UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period from                            to                               

Commission File No. 001-38880

Whole Earth Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	38-4101973 (I.R.S. Employer Identification No.)
125 S. Wacker Drive, Suite 3150 Chicago, Illinois	60606
(Address of Principal Executive Offices)	(Zip Code)

(312) 840-6000

(Registrant’s telephone number, including area code)

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 stock, par value $0.0001 per share	FREE	The NASDAQ Stock Market LLC
Warrants to purchase one-half of one share of common stock	FREEW	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 an 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.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

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

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

As of November 5, 2021, there were 38,477,488 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

WHOLE EARTH BRANDS, INC.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
Signatures		47

2

PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements.

3

Whole Earth Brands, Inc.

Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Quarter Ended September 30, 2021

Condensed Consolidated and Combined Financial Statements
Condensed Consolidated Balance Sheets	5
Condensed Consolidated and Combined Statements of Operations	6
Condensed Consolidated and Combined Statements of Comprehensive Income (Loss)	7
Condensed Consolidated and Combined Statements of Equity	8
Condensed Consolidated and Combined Statements of Cash Flows	10
Notes to Condensed Consolidated and Combined Financial Statements	12
Note 1: Basis of Presentation and Significant Accounting Policies	12
Note 2: Business Combinations	14
Note 3: Inventories	19
Note 4: Goodwill and Other Intangible Assets	20
Note 5: Debt	21
Note 6: Warrants	22
Note 7: Fair Value of Financial Instruments	23
Note 8: Commitments and Contingencies	24
Note 9: Income Taxes	24
Note 10: Pension Benefits	25
Note 11: Stock-Based Compensation	26
Note 12: Stockholders’ Equity	27
Note 13: Earnings Per Share	28
Note 14: Accumulated Other Comprehensive Income (loss)	29
Note 15: Related Party Transactions	29
Note 16: Business Segments	30

4

Whole Earth Brands, Inc.
Condensed Consolidated Balance Sheets
(In thousands of dollars, except for share and per share data)
(Unaudited)
	September 30, 2021		December 31, 2020
Assets
Current Assets
Cash and cash equivalents	$	33,579	$	16,898
Accounts receivable (net of allowances of $940 and $955, respectively)	72,997		56,423
Inventories	193,509		111,699
Prepaid expenses and other current assets	20,068		5,045
Total current assets	320,153		190,065
Property, Plant and Equipment, net	53,860		47,285
Other Assets
Operating lease right-of-use assets	21,596		12,193
Goodwill	241,154		153,537
Other intangible assets, net	271,472		184,527
Deferred tax assets, net	2,296		2,671
Other assets	8,278		6,260
Total Assets	$	918,809	$	596,538
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	41,968	$	25,200
Accrued expenses and other current liabilities	26,186		29,029
Contingent consideration payable	53,631		—
Current portion of operating lease liabilities	6,123		3,623
Current portion of long-term debt	3,750		7,000
Total current liabilities	131,658		64,852
Non-Current Liabilities
Long-term debt	384,070		172,662
Warrant liabilities	2,507		—
Deferred tax liabilities, net	52,403		23,297
Operating lease liabilities, less current portion	19,463		11,324
Other liabilities	15,176		15,557
Total Liabilities	605,277		287,692
Commitments and Contingencies (Note 8)	—		—
Stockholders’ Equity
Preferred shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock, $0.0001 par value; 220,000,000 shares authorized; 38,477,723 and 38,426,669 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.	4		4
Additional paid-in capital	331,125		325,679
Accumulated deficit	(26,043)		(25,442)
Accumulated other comprehensive income	8,446		8,605
Total stockholders’ equity	313,532		308,846
Total Liabilities and Stockholders’ Equity	$	918,809	$	596,538

See Notes to Unaudited Consolidated and Combined Financial Statements

5

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Operations
(In thousands of dollars, except for share and per share data)
(Unaudited)
	(Successor)								(Predecessor)
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021		From June 26, 2020 to September 30, 2020		From January 1, 2020 to June 25, 2020
Product revenues, net	$	128,941	$	67,002	$	361,259	$	71,480	$	128,328
Cost of goods sold	85,912		48,357		241,224		51,065		77,627
Gross profit	43,029		18,645		120,035		20,415		50,701
Selling, general and administrative expenses	24,838		14,881		85,573		16,827		43,355
Amortization of intangible assets	4,675		2,700		13,532		2,841		4,927
Asset impairment charges	—		—		—		—		40,600
Restructuring and other expenses	—		—		4,503		—		—
Operating income (loss)	13,516		1,064		16,427		747		(38,181)
Change in fair value of warrant liabilities	2,178		—		(425)		—		—
Interest expense, net	(6,553)		(2,045)		(18,027)		(2,161)		(238)
Loss on extinguishment and debt transaction costs	—		—		(5,513)		—		—
Other income (expense), net	(780)		(170)		(280)		(232)		801
Income (loss) before income taxes	8,361		(1,151)		(7,818)		(1,646)		(37,618)
(Benefit) provision for income taxes	(445)		1,684		(8,294)		1,694		(3,482)
Net income (loss)	$	8,806	$	(2,835)	$	476	$	(3,340)	$	(34,136)
Net earnings (loss) per share:
Basic	$	0.23	$	(0.07)	$	0.01	$	(0.09)
Diluted	$	0.17	$	(0.07)	$	0.01	$	(0.09)

See Notes to Unaudited Consolidated and Combined Financial Statements

6

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Comprehensive Income (Loss)
(In thousands of dollars)
(Unaudited)
	(Successor)								(Predecessor)
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021		From June 26, 2020 to September 30, 2020		From January 1, 2020 to June 25, 2020
Net income (loss)	$	8,806	$	(2,835)	$	476	$	(3,340)	$	(34,136)
Other comprehensive income (loss), net of tax:
Net change in pension benefit obligations recognized, net of taxes of $(5), $—, $(18), $— and $65	202		—		165		—		318
Foreign currency translation adjustments	(3,599)		3,130		(324)		3,145		(2,286)
Total other comprehensive income (loss), net of tax	(3,397)		3,130		(159)		3,145		(1,968)
Comprehensive income (loss)	$	5,409	$	295	$	317	$	(195)	$	(36,104)

See Notes to Unaudited Consolidated and Combined Financial Statements

7

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Equity
(In thousands of dollars)
(Unaudited)
	(Predecessor)
	Total Equity
Balance at December 31, 2019	$	487,750
Funding to Parent, net	(12,262)
Net loss	(28,655)
Other comprehensive loss, net of tax	(1,836)
Balance at March 31, 2020	$	444,997
Funding to Parent, net	338
Net loss	(5,481)
Other comprehensive loss, net of tax	(132)
Balance at June 25, 2020	$	439,722

	Common Stock			Preferred Stock			Additional Paid-in		Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Equity
Balance at June 26, 2020 (Successor)	30,926,669	$	3	—	$	—	$	250,366	$	(16,703)	$	—	$	233,666
Issuance of warrants	—	—		—	—		7,895		—		—		7,895
Issuance of common stock	7,500,000	1		—	—		67,104		—		—		67,105
Other comprehensive income, net of tax	—	—		—	—		—		—		15		15
Net loss	—	—		—	—		—		(505)		—		(505)
Balance at June 30, 2020 (Successor)	38,426,669	$	4	—	$	—	$	325,365	$	(17,208)	$	15	$	308,176
Other	—	—		—	—		(948)		(302)		—		(1,250)
Other comprehensive income, net of tax	—	—		—	—		—		—		3,130		3,130
Net loss	—	—		—	—		—		(2,835)		—		(2,835)
Balance at September 30, 2020 (Successor)	38,426,669	$	4	—	$	—	$	324,417	$	(20,345)	$	3,145	$	307,221

See Notes to Unaudited Consolidated and Combined Financial Statements

8

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Equity (Continued)
(In thousands of dollars)
(Unaudited)
	Common Stock			Preferred Stock			Additional Paid-in		Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Equity
Balance at December 31, 2020 (Successor)	38,426,669	$	4	—	$	—	$	325,679	$	(25,442)	$	8,605	$	308,846
Reclassification of Private Warrants (Note 1)	—	—		—	—		(7,062)		(1,077)		—		(8,139)
Transfer of Private Warrants to Public Warrants (Note 6)	—	—		—	—		2,502		—		—		2,502
Net loss	—	—		—	—		—		(12,025)		—		(12,025)
Other comprehensive loss, net of tax	—	—		—	—		—		—		(2,038)		(2,038)
Stock-based compensation	—	—		—	—		1,639		—		—		1,639
Balance at March 31, 2021 (Successor)	38,426,669	$	4	—	$	—	$	322,758	$	(38,544)	$	6,567	$	290,785
Net income	—	—		—	—		—		3,695		—		3,695
Other comprehensive income, net of tax	—	—		—	—		—		—		5,276		5,276
Stock-based compensation	—	—		—	—		2,392		—		—		2,392
Net share settlements of stock-based awards	29,090	—		—	—		—		—		—		—
Balance at June 30, 2021 (Successor)	38,455,759	$	4	—	$	—	$	325,150	$	(34,849)	$	11,843	$	302,148
Transfer of Private Warrants to Public Warrants (Note 6)	—	—		—	—		3,555		—		—		3,555
Net income	—	—		—	—		—		8,806		—		8,806
Other comprehensive loss, net of tax	—	—		—	—		—		—		(3,397)		(3,397)
Warrant exercises	50	—		—	—		1		—		—		1
Stock-based compensation	—	—		—	—		2,534		—		—		2,534
Net share settlements of stock-based awards	21,914	—		—	—		(115)		—		—		(115)
Balance at September 30, 2021 (Successor)	38,477,723	$	4	—	$	—	$	331,125	$	(26,043)	$	8,446	$	313,532

See Notes to Unaudited Consolidated and Combined Financial Statements

9

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
	(Successor)				(Predecessor)
	Nine Months Ended September 30, 2021		From June 26, 2020 to September 30, 2020		From January 1, 2020 to June 25, 2020
Operating activities
Net income (loss)	$	476	$	(3,340)	$	(34,136)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation	7,191		—		—
Depreciation	3,230		797		1,334
Amortization of intangible assets	13,532		2,841		4,927
Deferred income taxes	2,210		(3,490)		(5,578)
Asset impairment charges	—		—		40,600
Amortization of inventory fair value adjustments	(882)		8,701		—
Non-cash loss on extinguishment of debt	4,435		—		—
Change in fair value of warrant liabilities	425		—		—
Changes in current assets and liabilities:
Accounts receivable	(2,452)		(6,535)		7,726
Inventories	(4,200)		(3,679)		3,576
Prepaid expenses and other current assets	(894)		(2,516)		3,330
Accounts payable, accrued liabilities and income taxes	(16,706)		(5,618)		507
Other, net	190		124		(2,378)
Net cash provided by (used in) operating activities	6,555		(12,715)		19,908
Investing activities
Capital expenditures	(7,076)		(2,139)		(3,532)
Acquisitions, net of cash acquired	(190,231)		(376,674)		—
Proceeds from the sale of fixed assets	4,257		—		—
Transfer from trust account	—		178,875		—
Net cash used in investing activities	(193,050)		(199,938)		(3,532)
Financing activities
Proceeds from revolving credit facility	25,000		—		3,500
Repayments of revolving credit facility	(47,855)		—		(8,500)
Long-term borrowings	375,000		140,000		—
Repayments of long-term borrowings	(138,376)		(1,750)		—
Debt issuance costs	(11,589)		(7,139)		—
Proceeds from sale of common stock and warrants	1		75,000		—
Tax withholdings related to net share settlements of stock-based awards	(115)		—		—
Funding to Parent, net	—		—		(11,924)
Net cash provided by (used in) financing activities	202,066		206,111		(16,924)

See Notes to Unaudited Consolidated and Combined Financial Statements

10

Whole Earth Brands, Inc.
Condensed Consolidated and Combined Statements of Cash Flows (Continued)
(In thousands of dollars)
(Unaudited)
	(Successor)				(Predecessor)
	Nine Months Ended September 30, 2021		From June 26, 2020 to September 30, 2020		From January 1, 2020 to June 25, 2020
Effect of exchange rate changes on cash and cash equivalents	1,110		88		215
Net change in cash and cash equivalents	16,681		(6,454)		(333)
Cash and cash equivalents, beginning of period	16,898		55,535		10,395
Cash and cash equivalents, end of period	$	33,579	$	49,081	$	10,062
Supplemental disclosure of cash flow information
Interest paid	$	15,627	$	1,667	$	798
Taxes paid, net of refunds	$	3,999	$	1,722	$	2,244
Supplemental disclosure of non-cash investing
Non-cash capital expenditures	$	3,796	$	—	$	—

See Notes to Unaudited Consolidated and Combined Financial Statements

11

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Whole Earth Brands, Inc. and its consolidated subsidiaries (“Whole Earth Brands” or the “Company”) is a global industry-leading platform, focused on the “better for you” consumer packaged goods (“CPG”) and ingredients space. The Company has a global platform of branded products and ingredients, focused on the consumer transition towards natural alternatives and clean label products.

On June 24, 2020, Act II Global Acquisition Corp., a Cayman Islands exempted company (“Act II”), domesticated into a Delaware corporation (the “Domestication”), and on June 25, 2020 (the “Closing”), consummated the indirect acquisition (the “Business Combination”) of (i) all of the issued and outstanding equity interests of Merisant Company (“Merisant”), Merisant Luxembourg Sarl (“Merisant Luxembourg”), Mafco Worldwide LLC (“Mafco Worldwide”), Mafco Shanghai LLC (“Mafco Shanghai”), EVD Holdings LLC (“EVD Holdings”), and Mafco Deutschland GmbH (together with Merisant, Merisant Luxembourg, Mafco Worldwide, Mafco Shanghai, and EVD Holdings, and their respective direct and indirect subsidiaries, “Merisant and Mafco Worldwide”), and (ii) certain assets and liabilities of Merisant and Mafco Worldwide included in the Transferred Assets and Liabilities (as defined in the Purchase Agreement (as hereafter defined)), from Flavors Holdings Inc. (“Flavors Holdings”), MW Holdings I LLC (“MW Holdings I”), MW Holdings III LLC (“MW Holdings III”), and Mafco Foreign Holdings, Inc. (“Mafco Foreign Holdings,” and together with Flavors Holdings, MW Holdings I, and MW Holdings III, the “Sellers”), pursuant to that certain Purchase Agreement (the “Purchase Agreement”) entered into by and among Act II and the Sellers dated as of December 19, 2019, as amended. In connection with the Domestication, Act II changed its name to “Whole Earth Brands, Inc.”

Upon the completion of the Domestication, each of Act II’s then-issued and outstanding ordinary shares converted, on a one-for-one basis, into shares of common stock of Whole Earth Brands. In conjunction with the Business Combination, the Company issued an aggregate of 7,500,000 shares of Whole Earth Brands common stock and 5,263,500 private placement warrants (the “Private Warrants”) exercisable for 2,631,750 shares of Whole Earth Brands common stock to certain investors. On the date of Closing, the Company’s common stock and warrants began trading on The Nasdaq Stock Market under the symbols “FREE” and “FREEW,” respectively.

As a result of the Business Combination, for accounting purposes, Act II was deemed to be the acquirer and Mafco Worldwide and Merisant Company were deemed to be the acquired parties and, collectively, the accounting predecessor. The Company’s financial statement presentation includes the combined financial statements of Mafco Worldwide and Merisant Company as the “Predecessor” for periods prior to the completion of the Business Combination and includes Whole Earth Brands, Inc. and its subsidiaries for periods after the Closing (referred to as the “Successor”).

Basis of Presentation—The accompanying unaudited consolidated and combined interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. The balance sheet data as of December 31, 2020 was derived from the audited consolidated financial statements. These unaudited condensed consolidated and combined interim financial statements should be read in conjunction with the Company’s audited consolidated and combined financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K.

In the opinion of management, the financial statements contain all adjustments necessary to state fairly the financial position of the Company as of September 30, 2021 and the results of operations and cash flows for all periods presented. All adjustments reflected in the accompanying unaudited consolidated and combined financial statements, which management believes are necessary to state fairly the financial position, results of operations and cash flows, have been reflected and are of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Principles of Consolidation—The consolidated and combined financial statements include the accounts of Whole Earth Brands, Inc., and its indirect and wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

12

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

Recently Adopted Accounting Pronouncements—The Company qualifies as an emerging growth company (an “EGC”) and as such, has elected the extended transition period for complying with certain new or revised accounting pronouncements. During the extended transition period, the Company is not subject to certain new or revised accounting standards applicable to public companies. The accounting pronouncements pending adoption below reflect effective dates for the Company as an EGC with the extended transition period.

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-7, “Compensation - Retirement Benefits (Topic 715).” Under the new guidance, employers are required to present the service cost component of net periodic benefit cost in the same statement of operations caption as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the net periodic benefit cost separately from the caption that includes the service costs and outside of any subtotal of operating profit and are required to disclose the caption used to present the other components of net periodic benefit cost, if not presented separately on the statement of operations. The Company adopted ASU 2017-7 effective in the second quarter of 2020. The adoption of this standard did not have an effect on the Company’s historically reported net income (loss) but resulted in a presentation reclassification which increased the Company’s historically reported operating profit by $0.1 million for the six months ended June 25, 2020.

New Accounting Standards—In March 2020, the FASB issued ASU 2020-4, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. The amendments in ASU 2020-4 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The new standard was effective upon issuance and upon adoption can be applied prospectively to applicable contract modifications made on or before December 31, 2022. The Company is currently evaluating the impact of adopting this standard but does not expect it to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) - Simplifying the Accounting for Income Taxes.” The standard enhances and simplifies various aspects of the income tax accounting guidance. For public entities, the standard is effective for annual periods and interim periods beginning after December 15, 2020. This standard is effective for the Company as an EGC for the fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” The standard modifies certain disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans by removing disclosures that are no longer considered cost beneficial, clarifying specific requirements of disclosures, and adding disclosure requirements identified as relevant. This standard is effective for the Company as an EGC for the fiscal years beginning after December 15, 2021. Early adoption is permitted. The amendments in ASU 2018-14 should be applied retrospectively to each period presented. The Company is currently evaluating the impact of adopting ASU 2018-14 on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The standard requires entities to estimate losses on financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This standard is effective for the Company as an EGC for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.

Restructuring and Employee Termination Benefits—During 2020, the Company adopted restructuring plans to streamline processes and realize cost savings by consolidating facilities and eliminating various positions in operations and general and administrative areas.

13

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

In connection with the restructuring plans, the Company recognized restructuring and other expenses of $4.5 million for the nine months ended September 30, 2021. This included facility exit and other related costs of $3.9 million and employee termination benefits of $0.6 million. During the nine months ended September 30, 2021, the Company paid employee termination benefits of $0.5 million. The Company has accrued severance expense related to the restructuring plans of $1.1 million and $1.0 million at September 30, 2021 and December 31, 2020, respectively, which is recorded in accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheets.

Warrant Liabilities—The Company accounts for the Private Warrants in accordance with Accounting Standards Codification “ASC” Topic 815, “Derivatives and Hedging.” Under the guidance contained in ASC Topic 815-40, the Private Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Private Warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. The liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s statement of operations. The Private Warrants are valued using a Black-Scholes option pricing model.

Based on the views expressed in the SEC’s Staff Statement of April 12, 2021 in which the SEC staff clarified its interpretations of certain generally accepted accounting principles related to certain terms common in warrants issued by Special Purpose Acquisition Companies (“SPACs”), the Company determined that the Private Warrants should be treated as derivative liabilities rather than as components of equity, as previously presented as of December 31, 2020. Accordingly, the Company recorded out of period adjustments to the unaudited Condensed Consolidated Balance Sheet at January 1, 2021 to reclassify warrant liabilities of $8.1 million and transaction costs incurred by Act II of $1.1 million related to the issuance of the Private Warrants. Additionally, during the first quarter of 2021, the Company recognized the cumulative effect of the error on prior periods by recording a $1.2 million gain in the Statement of Operations to reflect the cumulative decrease in the fair value of the Private Warrants from the date of issuance through December 31, 2020. The Company concluded that this misstatement was not material to the current period or the previously filed financial statements.

NOTE 2: BUSINESS COMBINATIONS

On June 25, 2020, pursuant to the Business Combination, the Company indirectly acquired Merisant and Mafco Worldwide in a transaction accounted for as a business combination under ASC Topic 805, “Business Combinations,” and was accounted for using the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.

The following summarizes the purchase consideration (in thousands):

Base cash consideration	$	387,500
Closing adjustment	(764)
Total Purchase Price	$	386,736

14

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

Cash and cash equivalents	$	10,062
Accounts receivable	45,769
Inventories	106,436
Prepaid expenses and other current assets	2,461
Property, plant and equipment, net	43,554
Operating lease right-of-use assets	12,541
Intangible assets	148,750
Deferred tax assets, net	1,065
Other assets	1,398
Total assets acquired	372,036
Accounts payable	18,590
Accrued expenses and other current liabilities	35,063
Current portion of operating lease liabilities	3,007
Operating lease liabilities, less current portion	12,208
Deferred tax liabilities, net	24,630
Other liabilities	16,227
Total liabilities assumed	109,725
Net assets acquired	262,311
Goodwill	124,425
Total Purchase Price	$	386,736

The values allocated to identifiable intangible assets and their estimated useful lives are as follows:

Identifiable intangible assets	Fair Value (in thousands)		Useful Life (in years)
Customer relationships	$	47,359	0.5 to 10
Tradenames	90,691		25
Product formulations	10,700		Indefinite
	$	148,750

Goodwill represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and expected future market opportunities. Of the purchase price allocated to goodwill, a total of $2.5 million will be deductible for income tax purposes pursuant to Internal Revenue Code (“IRC”) Section 197 over a 15-year period.

The Company’s allocation of purchase price was based upon valuations performed to determine the fair value of the net assets as of the acquisition date and was subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations. The allocation of purchase price was finalized in the second quarter of 2021.

In the first half of 2021, the Company recorded measurement period adjustments to its allocation of purchase price resulting in an increase in deferred tax liabilities, net of $1.5 million, other liabilities of $0.7 million and goodwill of $2.2 million.

15

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

Direct transaction-related costs consist of costs incurred in connection with the Business Combination. Act II incurred transaction costs of $18.1 million prior to the Business Combination which are reflected within the accumulated deficit within the Consolidated Statement of Equity. During the three months ended March 31, 2021, the Company reclassified $1.1 million of Act II transaction costs related to the issuance of the Private Warrants that had been previously recorded in additional paid-in capital in connection with the Business Combination to accumulated deficit (See Note 1).

Swerve Acquisition—On November 10, 2020, the Company executed and closed a definitive Equity Purchase Agreement (the “Purchase Agreement”) with RF Development, LLC (“RF Development”), Swerve, L.L.C. (“Swerve LLC”) and Swerve IP, L.L.C. (“Swerve IP” and together with Swerve LLC, “Swerve”). Swerve is a manufacturer and marketer of a portfolio of zero sugar, keto-friendly, and plant-based sweeteners and baking mixes. The Company purchased all of the issued and outstanding equity interests of both Swerve LLC and Swerve IP from RF Development for $80 million in cash, subject to customary post-closing adjustments. In connection with the acquisition of Swerve, the Company incurred transaction-related costs of $0.3 million in the nine months ended September 30, 2021. Swerve is included within the Company’s Branded CPG reportable segment. Swerve’s results are included in the Company’s consolidated statement of operations from the date of acquisition.

The following summarizes the purchase consideration (in thousands):

Base cash consideration	$	80,000
Closing adjustment	(968)
Total Purchase Price	$	79,032

The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

Accounts receivable	$	3,223
Inventories	6,824
Prepaid expenses and other current assets	223
Property, plant and equipment, net	143
Operating lease right-of-use assets	76
Intangible assets	36,300
Other assets	3
Total assets acquired	46,792
Accounts payable	3,477
Accrued expenses and other current liabilities	288
Current portion of operating lease liabilities	48
Operating lease liabilities, less current portion	28
Total liabilities assumed	3,841
Net assets acquired	42,951
Goodwill	36,081
Total Purchase Price	$	79,032

The values allocated to identifiable intangible assets and their estimated useful lives are as follows:

Identifiable intangible assets	Fair Value (in thousands)		Useful Life (in years)
Customer relationships	$	3,200	10
Tradenames	33,100		25
	$	36,300

16

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

Goodwill represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and expected future market opportunities. The entire amount of the purchase price allocated to goodwill will be deductible for income tax purposes pursuant to IRC Section 197 over a 15-year period.

The Company’s allocation of purchase price was based upon valuations performed to determine the fair value of the net assets as of the acquisition date and is subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations.

Wholesome Acquisition—On December 17, 2020, the Company entered into a stock purchase agreement (the “Wholesome Purchase Agreement”) with WSO Investments, Inc. (“WSO Investments” and together with its subsidiaries “Wholesome” and affiliates). WSO Investments is the direct parent of its wholly-owned subsidiary Wholesome Sweeteners, Incorporated, which was formed to import, market, distribute, and sell organic sugars, unrefined specialty sugars, and related products. Wholesome is included within the Company’s Branded CPG reportable segment. Wholesome’s results are included in the Company’s consolidated statement of operations from the date of acquisition.

On February 5, 2021, pursuant to the terms of the Wholesome Purchase Agreement, the Company purchased and acquired all of the issued and outstanding shares of capital stock for an initial cash purchase price of $180 million plus up to an additional $55 million (the “Earn-Out Amount”) upon the satisfaction of certain post-closing financial metrics. Subject to the terms and conditions of the Wholesome Purchase Agreement payment of the Earn-Out Amount, in whole or in part, is subject to Wholesome achieving certain EBITDA thresholds at or above approximately $30 million during the period beginning August 29, 2020, and ending December 31, 2021 and is expected to be paid by March 31, 2022. A portion of the Earn-Out Amount (up to $27.5 million) may be paid, at the Company’s election, in freely tradeable, registered shares of Company common stock. The fair value of the Earn-Out Amount assumes a full payout. In connection with the acquisition of Wholesome, the Company incurred transaction-related costs of $0.1 million and $4.7 million in the three and nine months ended September 30, 2021, respectively.

The following summarizes the preliminary purchase consideration (in thousands):

Base cash consideration	$	180,000
Closing adjustment	13,863
Fair value of Earn-Out Amount	52,395
Total Purchase Price	$	246,258

17

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

The Company preliminarily recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

Cash and cash equivalents	$	2,664
Accounts receivable	15,868
Inventories	78,522
Prepaid expenses and other current assets	1,271
Property, plant and equipment, net	3,134
Operating lease right-of-use assets	7,585
Intangible assets	104,500
Other assets	1,189
Total assets acquired	214,733
Accounts payable	5,251
Accrued expenses and other current liabilities	10,576
Current portion of operating lease liabilities	1,435
Operating lease liabilities, less current portion	6,150
Deferred tax liabilities, net	26,685
Total liabilities assumed	50,097
Net assets acquired	164,636
Goodwill	81,622
Total Purchase Price	$	246,258

The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:

Identifiable intangible assets	Fair Value (in thousands)		Useful Life (in years)
Customer relationships	$	55,700	10
Tradenames	48,800		25
	$	104,500

Goodwill represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and expected future market opportunities. Of the purchase price allocated to goodwill, a total of $4.7 million will be deductible for income tax purposes pursuant to IRC Section 197 over a 9-year period.

The Company’s preliminary allocation of purchase price was based upon preliminary valuations performed to determine the fair value of the net assets as of the acquisition date and is subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations. The accounting for the Wholesome acquisition is not complete as the valuation for certain acquired assets and liabilities have not been finalized. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed above.

In the second and third quarter of 2021, the Company recorded measurement period adjustments to its initial allocation of purchase price as a result of ongoing valuation procedures on assets and liabilities assumed, including (i) an increase in purchase price of $3.6 million due to the finalization of the closing adjustment; (ii) a decrease to inventory of $0.2 million; (iii) an increase in prepaid expenses and other current assets of $0.5 million; (iv) an increase in property, plant and equipment of $0.4 million; (v) a decrease to intangible assets of $1.9 million; (vi) a decrease to other assets of $0.1 million; (vii) a decrease to accrued expenses and other current liabilities of $2.7 million; (viii) a decrease to deferred tax liabilities, net of $0.3 million; and (ix) an increase to goodwill of $1.9 million due to the incremental measurement period adjustments discussed in items (i) through (viii). The impact of measurement period adjustments to the results of operations was immaterial.

18

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

The results of the Company’s operations for the three and nine months ended September 30, 2021 includes the results of Wholesome since February 5, 2021. Product revenues, net and operating income of Wholesome included in the Company’s condensed consolidated statement of operations for the three months ended September 30, 2021 was $53.1 million and $7.5 million, respectively, and for the nine months ended September 30, 2021 was $125.3 million and $12.6 million, respectively.

Pro Forma Financial Information—The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combination and Swerve acquisition had occurred on January 1, 2019 and the Wholesome acquisition had occurred on January 1, 2020 (in thousands):

	Pro Forma Statements of Operations
	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Revenue	$	128,941	$	120,968	$	381,639	$	367,150
Net income (loss)	$	9,613	$	5,272	$	13,928	$	(38,626)

The unaudited pro forma financial information does not assume any impacts from revenue, cost or other operating synergies that could be generated as a result of the acquisitions. The unaudited pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved had the Business Combination and Swerve acquisitions been consummated on January 1, 2019 and the Wholesome acquisition been consummated on January 1, 2020.

The Successor and Predecessor periods have been combined in the pro forma for the three and nine months ended September 30, 2021 and 2020 and include adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets, interest expense on the new debt financing, depreciation expense for certain property, plant and equipment that have been adjusted to fair value, and the release of the inventory fair value adjustments into cost of goods sold. These adjustments are net of taxes.

NOTE 3: INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2021		December 31, 2020
Raw materials and supplies	$	117,445	$	66,487
Work in process	1,408		562
Finished goods	74,656		44,650
Total inventories	$	193,509	$	111,699

19

Whole Earth Brands, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)    

NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following (in thousands):

	September 30, 2021			December 31, 2020
	Gross Amount	Accumulated Amortization	Net Amount	Gross Amount	Accumulated Amortization	Net Amount
Other intangible assets subject to amortization
Customer relationships (useful life of 5 to 10 years)	$