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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-39288
AppHarvest, Inc.
_____________________________________________
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 82-5042965 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
500 Appalachian Way
Morehead, KY 40351
(606) 653-6100
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.0001 par value per share | APPH | The Nasdaq Stock Market LLC |
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share | APPHW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act) ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0001, outstanding at November 5, 2021, were 100,698,194.
APPHARVEST, INC AND SUBSIDIARIES
TABLE OF CONTENTS
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| Page |
PART I FINANCIAL INFORMATION | |
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Condensed Consolidated Balance Sheets | |
Condensed Consolidated Statements of Operations and Comprehensive Loss | |
Condensed Consolidated Statements of Stockholders’ Equity | |
Condensed Consolidated Statements of Cash Flows | |
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Part I - Financial Information
Item 1. Financial Statements
APPHARVEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands except per share amounts)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 221,574 | | | $ | 21,909 | |
Restricted cash | 7,250 | | | — | |
| | | |
Inventories, net | 4,187 | | | 3,387 | |
| | | |
Prepaid expenses and other current assets | 3,410 | | | 481 | |
Total current assets | 236,421 | | | 25,777 | |
Operating lease right-of-use assets, net | 2,196 | | | 1,307 | |
Property and equipment, net | 288,610 | | | 152,645 | |
Goodwill | 50,863 | | | — | |
Other intangible assets, net | 9,321 | | | — | |
| | | |
Other assets, net | 16,724 | | | 1,188 | |
Total non-current assets | 367,714 | | | 155,140 | |
Total assets | $ | 604,135 | | | $ | 180,917 | |
Liabilities and stockholders’ equity | | | |
Current Liabilities: | | | |
Accounts payable | $ | 16,354 | | | $ | 1,342 | |
Accrued expenses | 14,516 | | | 5,184 | |
Current portion of lease liabilities with a related party | — | | | 59,217 | |
Current portion of lease liabilities | 537 | | | 166 | |
Current portion of financing obligation with a related party | — | | | 58,795 | |
Current portion of long-term debt | 9,633 | | | — | |
| | | |
Note payable with a related party | — | | | 30,000 | |
Other current liabilities | 960 | | | 77 | |
Total current liabilities | 42,000 | | | 154,781 | |
Long-term debt, net of current portion | 85,436 | | | — | |
Lease liabilities, net of current portion | 2,276 | | | 1,370 | |
Deferred income tax liabilities | 1,967 | | | — | |
Private Warrant liabilities | 4,337 | | | — | |
Other liabilities | 2,679 | | | — | |
Total non-current liabilities | 96,695 | | | 1,370 | |
Total liabilities | 138,695 | | | 156,151 | |
Commitments and contingencies (Note 12) | | | |
Stockholders’ equity | | | |
Preferred stock, par value $0.0001, 10,000 shares authorized, 0 issued and outstanding, as of September 30, 2021 and December 31, 2020 | — | | | — | |
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Common stock, par value $0.0001, 750,000 shares authorized, 100,674 and 44,461 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 10 | | | 4 | |
Additional paid-in capital | 566,935 | | | 45,890 | |
Accumulated deficit | (98,927) | | | (21,128) | |
Accumulated other comprehensive loss | (2,578) | | | — | |
Total stockholders’ equity | 465,440 | | | 24,766 | |
Total liabilities and stockholders’ equity | $ | 604,135 | | | $ | 180,917 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
APPHARVEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (Unaudited)
(In thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net sales | $ | 543 | | | $ | — | | | $ | 5,980 | | | $ | — | |
Cost of goods sold | 7,482 | | | — | | | 30,001 | | | — | |
| (6,939) | | | — | | | (24,021) | | | — | |
Operating expenses: | | | | | | | |
Selling, general and administrative expenses | 25,401 | | | 5,742 | | | 84,357 | | | 8,435 | |
| | | | | | | |
| | | | | | | |
Total operating expenses | 25,401 | | | 5,742 | | | 84,357 | | | 8,435 | |
Loss from operations | (32,340) | | | (5,742) | | | (108,378) | | | (8,435) | |
Other income (expense): | | | | | | | |
Development fee income from a related party | — | | | 136 | | | — | | | 408 | |
| | | | | | | |
Interest expense from related parties | — | | | (64) | | | (658) | | | (90) | |
Interest expense | (805) | | | — | | | (893) | | | — | |
Change in fair value of Private Warrants | 15,781 | | | — | | | 32,095 | | | — | |
Other | 113 | | | (13) | | | 574 | | | (13) | |
Loss before income taxes | (17,251) | | | (5,683) | | | (77,260) | | | (8,130) | |
Income tax expense | (17) | | | — | | | (539) | | | — | |
Net loss | (17,268) | | | (5,683) | | | (77,799) | | | (8,130) | |
| | | | | | | |
Other comprehensive loss: | | | | | | | |
Net unrealized losses on derivatives contracts, net of tax | (66) | | | — | | | (2,578) | | | — | |
Comprehensive loss | $ | (17,334) | | | $ | (5,683) | | | $ | (80,377) | | | $ | (8,130) | |
| | | | | | | |
Net loss per common share: | | | | | | | |
Basic and diluted | $ | (0.17) | | | $ | (0.14) | | | $ | (0.83) | | | $ | (0.23) | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic and diluted | 100,437 | | | 41,558 | | | 93,823 | | | 35,960 | |
| | | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
APPHARVEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Stock | | | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Series A | | Series A-1 | | Series B | | | | | Common Stock | | | |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | | | Shares | | Amount | | | |
December 31, 2019 | 2,770 | | | $ | 5,203 | | | 392 | | | $ | 992 | | | 1,483 | | | $ | 6,063 | | | | | | | | 9,677 | | | $ | 1 | | | $ | 497 | | | $ | (3,680) | | | $ | (3,182) | |
Retroactive application of recapitalization | (2,770) | | | (5,203) | | | (392) | | | (992) | | | (1,483) | | | (6,063) | | | | | | | | 21,123 | | | 2 | | | 12,256 | | | — | | | 12,258 | |
Adjusted balance, December 31, 2019 | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | 30,800 | | | 3 | | | 12,753 | | | (3,680) | | | 9,076 | |
Issuance of preferred shares, net | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | 2,470 | | | — | | | 4,880 | | | — | | | 4,880 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | 19 | | | — | | | 19 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | — | | | (818) | | | (818) | |
March 31, 2020 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | | | | | 33,270 | | | $ | 3 | | | $ | 17,652 | | | $ | (4,498) | | | $ | 13,157 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | 148 | | | — | | | 32 | | | — | | | 32 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | 40 | | | — | | | 40 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | — | | | (1,629) | | | (1,629) | |
June 30, 2020 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | | | | | 33,418 | | | $ | 3 | | | 17,724 | | | $ | (6,127) | | | $ | 11,600 | |
Issuance of preferred shares, net | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | 11,033 | | | 1 | | | 28,068 | | | — | | | 28,069 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | 49 | | | — | | | 49 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | — | | | — | | | — | | | (5,683) | | | (5,683) | |
September 30, 2020 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | | | | | 44,451 | | | $ | 4 | | | $ | 45,841 | | | $ | (11,810) | | | $ | 34,035 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Stock | | | | | | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
| Series A | | Series A-1 | | Series B | | Series C | | | Common Stock | | | | |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | | |
December 31, 2020 | 2,770 | | | $ | 5,203 | | | 392 | | | $ | 992 | | | 2,632 | | | $ | 10,942 | | | 5,131 | | | $ | 28,069 | | | | 9,750 | | | $ | 1 | | | $ | 686 | | | $ | (21,128) | | | $ | — | | | $ | (20,441) | |
Retroactive application of recapitalization | (2,770) | | | (5,203) | | | (392) | | | (992) | | | (2,632) | | | (10,942) | | | (5,131) | | | (28,069) | | | | 34,711 | | | 3 | | | 45,204 | | | — | | | — | | | 45,207 | |
Adjusted balance, December 31, 2020 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 44,461 | | | 4 | | | 45,890 | | | (21,128) | | | — | | | 24,766 | |
Business Combination and PIPE Shares, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 53,361 | | | 6 | | | 433,521 | | | — | | | — | | | 433,527 | |
Conversion of Private Warrants | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 5,819 | | | — | | | — | | | 5,819 | |
Stock options exercised | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 103 | | | — | | | 35 | | | — | | | — | | | 35 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 6,287 | | | — | | | — | | | 6,287 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | (28,515) | | | — | | | (28,515) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | (669) | | | (669) | |
March 31, 2021 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | 97,925 | | | $ | 10 | | | $ | 491,552 | | | $ | (49,643) | | | $ | (669) | | | $ | 441,250 | |
Conversion of Private Warrants | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 3,114 | | | — | | | — | | | 3,114 | |
Issuance of common stock for acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 2,329 | | | — | | | 48,991 | | | — | | | — | | | 48,991 | |
Issuance of stock options for acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 361 | | | — | | | — | | | 361 | |
Conversion of restricted stock units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 21 | | | — | | | (108) | | | — | | | — | | | (108) | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 13,390 | | | — | | | — | | | 13,390 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | (32,016) | | | — | | | (32,016) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | (1,843) | | | (1,843) | |
June 30, 2021 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | 100,275 | | | $ | 10 | | | $ | 557,300 | | | $ | (81,659) | | | $ | (2,512) | | | $ | 473,139 | |
Conversion of Private Warrants | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 201 | | | — | | | — | | | 201 | |
Conversion of restricted stock units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 391 | | | — | | | (2,233) | | | — | | | — | | | (2,233) | |
Exercise of warrants | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 8 | | | — | | | 96 | | | — | | | — | | | 96 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 11,571 | | | — | | | — | | | 11,571 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | (17,268) | | | — | | | (17,268) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | (66) | | | (66) | |
September 30, 2021 | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | | 100,674 | | | $ | 10 | | | $ | 566,935 | | | $ | (98,927) | | | $ | (2,578) | | | $ | 465,440 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
APPHARVEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Operating Activities | | | |
Net loss | $ | (77,799) | | | $ | (8,130) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Change in fair value of Private Warrants | (32,095) | | | — | |
Deferred income tax provision | 539 | | | — | |
Depreciation and amortization | 7,791 | | | 66 | |
| | | |
Stock-based compensation expense | 31,248 | | | 108 | |
Rent payments in excess of rent expense | (72) | | | — | |
Interest accrual with a related party | — | | | 50 | |
Amortization of development fee with a related party | — | | | (405) | |
| | | |
Changes in operating assets and liabilities, net of acquisitions | | | |
Accounts receivable | 259 | | | — | |
Inventories, net | (800) | | | (277) | |
Prepaid expenses and other current assets | (2,752) | | | (292) | |
Other assets, net | (10,486) | | | (2) | |
Accounts payable | 811 | | | 1,347 | |
Accrued expenses | 1,575 | | | 1,282 | |
| | | |
Other current liabilities | (178) | | | (4) | |
Other non-current liabilities | 617 | | | — | |
Net cash used in operating activities | (81,342) | | | (6,257) | |
Investing Activities | | | |
Purchases of property and equipment | (112,903) | | | (11,149) | |
Purchases of property and equipment from a related party | (122,911) | | | — | |
Cost of acquisition, net of cash acquired | (9,756) | | | — | |
Investment in unconsolidated entity | (5,000) | | | — | |
Advances on equipment | — | | | (15) | |
Net cash used in investing activities | (250,570) | | | (11,164) | |
Financing Activities | | | |
Proceeds from debt to a related party | — | | | 32,000 | |
Proceeds from Business Combination and PIPE shares, net | 448,500 | | | — | |
Proceeds from debt | 95,709 | | | — | |
Debt issuance costs | (1,046) | | | — | |
Payments on financing obligation to a related party | (2,088) | | | — | |
Proceeds from stock options exercised | 35 | | | 32 | |
Proceeds from exercise of warrants | 95 | | | — | |
Payments of withholding taxes on restricted stock unit conversions | (2,341) | | | — | |
| | | |
Issuance of preferred stock, net | — | | | 32,949 | |
| | | |
Other financing activities | (37) | | | — | |
| | | |
| | | |
Net cash provided by financing activities | 538,827 | | | 64,981 | |
Change in cash and cash equivalents | 206,915 | | | 47,560 | |
Cash and Cash Equivalents (including Restricted Cash) | | | |
Beginning of period | 21,909 | | | 6,031 | |
End of period | $ | 228,824 | | | $ | 53,591 | |
Non-cash Activities: | | | |
Fixed assets purchases in accounts payable | $ | 14,170 | | | $ | — | |
Fixed assets purchases in accrued liabilities | $ | 8,331 | | | $ | — | |
Operating lease right-of-use assets and liabilities | $ | 1,055 | | | $ | 376 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
1. Description of Business
AppHarvest was founded on January 19, 2018 and, together with its subsidiaries, is an applied technology company in Appalachia developing and operating some of the world’s largest high-tech indoor farms, designed to grow non-GMO, chemical pesticide-free produce, using primarily rainwater while producing significantly higher yields than those of traditional agriculture on the same amount of land. AppHarvest combines conventional agricultural techniques with cutting-edge technology including artificial intelligence and robotics to improve access to nutritious food, farming more sustainably, building a domestic food supply, and increasing investment in Appalachia.
Prior to October 2020, AppHarvest’s operations were limited to organizing and staffing, business planning, raising capital, and acquiring and developing properties for Controlled Environment Agriculture (“CEA”). In October 2020, AppHarvest partially opened its first CEA facility in Morehead, Kentucky (the “Morehead CEA facility”). AppHarvest harvested its first crop of beefsteak tomatoes at the Morehead CEA facility in January 2021, began harvesting its first crop of tomatoes on the vine in March 2021 and opened production of the full 60 acres at the Morehead CEA facility in May 2021. The Morehead CEA facility concluded its first harvest in August 2021 and completed planting of its second crop in September 2021 in preparation for the second growing season. The harvest of the new crop will commence in the fourth quarter of 2021.
AppHarvest has started construction on four more CEA facilities. Two of the facilities under construction are in Berea, Kentucky (the “Berea leafy green facility”) and Richmond, Kentucky (the “Richmond tomato facility”)—the Berea leafy green facility is over 50% complete, and the Richmond tomato facility is over 50% complete. Both CEA facilities are expected to be fully operational by the end of 2022. Groundbreakings for two more CEA facilities occurred in June 2021 in Somerset, Kentucky (the “Somerset facility”) and Morehead, Kentucky (the “Morehead leafy green facility”). The Somerset facility is expected to grow berries and the Morehead leafy green facility, which is adjacent to the Morehead CEA facility, will grow leafy greens. The Somerset facility is approximately 30% complete and expected to be operational by the end of 2022. The Company temporarily has paused development of the 10-acre Morehead leafy green facility, with construction now expected to resume in 2022 for a 2023 delivery.
AppHarvest is organized as a single operating segment. Substantially all of the assets and operations of AppHarvest are located in the United States (“U.S.”).
Basis of Presentation
On January 29, 2021, (the “Closing Date”), Novus Capital Corporation (“Novus”), a special purpose acquisition company, consummated the business combination agreement and plan of reorganization (the “Business Combination Agreement”) dated September 2020, by and among ORGA, Inc., a wholly owned subsidiary of Novus (“Merger Sub”), and AppHarvest Operations, Inc., a Delaware corporation (f/k/a AppHarvest, Inc.) (“Legacy AppHarvest”).
Pursuant to the terms of the Business Combination Agreement, a business combination between Novus and Legacy AppHarvest was effected through the merger of Merger Sub with and into Legacy AppHarvest, with Legacy AppHarvest surviving the merger as a wholly-owned subsidiary of Novus (the “Merger” and, collectively with the other transactions described in the Business Combination Agreement, the “Business Combination”). On the Closing Date, Novus changed its name to AppHarvest, Inc. (the “Company”, “we”, “our” or “AppHarvest”).
Pursuant to the Business Combination Agreement, the Merger was accounted for as a reverse recapitalization (the “Reverse Recapitalization”) in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Under this method of accounting, Novus is treated as the “acquired” company and Legacy AppHarvest is treated as the acquirer for financial reporting purposes. The Reverse Recapitalization was treated as the equivalent of Legacy AppHarvest issuing stock for the net assets of Novus, accompanied by a recapitalization. The net assets of Novus are stated at historical cost, with no goodwill or other intangible assets recorded.
Legacy AppHarvest was determined to be the accounting acquirer based on the following predominant factors:
•Legacy AppHarvest stockholders have the largest portion of voting rights in the Company;
•The Board and Management are primarily composed of individuals associated with Legacy AppHarvest; and
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
•Legacy AppHarvest was the larger entity based on historical operating activity and Legacy AppHarvest had the larger employee base at the time of the Business Combination.
The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy AppHarvest. The shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination. Activity within the Statements of Stockholders’ Equity for the issuance and repurchases of Legacy AppHarvest redeemable convertible preferred stock were also retroactively converted to Legacy AppHarvest common stock.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2021. A description of the Company’s significant accounting policies is included in the Legacy AppHarvest’s audited consolidated financial statements, as of and for the year ended December 31, 2020. These unaudited condensed consolidated financial statements should be read in conjunction with the Legacy AppHarvest December 31, 2020 audited consolidated financial statements and the accompanying notes.
The unaudited condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Certain prior period balances have been reclassified to conform to the current period presentation in the unaudited condensed consolidated financial statements and the accompanying notes.
All dollar and share amounts are in thousands, except per share amounts, unless otherwise noted. Share and per share amounts are presented on a post-conversion basis for all periods presented, unless otherwise specified.
2. Summary of Significant Accounting Policies
Use of Estimates in Condensed Consolidated Financial Statements
In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Although these estimates are based on the Company’s knowledge of current events and actions the Company may undertake in the future, actual results could differ from those estimates and assumptions. Significant items subject to such estimates and assumptions include the valuation of inventory, stock-based compensation, and private warrants.
The Company’s results can also be affected by economic, political, legislative, regulatory, legal actions, and the global volatility and general market disruption resulting from the global COVID-19 pandemic. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, and government fiscal policies, can have a significant effect on operations. While the Company maintains reserves for anticipated liabilities and carries various levels of insurance, the Company could be affected by civil, criminal, environmental, regulatory or administrative actions, claims, or proceedings.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid, short-term investments with an original maturity date of three months or less to be cash equivalents.
The Company deposits its cash and cash equivalents in a commercial bank. From time to time, cash balances in these accounts exceed the Federal Deposit Insurance Corporation insured limits. The Company mitigates exposure to credit risk by placing cash and cash equivalents with highly rated financial institutions. To date, the Company has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk on its cash and cash equivalents.
Restricted cash represents collateral for a promissory note with JPMorgan Chase Bank, N.A. (the “JPM Note”) which requires 105% of the aggregate borrowings to be held as collateral. See Note 11 - Debt for more information on the JPM Note.
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
Convertible Preferred Stock
Prior to the Business Combination, the Company recorded shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The Company applied the guidance in Accounting Standards Codification (“ASC”) 480-10-S99-3A, Accounting for Redeemable Equity Instruments, and therefore classified all of its outstanding redeemable convertible preferred stock as temporary equity. The redeemable convertible preferred stock was recorded outside of stockholders’ equity because, in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the preferred stock would become redeemable at the option of the holders. In the event of a change of control of the Company, proceeds received from the sale of such shares would be distributed in accordance with the liquidation preferences set forth in the Company’s Amended and Restated Certificate of Incorporation then in effect.
All convertible preferred stock previously classified as temporary equity was retroactively adjusted and reclassified to permanent equity as a result of the Business Combination. As a result of the Business Combination, each share of redeemable convertible preferred stock that was then issued and outstanding was automatically converted into Legacy AppHarvest Common Stock, such that each converted share of preferred stock was no longer outstanding and ceased to exist. Each share of Legacy AppHarvest common stock, including the Legacy AppHarvest common stock issued upon conversion of Legacy AppHarvest preferred stock, was converted into and exchanged for 2.1504 (the “Exchange Ratio”) shares of the Company’s common stock (the “Common Stock”). The Exchange Ratio was established pursuant to the terms of the Business Combination Agreement.
During the three and nine months ended September 30, 2020, Legacy AppHarvest issued shares of Legacy AppHarvest Series B and Series C redeemable convertible preferred stock to new and existing investors for net proceeds of $28,069, and $32,949, respectively.
Warrants
At September 30, 2021, there were 13,242 warrants to purchase Common Stock outstanding, consisting of 10,907 public warrants (“Public Warrants”) and 2,335 private warrants (“Private Warrants” and together with Public Warrants, “Warrants”). The Private Warrants are held by the Novus initial stockholders. Each warrant entitles the registered holder to purchase one share of Common Stock at a price of $11.50 per share. The warrants expire on January 29, 2026, or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:
• In whole and not in part;
• At a price of $0.01 per Warrant;
• Upon not less than 30 days’ prior written notice of redemption;
• If, and only if, the reported last sale price of the shares of Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period commencing at any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and
• if, and only if, there is a current registration statement in effect with respect to the shares of Common Stock underlying the warrants.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The Public Warrants were determined to be equity classified in accordance with U.S. GAAP.
The Private Warrants are identical to the Public Warrants except that the Private Warrants and the shares of Common Stock issuable upon the exercise of the Private Warrants were not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. As a result of the provisions in the warrant agreement that provide for differences in the mechanics of a cashless exercise dependent upon the characteristics of the warrant holder, and because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provisions preclude the Private Warrant from being classified in equity. Accordingly, the Private Warrants are classified as a liability and remeasured at fair value at each reporting date. Changes in fair value of the Private Warrants are recognized in the Company’s condensed consolidated statement of operations and comprehensive loss. The fair value of the Private Warrants is estimated at each measurement date using a Black-Scholes option pricing model. See Note 5 - Fair Value Measurements for inputs used in calculating the estimated fair value.
Derivative Financial Instruments
Derivative financial instruments are used to manage foreign currency, exchange, and interest rate risks. The financial instruments used by the Company are straight-forward, non-leveraged instruments. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions. For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.
The Company records derivative financial instruments on the condensed consolidated balance sheets as either an asset or liability measured at its fair value. Changes in a derivative's fair value (i.e. unrealized gains or losses) are recorded each period in earnings unless the derivative qualifies as a hedging instrument. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item, or deferred and recorded in the stockholders’ equity section of the condensed consolidated balance sheets as a component of accumulated other comprehensive loss (“AOCL”) and subsequently recognized in the condensed consolidated statements of operations and comprehensive loss when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge, if any, is recognized in net loss immediately. For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value is also recorded to net loss immediately.
Business Combinations
The Company allocates the purchase price of its acquisitions to the assets acquired and liabilities assumed based upon their respective fair values at the acquisition date. The Company utilizes management estimates and an independent third-party valuation firm to assist in determining these fair values. The excess of the acquisition price over the estimated fair value of the net assets acquired is recorded as goodwill. Goodwill is adjusted for any changes to acquisition date fair value amounts made within the measurement period. Acquisition-related transaction costs are recognized separately from the business combination and expensed as incurred.
Capitalization of Interest
The Company capitalizes interest on capital projects in accordance with ASC 835-20, Capitalization of Interest, which allows the capitalization of interest costs to get certain assets ready for their intended use. The Company capitalizes interest costs associated with major construction projects as part of the cost of the constructed assets. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. During the three and nine months ended September 30, 2021, $114 of interest expense has been capitalized. No interest was capitalized during the three and nine months ended September 30, 2020. See Note 11- Debt for more information regarding capitalized interest.
Debt Issuance Costs
Debt issuance costs are amortized into interest expense over the terms of the related loan agreements using the effective interest method or other methods which approximate the effective interest method. Debt issuance costs related to debt instruments other than lines of credit are presented on the consolidated balance sheets as a direct deduction from the carrying amount of that debt liability. Debt issuance costs associated with lines of credit are presented on the consolidated balance sheets as other current or non-current assets.
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
Goodwill and Other Acquired Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets are stated at their historical cost and amortized on a straight-line basis over their expected useful lives. Through the acquisition of Root AI, Inc. (“Root AI”) on April 7, 2021 (“Root AI Acquisition”) the Company has acquired goodwill as well as certain technology and intellectual property for which the Company has determined the useful life to be ten years. Amortization expense related to the intangible assets was $259 and $470 for the three and nine months ended September 30, 2021. See Note 3 - Business Combinations for more information on the Root AI Acquisition.
The Company conducts annual impairment tests of goodwill on the first day of the fourth quarter and additional impairment reviews when events and circumstances indicate it is more likely than not that an impairment may have occurred. The Company assesses goodwill for impairment at the consolidated level, which represents its single reporting unit. If the fair value of the reporting unit is less than its carrying amount, the Company would record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the amount of goodwill allocated to the reporting unit.
The Company reviews intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the intangible assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows. There was no impairment during the nine months ended September 30, 2021.
New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 removes certain exceptions to the general principles of ASC 740, Income Taxes, (“ASU 740”) in order to reduce the cost and complexity of its application in the areas of intraperiod tax allocation, deferred tax liabilities related to outside basis differences, year-to-date losses in interim periods and other areas within ASC 740. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.
No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the condensed consolidated financial statements.
3. Business Combinations
Reverse Recapitalization
As discussed in Note 1 - Description of Business, on January 29, 2021, Novus completed the Business Combination with Legacy AppHarvest through the Merger, with Legacy AppHarvest surviving the Merger as a wholly-owned subsidiary of the Company. Upon the consummation of the Business Combination, each share of Legacy AppHarvest common stock issued and outstanding was canceled and converted into the right to receive 2.1504 shares of the Company’s Common Stock.
Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 760,000 shares, of which 750,000 shares were designated Common Stock, $0.0001 par value per share, and 10,000 shares designated Preferred Stock, $0.0001 par value per share.
Each option to purchase Legacy AppHarvest common stock that was outstanding immediately prior to the Business Combination, whether vested or unvested, was converted into an option to purchase a number of shares of the Company’s Common Stock equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Legacy AppHarvest common stock subject to such Legacy AppHarvest option and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such Legacy AppHarvest option, divided by (B) the Exchange Ratio.
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
Each restricted stock unit awarded by Legacy AppHarvest that was outstanding immediately prior to the Business Combination, whether vested or unvested, was converted into an award of restricted stock units to acquire a number shares of the Company’s Common Stock equal to the product (rounded down to the nearest whole number) of (1) the number of shares of Legacy AppHarvest common stock subject to the Legacy AppHarvest restricted stock unit award and (2) the Exchange Ratio.
In connection with the execution of the Business Combination Agreement, the Company entered into separate subscription agreements (the “Subscription Agreements”) with certain investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and the Company agreed to sell to the Subscribers, an aggregate of 37,500 shares of Common Stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $375,000, in a private placement pursuant to the Subscription Agreements (the “PIPE”). The PIPE investment closed concurrently with the closing of the Business Combination.
Prior to the Business Combination, Novus had outstanding 10,000 Public Warrants and 3,250 Private Warrants which were listed on the Nasdaq Capital Market under the symbol “NOVSW.” Upon the closing of the Business Combination, they became listed on the Nasdaq Global Select Market under the symbol “APPHW.” The Warrants remain subject to the same terms and conditions as prior to the Business Combination.
Also immediately prior to the closing of the Business Combination, Novus assumed the Legacy AppHarvest convertible note (the “Convertible Note”). Upon completion of the Business Combination, the outstanding principal and unpaid accrued interest due on the Legacy AppHarvest Convertible Note was converted into an aggregate of 3,242 shares of Common Stock, and the converted note was no longer outstanding, and ceased to exist. See Note 10 - Note Payable with a Related Party.
Upon consummation of the Business Combination and the closing of the PIPE, the most significant change in Legacy AppHarvest’s financial position and results of operations was a total net increase in cash and cash equivalents of approximately $435,239, including $375,000 in gross proceeds from the PIPE.
The Business Combination is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Novus was treated as the “acquired” company for financial reporting purposes. See Note 1 - Description of Business for further details. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy AppHarvest issuing stock for the net assets of Novus, accompanied by a recapitalization. The net assets of Novus are stated at historical cost, with no goodwill or other intangible assets recorded.
The following table reconciles the elements of the Business Combination to the unaudited condensed consolidated statements of stockholders’ equity and cash flows for the nine months ended September 30, 2021:
| | | | | | | | |
| | Recapitalization |
Cash - Novus trust and cash, net of redemptions | | $ | 99,896 | |
Cash - PIPE financing | | 375,000 | |
Non-cash Convertible Note conversion | | 30,808 | |
Non-cash net liabilities assumed from Novus | | (2,850) | |
Less: Fair value of assumed common stock Private Warrants | | (45,565) | |
Less: transaction costs allocated to equity | | (23,762) | |
Net impact on total stockholders’ equity | | 433,527 | |
Less: cash payments for transaction costs at Closing | | (2,634) | |
Less: non-cash Convertible Note conversion | | (30,808) | |
Add: non-cash net liabilities assumed from Novus | | 2,850 | |
Add: non-cash fair value of assumed common stock Private Warrants | | 45,565 | |
Net impact on net cash provided by financing activities | | 448,500 | |
Less: transaction costs included in net cash used in operating activities(a) | | (13,261) | |
Total net increase in cash and cash equivalents on closing date | | $ | 435,239 | |
(a) Including transaction costs in the amount of $2,887 allocated to the Private Warrants.
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
Root AI
On April 7, 2021, the Company completed the Root AI Acquisition.
Total consideration, net of cash acquired, is as follows:
| | | | | | | | |
Common Stock issued (2,329 shares at approximately $21.00 per share) | | $ | 48,991 | |
Stock options issued to replace unvested Root AI stock options | | 361 | |
Total equity | | 49,352 | |
Cash consideration paid for the settlement of vested Root AI stock options | | 230 | |
Cash consideration paid to Root AI shareholders | | 9,512 | |
Cash consideration paid to reimburse Root AI for seller transaction costs incurred | | 150 | |
Cash acquired | | (136) | |
Net cash | | $ | 9,756 | |
Net consideration paid | | $ | 59,108 | |
The Company accounted for Root AI using the acquisition method of accounting in accordance with U.S. GAAP whereby the total purchase price was preliminarily allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values.
The preliminary purchase price allocation for Root AI is as follows:
| | | | | | | | |
Goodwill | | $ | 50,863 | |
Intangibles | | 9,754 | |
Deferred taxes | | (1,420) | |
Net operating assets and liabilities | | (89) | |
Net assets acquired | | $ | 59,108 | |
As of September 30, 2021, the purchase price allocation for the acquisition was preliminary and subject to completion. Adjustments to the current fair value estimates in the above table may occur as the process conducted for various valuations and assessments is finalized, including intangible assets, tax assets, liabilities and other attributes. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Root AI Acquisition.
The Root AI Acquisition is expected to provide the Company with a baseline for harvesting support while helping evaluate crop health, predict yield, and optimize overall operations in existing CEA facilities. The benefits include fully developed technology, in the form of software and hardware, that can be programmed for utilization and optimization and a skilled workforce to assist with ongoing upgrades of the artificial intelligence. None of the goodwill is expected to be deductible for income tax purposes and was entirely allocated to the Company’s sole consolidated reporting unit.
The preliminary fair value of the technology asset was determined using the income approach through a discounted cash flow analysis. The determination of the useful life was based upon consideration of market participant assumptions and transaction specific factors.
Transaction costs of $0 and $1,032 were included in selling, general and administrative expense (“SG&A”) within the unaudited condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021, respectively.
4. Revenue Recognition
The Company recognized revenues of $543 and $5,980 for the three and nine months ended September 30, 2021, respectively and generated no revenues in the comparable prior year periods. Substantially all of the Company’s revenues are generated from the sale of tomatoes under an agreement with one customer, Mastronardi Produce Limited (“Mastronardi”).
APPHARVEST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(amounts in thousands except per share amounts)
On March 28, 2019, the Company entered into a Purchase and Marketing Agreement (the “Mastronardi Morehead Agreement”) with Mastronardi pursuant to which Mastronardi agreed to be the sole and exclusive marketer and distributor of all tomatoes, cucumbers, peppers, berries and leafy greens produced at the Morehead CEA facility that meet certain quality standards (collectively, the “Products”). Under the terms of the Mastronardi Morehead Agreement, the Company is responsible for growing, producing, packing, and delivering the Products to Mastronardi, and Mastronardi is responsible for marketing, branding and distributing the Products to its customers. Mastronardi will pay the Company market prices for the Products that are consistent with the best and highest prices available during the duration of the applicable growing season for like kind U.S. Department of Agriculture (“USDA”) Grade No. 1 products. Mastronardi will set the market price for the Products and will pay the Company the gross sale price of the Product sold by Mastronardi, less a marketing fee and Mastronardi’s costs incurred in the sale and distribution of the Products. If Mastronardi rejects, returns or otherwise refuses Products for failure to meet certain quality standards, the Company has the right, at its cost and expense, to sell or otherwise dispose of the Products, subject to certain conditions.
The Mastronardi Morehead Agreement has a term of 10 years. With respect to the Company’s CEA facility in Morehead Kentucky, the Company has a limited, one-time right to terminate the Mastronardi Morehead Agreement if certain conditions are satisfied. During the term of the Mastronardi Morehead Agreement, Mastronardi has a right of first refusal to enter into similar arrangements with regard to any additional growing facilities the Company establishes in Kentucky or West Virginia.
The Company recognizes revenue at a point in time and at the amount it expects to be entitled to be paid when its performance obligation is complete, which is generally when control of the Products is transferred to its customers upon pick-up by the customer or the customer’s agent from the Company’s facilities. Prices for the Company’s Products are based on agreed upon rates with customers and do not include financing components or noncash consideration. Revenue is recorded net of variable consideration, such as commissions and other shipping, handling and marketing costs incurred as defined in the customer agreements. Revenue is also recorded net of provisions for returns and rejections for Products that do not meet quality specifications, with such provisions calculated using historical averages adjusted for any expected changes due to current business conditions. Payment terms are generally 30 days.
5. Fair Value Measurements
The company categorizes its assets and liabilities into one of three levels based on the assumptions (inputs) used in determining their values, as defined below:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.
The table below presents the Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for each measurement:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value as of September 30, 2021 | | | | | | |
| | Balance Sheet Account | | Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency contracts | | Other assets, net | | $ | — | | | $ | |