The majority of related party activity relates to operational funding requests and services provided.  Balance sheet netting is performed on an individual related party basis when the right of offset exists based on historical precedence.  

 

At March 31, 2021, the Company had amounts due to Left Coast Ventures (parent company), of $5,558,349 for short-term working capital advances which is recorded in "Accounts payable – related party" on the accompanying balance sheet and are considered short-term.

 

Note 5: Inventories

 

Inventories consist of raw materials and finished goods. Finished goods consist of distillates & crude oil extracted from cannabis plant material as well as cannabis flower held for resale, and raw materials consist of the harvested cannabis plant material.

 

At March 31, 2021, inventories consisted of the following:

 

 

 

March 31,

2021

 

Finished goods

 

$

1,143,471

 

Total inventory

 

$

1,143,471

 

 

Note 6: Property, Plant and Equipment

 

At March 31, 2021, property, plant and equipment, net consisted of the following:

 

Computer Equipment

 

$

10,358

 

Machinery and Equipment

 

 

235,072

 

Leasehold Improvements

 

 

69,300

 

Total

 

 

314,730

 

Less: accumulated depreciation

 

 

(100,843

)

 

 

$

213,887

 

 

For the three months ended March 31, 2021 depreciation expense was $18,021.

 

Note 7: Intangible Assets

 

At March 31, 2021, intangible assets, net consisted of the following:

 

Tradenames

 

$

91,000

 

Less: Accumulated amortization

 

 

(30,967

)

 

 

$

60,033

 

 

Amortization expense for the three months ended March 31, 2021 was $632. Estimated amortization expense for the remaining nine months ending December 31, 2021 is $5,688 and each of the ensuing years through December 31, 2029 is $7,584 per year (except for 2029 which will be $1,264).

 

 

8


 

rever holdings, llc.

NOTES TO FINANCIAL STATEMENTS

 

 

Note 8: Leases

 

Operating Leases

 

The Company leases its business facilities from third parties under operating agreements. The leases expire under various terms through 2029.

 

As of March 31, 2021, the Company’s right-of-use assets were $718,013, the Company’s current maturities of operating lease liabilities were $192,608, and the Company’s noncurrent lease liabilities were $525,405.

 

The table below presents lease related terms and discount rates as of March 31, 2021.

 

Weighted average lease term

 

 

 

 

Operating leases

 

 

41

 

Weighted average discount rate

 

 

 

 

Operating leases

 

 

11.36

%

 

The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the condensed consolidated balance sheet as of March 31, 2021 are as follows:  

 

For the three months ended March 31, 2021, total lease expenses was $62,236.

 

Note 9: Commitments and Contingencies

 

Litigation

 

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Company accrues for adverse outcomes as they become probable and estimable.  Currently, there is no pending litigation against the Company.    

 

Contractual Agreements with Cultivators

 

The Company enters into several agreements with cultivators whereby the Company splits the proceeds from the sale of the finished goods (i.e., distillates/oil) produced from the cultivators’ supplied raw materials which represents the cost of the raw materials used to produce the finished goods.  The Company is unable to determine a reasonable estimate to record the cost of these raw materials as inventory due to certain variables. These variables include the quantity of distillates and oil extracted from cultivators’ supplied raw materials, the quality of distillates and oil, and market price fluctuations, among others.  The Company records the cost of these materials as cost of goods sold in the same accounting period that revenue is recorded and considers these agreements to be similar to a royalty arrangement.

 

Note 10: Subsequent Events

 

The Company has evaluated subsequent events through July 28, 2021, the date the condensed consolidated financial statements were available to be issued.

 

On May 14, 2021, the PPP Loan from May 3, 2020, in the amount of $248,396 was forgiven by the SBA and the Company recorded full amount as other income related to the forgiveness of the PPP Loan.

 

On May 17, 2021, the Company entered into an Asset Purchase Agreement ("Transaction") to sell the operating assets and corresponding liabilities of the company combined with the coconut water business line of products, including certain assets and liability of the business line to a third party ("Buyer").  Consideration for the Transaction amounted to $4,000,000 in cash and 827,400 shares of the Buyer's common stock.

 

9

rkda-ex993_11.htm

 

Exhibit 99.3

 

 

 

 

 

 

 

 

 

 

 

 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

AUDITED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


COCONUT WATER LINE OF LIVE ZOLA, LLC

AUDITED FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

 

CONTENTS

 

Independent Auditors’ Report

 

1

 

 

 

Financial Statements:

 

 

 

 

 

Balance Sheet

 

2

 

 

 

Statements of Operations and Parent Equity

 

3

 

 

 

Statement of Cash Flows

 

4

 

 

 

Notes to Financial Statements

 

5-9

 

 

 


 

 

 

 

Independent Auditor's Report

 

To the Board of Directors

TPCO Holding Corp.

We have audited the accompanying financial statements of the Coconut Water Line of Live Zola, LLC, which comprise the balance sheet as of December 31, 2020, and the related statements of operations, parent equity and cash flows for the year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Coconut Water Line of Live Zola, LLC as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ CohnReznick LLP

Los Angeles, California

July 9, 2021

 

1


 

COCONUT WATER LINE OF LIVE ZOLA, LLC

BALANCE SHEET

DECEMBER 31, 2020

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Accounts receivable, net

 

$

351,272

 

Inventories

 

 

37,141

 

Prepaid expenses

 

 

59,402

 

Total current assets

 

 

447,815

 

 

 

 

 

 

Property and equipment, net

 

 

29,231

 

 

 

$

477,046

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

262,124

 

Other payables

 

 

22,050

 

Accrued expenses

 

 

5,574

 

Total current liabilities

 

 

289,748

 

 

 

 

 

 

Net parent investment

 

 

187,298

 

 

 

$

477,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes and independent auditors' report

 

2


 

COCONUT WATER LINE OF LIVE ZOLA, LLC

STATEMENT OF OPERATIONS AND PARENT EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2020

 

Sales, net of discounts

 

$

2,374,723

 

 

 

 

 

 

Cost of revenues

 

 

1,580,159

 

Gross profit

 

 

794,564

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

926,185

 

Loss from operations

 

 

(131,621

)

 

 

 

 

 

Loss on foreign currency conversion

 

 

(18,345

)

 

 

 

 

 

Net loss

 

 

(149,966

)

Net parent investment, beginning of year

 

 

268,763

 

 

 

 

 

 

Increase in parent investment

 

 

68,501

 

Net parent investment, end of year

 

$

187,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes and independent auditors' report

 

3


 

COCONUT WATER LINE OF LIVE ZOLA, LLC

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2020

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(149,966

)

Adjustments to reconcile net loss to

 

 

 

 

net cash used for operating activities:

 

 

 

 

Allowance for doubtful acounts receivable

 

 

(63,478

)

Depreciation

 

 

1,784

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

(112,797

)

Inventories

 

 

150,544

 

Prepaid expenses

 

 

6,320

 

Accounts payable

 

 

133,475

 

Other payables

 

 

14,698

 

Accrued expenses

 

 

(18,066

)

Net cash used operating activities

 

 

(37,486

)

Cash flows from investing activities:

 

 

 

 

Purchase of equipment

 

 

(31,015

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from parent

 

 

68,501

 

Net change in cash

 

 

 

Cash, beginning of period

 

 

 

Cash, end of period

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes and independent auditors' report

 

 

 

4


COCONUT WATER LINE OF LIVE ZOLA, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

 

NOTE A DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of the Business: Live Zola, LLC was incorporated in the State of Delaware on March 13, 2019 (“the Company”). The Company manufactures, packages, and sells beverages with natural ingredients to distributors and retailers principally throughout the United States through differing segments of operations. The segment lines include coconut water, acai puree, soul grind, and Caliva products. The Company is a wholly owned subsidiary of a larger collective of businesses.

Basis of Presentation: The coconut water operating line (“the Line”) has historically operated as a product line of the Company and not as a standalone company. Financial statements representing the historical operations of the Line’s manufacturing and distribution business have been derived from the Company’s historical accounting records and are presented on a carve- out basis. All revenues and costs as well as assets and liabilities directly associated with the Line’s activity of the Company are included in the financial statements. The financial statements also include allocations of certain selling, general and administrative and cost of sales from the Company based on a percentage of net revenues. However, amounts recognized by the Line are not necessarily representative of the amounts that would have been reflected in the financial statements had the Line operated independently of the Company.

As part of the Company, the Line is dependent upon the Company for all of its working capital and financing requirements as the Company uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Line are accounted for through the net parent investment. Accordingly, none of the Company’s assets and liabilities at the corporate level have been assigned to the Line in the financial statements. Net parent investment represents the Company’s interest in the recorded net assets of the Line. All significant transactions between the Line and the Company are reflected in the net parent investment on the accompanying balance sheet.

The historical costs and expenses reflected in the financial statements include an allocation for certain corporate and shared service functions historically provided by the Company, including, but not limited to, executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology, and other shared services. These expenses have been allocated to the Line on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of sales, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.

The Company analyzes transactional information in identify which payables related to the carve- out line. The Company examines vendor invoices to identify payables that related to the carve- out entity, based on the product description included in the carve-out line.

 

5


COCONUT WATER LINE OF LIVE ZOLA, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates: The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are stated at amount management expects to collect from outstanding balances. The allowance for doubtful accounts is based on historical experience and management’s evaluation of outstanding receivables at the end of the year. For the year ended December 31, 2020, the Line has made reservations of $63,478 on accounts receivable.

The Company analyzes transactional information to identify which receivable balances related to the carve-out line. The Company examines the customer’s name, number, contract number, and/or product number in its customer invoices to identify the receivable that directly relate to the carve-out line (based on the customer and related products attributable to the carve-out line). Further analysis may be necessary if customers buy several types of products and only some of them are directly attributable to the carve-out line. The net accounts receivables balance for the beginning of the year ended December 31, 2020 was $174,997.

Inventories: Inventories consist of coconut water stated at the lower of cost (weighted average) or net realizable value. As of December 31, 2020, all inventory is made up of finished good ready for sale with a value of $37,141.

Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using straight line and accelerated methods over useful lives of five years. Major repairs or replacements are capitalized. Maintenance repairs and minor replacements are charged to operations as incurred. Depreciation expense for the year ended December 31, 2020 was $1,784.

The Company and the Line share certain property and equipment used by the Company as a whole. The Company has legal title of the property and equipment. The property and equipment included on the financial statements are exclusively used in the Line’s operations.

Impairment of Long-lived Assets: The Line accounts for impairment of assets in accordance with ASC 360-10-35, Subsequent Measurement: Impairment or Disposal of Long-Lived Assets. Under ASC 360-10-35, the Line reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write- down to fair value is recorded. During the years ended December 31, 2020, there was no impairment expense recorded.

 

6


COCONUT WATER LINE OF LIVE ZOLA, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition from Contracts with Customers: The Line earns revenue from the sale of coconut water to retail and wholesale customers, the provision of merchandising and distribution services. The Line recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Line expects to be entitled in exchange for those goods.

In order to recognize revenue, the Company applies the following five (5) steps:

1.Identify the contract with the customer.

2.Identify the performance obligation in the contract.

3.Determine the transaction price.

4.Allocate the transaction price to the performance obligations in the contract.

5.Recognize revenue when or as the performance obligations are satisfied.

Revenue from the sale of coconut water to retail and wholesale customers is recognized at a point in time when control over the goods has transferred to the customer. This corresponds with when the Line satisfies its performance obligation. Revenue is recorded net of any point of sale discounts provided to the customer. The Line’s revenues are principally derived from arrangements with fixed consideration. Variable consideration, if any, is not material.

The majority of the Line’s revenue is cash at point of sale. Payment is due upon transferring the goods or providing services to the customer or within a specified time period permitted under the Line’s credit policy. In those cases where the Line provides goods or services on credit, the Line considers whether or not collection is probable in determining if a contract exists under ASC 606. Costs associated with goods is expensed in the year performance obligations are satisfied.

Shipping: Shipping costs related to sales are included in selling, general and administrative expenses and were $200,074 for the year ended December 31, 2020.

Advertising: The Company expenses advertising and promotion costs to operations as they are incurred. Advertising costs are included in selling, general and administrative expenses and were

$52,725 for the year ended December 31, 2020.

Sales Tax: The Line excludes from revenue all state and local sales taxes collected from customers. Sales tax collected on taxable sales are recorded as current liabilities until remitted to the respective taxing authorities. Sales tax payable is included in other payables on the balance sheet. For the year ended December 31, 2020, sales tax payable was $4,250.

Foreign Currency Conversion: The Company contracts foreign production companies to convert raw goods into coconut water in Thailand. The supplier is paid in Thai Baht and payment is converted on the day of the sale, resulting in a gain or loss due to the conversion.

 

7


COCONUT WATER LINE OF LIVE ZOLA, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes: The Company is a limited liability company treated as a partnership for federal income tax purposes and does not pay income taxes on its taxable income. Its taxable income and loss will be included in the taxable income of its Members. The Members separately account for their pro-rata share of the Company’s items of income, deductions, losses and credits. Therefore, no provision, besides the required state LLC income taxes, for the period ended December 31, 2020 was recorded in the accompanying financial statements for liabilities for federal, state or local income taxes since such liabilities are the responsibility of the individual members.

ASC Topic 740, Income Taxes, requires the recognition of the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company does not have any such tax positions as of December 31, 2020.

The Company files income tax returns in the U.S. federal jurisdiction and state of California. The Company's federal income tax returns for tax years 2019 and forward remain subject to examination by the Internal Revenue Service. The Company’s California income tax return for the years 2019 and forward remain subject to examinations by the California Franchise Tax Board.

Concentration of Credit Risk: The Company had revenues of approximately $848,000 with two customers representing 33% of total revenues. As of December 31, 2020, the Company had outstanding receivables with these customers of $81,184.

The Company had expenses of approximately $1,157,000 with two vendors representing 46% of total expenses. As of December 31, 2020, the Company had outstanding payables with these customers of $62,571.

Recent Accounting Pronouncements Implemented: On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard also includes expanded disclosure requirements that result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. On January 1, 2020, the Company adopted ASU 2014-19, using modified retrospective basis approach, there was no impact to the financial statements as a result of this adoption.

 

8


COCONUT WATER LINE OF LIVE ZOLA, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements not yet Implemented: In February 2016, the FASB issued ASU 2016-02, Leases, to improve financial reporting and disclosures about leasing transactions. This ASU will require companies that lease assets (referred to as “lessees”) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, where lease terms exceed 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease; both types of leases will be recognized on the balance sheet. The ASU will also require disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Early application is permitted for all organizations. Several additional ASUs have been issued which clarify and amend certain aspects of ASU 2016-02. All ASUs that amend ASU 2016-02 are effective upon adoption of ASU 2016-02.

Subsequent Events: ASC 855-10, Subsequent Events, requires additional disclosure for events or transactions that occur after the balance sheet date.

As a result of the continued spread of the COVID- 19 coronavirus, the Company may have economic uncertainties arise which are likely to negatively impact 2021 revenues. Other financial impact is unknown at this time (see Note C).

In May 2021, the Company entered into an asset purchase agreement (see Note D), in which all operations of the Line were transferred to a new owner.

The Company had no other subsequent events and has evaluated the impact of subsequent events through the date the financial statements were available to be issued.

NOTE B PROPERTY AND EQUIPMENT

 

Property and equipment as of December 31, 2020 consist of the following:

 

 

 

 

Other equipment

 

$

31,015

 

 

 

 

31,015

 

 

 

 

 

 

Accumulated depreciation

 

 

(1,784

)

 

 

$

29,231

 

 

NOTE C COVID-19 PANDEMIC

In response to global COVID-19 pandemic, federal, state, and local governments have implemented significant restrictions on travel, social conduct, and business operations, including mass quarantine and social distancing mandates and orders. The pandemic and these containment measures could have and could continue to have negative impact on the Company. With the unknown duration and intensity of the ongoing pandemic, it is not possible to accurately estimate the impact to business in future quarters.

NOTE D ASSET PURCHASE AGREEMENT

On May 17, 2021, the Company entered into an Asset Purchase Agreement (“Transaction”), to sell the coconut water business line of products, including certain assets and liability of the Line in combination with Rever Holdings LLC, to a third party (“Buyer”) in May 2021. Consideration for the Transaction amounted to $4,000,000 in cash and 827,400 shares of the Buyer’s common stock.

 

9

rkda-ex994_92.htm

 

Exhibit 99.4

 

 

 

 

 

 

 

 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

 

UNAUDITED FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 


 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

 

UNAUDITED FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

CONTENTS

 

Unaudited Financial Statements:

 

 

 

Balance Sheet

2

 

 

Statements of Operations & Parent Equity

3

 

 

Statement of Cash Flows

4

 

 

Notes to Financial Statements

5-9

 

 

 

 


 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

 

BALANCE SHEET

 

MARCH 31, 2021

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Accounts receivable, net

 

$

286,843

 

Inventories

 

 

210,184

 

Prepaid expenses

 

 

142,808

 

Total current assets

 

 

639,835

 

 

 

 

 

 

Property and equipment, net

 

 

25,009

 

 

 

$

664,844

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

103,669

 

Other payables

 

 

29,217

 

Accrued expenses

 

 

21,765

 

Total current liabilities

 

 

154,651

 

 

 

 

 

 

Net parent investment

 

 

510,193

 

 

 

$

664,844

 

 

 

2


 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

 

STATEMENTS OF OPERATIONS & PARENT EQUITY

 

FOR THE PERIOD ENDED MARCH 31, 2021

 

Sales, net of discounts

 

$

537,821

 

 

 

 

 

 

Cost of revenues

 

 

540,576

 

Gross loss

 

 

(2,755

)

 

 

 

 

 

Selling, general and administrative expenses

 

 

395,882

 

Loss from operations

 

 

(398,637

)

 

 

 

 

 

Loss on foreign currency conversion

 

 

(14,563

)

Net loss

 

 

(413,200

)

 

 

 

 

 

Net parent investment, beginning of year

 

 

187,298

 

 

 

 

 

 

Increase in parent investment

 

 

736,095

 

 

 

 

 

 

Net parent investment, end of year

 

$

510,193

 

 

 

3


 

 

COCONUT WATER LINE OF LIVE ZOLA, LLC

 

STATEMENT OF CASH FLOWS

 

FOR THE PERIOD ENDED MARCH 31, 2021

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(413,200

)

Adjustments to reconcile net loss to

 

 

 

 

net cash used for operating activities:

 

 

 

 

Allowance for doubtful acounts receivable

 

 

(63,478

)

Depreciation

 

 

4,222

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

127,907

 

Inventories

 

 

(173,043

)

Prepaid expenses

 

 

(83,406

)

Accounts payable

 

 

(158,455

)

Other payables

 

 

7,167

 

Accrued expenses

 

 

16,191

 

Net cash used operating activities

 

 

(736,095

)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of equipment

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Increase in parent investment

 

 

736,095

 

 

 

 

 

 

Net change in cash

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

 

 

 

 

 

 

Cash, end of period

 

$

 

 

 

 

 

4


COCONUT WATER LINE OF LIVE ZOLA, LLC

 

NOTES TO FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Business: Live Zola, LLC was incorporated in the State of Delaware on March 13, 2019 (“the Company”). The Company manufactures, packages, and sells beverages with natural ingredients to distributors and retailers principally throughout the United States through differing segments of operations. The segment lines include coconut water, acai puree, soul grind, and Caliva products. The Company is a wholly owned subsidiary of a larger collective of businesses.

 

Basis of Presentation: The coconut water operating line (“the Line”) has historically operated as a product line of the Company and not as a standalone company. Financial statements representing the historical operations of the Line’s manufacturing and distribution business have been derived from the Company’s historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the Line’s activity of the Company are included in the financial statements. The financial statements also include allocations of certain selling, general and administrative and cost of sales from the Company based on a percentage of net revenues. However, amounts recognized by the Line are not necessarily representative of the amounts that would have been reflected in the financial statements had the Line operated independently of the Company.

 

As part of the Company, the Line is dependent upon the Company for all of its working capital and financing requirements as the Company uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Line are accounted for through the net parent investment. Accordingly, none of the Company’s assets and liabilities at the corporate level have been assigned to the Line in the financial statements. Net parent investment represents the Company’s interest in the recorded net assets of the Line. All significant transactions between the Line and the Company are reflected in the net parent investment on the accompanying balance sheet.

 

The historical costs and expenses reflected in the financial statements include an allocation for certain corporate and shared service functions historically provided by the Company, including, but not limited to, executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology, and other shared services. These expenses have been allocated to the Line on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of sales, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.

 

The Company analyzes transactional information in identify which payables related to the carve-out line. The Company examines vendor invoices to identify payables that related to the carve-out entity, based on the product description included in the carve-out line.

 

 

5


COCONUT WATER LINE OF LIVE ZOLA, LLC

 

NOTES TO FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

(CONTINUED)

 

Use of Estimates: The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.  

 

Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are stated at amount management expects to collect from outstanding balances. The allowance for doubtful accounts is based on historical experience and management’s evaluation of outstanding receivables at the end of the year. For the period ended March 31, 2021, the Line has made reservations of $63,478 on accounts receivable.

 

The Company analyzes transactional information to identify which receivable balances related to the carve-out line. The Company examines the customer’s name, number, contract number, and/or product number in its customer invoices to identify the receivable that directly relate to the carve-out line (based on the customer and related products attributable to the carve-out line). Further analysis may be necessary if customers buy several types of products and only some of them are directly attributable to the carve-out line.

 

Inventories: Inventories consist of coconut water stated at the lower of cost (weighted average) or net realizable value. As of March 31, 2021, all inventory is made up of finished good ready for sale with a value of $210,184.

 

Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using straight line and accelerated methods over useful lives of five years. Major repairs or replacements are capitalized. Maintenance repairs and minor replacements are charged to operations as incurred. Depreciation expense for the period ended March 31, 2021 was $4,222.

 

The Company and the Line share certain property and equipment used by the Company as a whole. The Company has legal title of the property and equipment. The property and equipment included on the financial statements are exclusively used in the Line’s operations.

 

Impairment of Long-lived Assets: The Line accounts for impairment of assets in accordance with ASC 360-10-35, Subsequent Measurement: Impairment or Disposal of Long-Lived Assets. Under ASC 360-10-35, the Line reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. During the period ended March 31, 2021, there was no impairment expense recorded.

 

 

6


COCONUT WATER LINE OF LIVE ZOLA, LLC

 

NOTES TO FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

(CONTINUED)

 

Revenue Recognition from Contracts with Customers: The Line earns revenue from the sale of coconut water to retail and wholesale customers, the provision of merchandising and distribution services. The Line recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Line expects to be entitled in exchange for those goods.  

 

In order to recognize revenue, the Company applies the following five (5) steps:

 

1.

Identify the contract with the customer.

2.

Identify the performance obligation in the contract.

3.

Determine the transaction price.

4.

Allocate the transaction price to the performance obligations in the contract.

5.

Recognize revenue when or as the performance obligations are satisfied.

 

Revenue from the sale of coconut water to retail and wholesale customers is recognized at a point in time when control over the goods has transferred to the customer. This corresponds with when the Line satisfies its performance obligation. Revenue is recorded net of any point of sale discounts provided to the customer. The Line’s revenues are principally derived from arrangements with fixed consideration.  Variable consideration, if any, is not material.

 

The majority of the Line’s revenue is cash at point of sale. Payment is due upon transferring the goods or providing services to the customer or within a specified time period permitted under the Line’s credit policy. In those cases where the Line provides goods or services on credit, the Line considers whether or not collection is probable in determining if a contract exists under ASC 606. Costs associated with goods is expensed in the year performance obligations are satisfied.

 

Shipping: Shipping costs related to sales are included in selling, general and administrative expenses and were $55,455 for the period ended March 31, 2021.

 

Advertising: The Company expenses advertising and promotion costs to operations as they are incurred. Advertising expense was $20,887 for the period ended March 31, 2021.

 

Sales Tax: The Line excludes from revenue all state and local sales taxes collected from customers. Sales tax collected on taxable sales are recorded as current liabilities until remitted to the respective taxing authorities. Sales tax payable is included in other payables on the balance sheet. For the period ended March 31, 2021, sales tax payable was $4,483.

 

Foreign Currency Conversion: The Company contracts foreign production companies to convert raw goods into coconut water in Thailand. The supplier is paid in Thai Baht and payment is converted on the day of the sale, resulting in a gain or loss due to the conversion.

 

 

7


COCONUT WATER LINE OF LIVE ZOLA, LLC

 

NOTES TO FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

(CONTINUED)

 

Income Taxes: The Company is a limited liability company treated as a partnership for federal income tax purposes and does not pay income taxes on its taxable income. Its taxable income and loss will be included in the taxable income of its Members. The Members separately account for their pro-rata share of the Company’s items of income, deductions, losses and credits. Therefore, no provision, besides the required state LLC income taxes, for the period ended March 31, 2021 was recorded in the accompanying financial statements for liabilities for federal, state or local income taxes since such liabilities are the responsibility of the individual members.

 

ASC Topic 740, Income Taxes, requires the recognition of the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company does not have any such tax positions as of March 31, 2021.

 

The Company files income tax returns in the U.S. federal jurisdiction and state of California. The

Company's federal income tax returns for tax years 2019 and forward remain subject to examination by the Internal Revenue Service. The Company’s California income tax return for the years 2019 and forward remain subject to examinations by the California Franchise Tax Board.

 

Concentration of Credit Risk: The Company had revenues of approximately $383,000 with three customers representing 60% of total revenues. As of March 31, 2021, the Company had outstanding receivables with these customers of $147,360.

 

The Company had expenses of approximately $377,000 with two vendors representing 54% of total expenses. As of March 31, 2021, the Company had outstanding payables with these customers of $59,182.

 

Recent Accounting Pronouncements not yet Implemented: In February 2016, the FASB issued ASU 2016-02, Leases, to improve financial reporting and disclosures about leasing transactions. This ASU will require companies that lease assets (referred to as “lessees”) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, where lease terms exceed 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease; both types of leases will be recognized on the balance sheet. The ASU will also require disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Early application is permitted for all organizations. Several additional ASUs have been issued which clarify and amend certain aspects of ASU 2016-02. All ASUs that amend ASU 2016-02 are effective upon adoption of ASU 2016-02.

 

 

8


COCONUT WATER LINE OF LIVE ZOLA, LLC

 

NOTES TO FINANCIAL STATEMENTS

 

MARCH 31, 2021

 

 

NOTE A – DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

(CONTINUED)

 

Subsequent Events: ASC 855-10, Subsequent Events, requires additional disclosure for events or transactions that occur after the balance sheet date.

 

As a result of the continued spread of the COVID- 19 coronavirus, the Company may have economic uncertainties arise which are likely to negatively impact 2021 revenues. Other financial impact is unknown at this time (see Note C).

 

In May 2021, the Company entered into an asset purchase agreement (see Note D), in which all operations of the Line were transferred to a new owner.

 

The Company had no other significant subsequent events as of August 2, 2021. The Company has not evaluated subsequent events after this date in the statements presented.

 

NOTE B – PROPERTY AND EQUIPMENT

 

Property and equipment as of consist of the following:

 

Other equipment

 

$

31,015

 

 

 

 

31,015

 

 

 

 

 

 

Accumulated depreciation

 

 

(6,006

)

 

 

$

25,009