Failing to Find New Source of Funding, Tattooed Chef Declares

Chapter 11

Frozen plant-based meal brand Tattooed Chef has declared Chapter 11 bankruptcy, the publicly traded company announced via a press release on July 5.

“Our business has continued to be impacted by a challenging financing environment and an inability to raise additional capital,” Tattooed Chef chairman and CEO Salvatore “Sam” Galletti, stated in the press release. “The actions we are announcing today are designed to promote a fast, efficient, and value-maximizing sale, which will allow us to provide clarity on the future of the company for all our stakeholders.”

Filed in the U.S. Bankruptcy Court for the Central District of California, court documents indicate the company plans to pursue a sale of “substantially all of its assets” under Section 363 of the Bankruptcy Code. Next steps, lawyers said in the fi ling, are to list all assets and evaluate any bids received, a process that will be overseen by the bankruptcy court. In emergency motions, Tattooed Chef also petitioned for access to cash collateral and $3 million in loans in order to keep the business afloat and maintain its value for a future sale.

The company cited an inability to raise additional capital, either by selling additional shares or via “alternative fi nancing and funding solutions.” In addition, the bankruptcy fi ling noted, the company explored various “reductions in expenses” such as reductions in its labor force. At this point, the company has more than 1,600 creditors.

“Due to the debtors’ restated fi nancial statements, changes in the capital markets, and the general economic conditions affecting the Debtors’ market segment, the debtors were unable to obtain any new fi nancing,” the fi ling noted. “[Between 2020 to 2022], the debtors’ liquidity became constrained and the debtors fell behind on payments to suppliers and other parties necessary to the continued operation and profitability of their business.”

For the fiscal year ending December 31, 2022, Tattooed Chef reported revenue of $230 million, up from $208 million the year prior, for a year-over-year growth rate of 11%. Still, net loss grew to $141 million for the fiscal year and adjusted EBITDA was negative $91.7 million. Though the company was able to reduce total operating expenses in the first quarter of 2023 by 37% compared to the same period in 2022, and reduced losses from Q4 of 2022, net revenue also declined by $8.6 million to $59 million.

Founded in 2017, Tattooed Chef produces an array of frozen products, including meals, pizza, burritos, smoothie bowls, sold under its Tattooed Chef brand as well as private label offerings. In total, the company sells 132 SKUs across 21,000 retailers and has 175 concepts and recipes in the R&D stage. Tattooed Chef was created, and went public, via a 2020 reverse merger between Ittella International and the publicly traded Forum Merger II Corporation, a transaction that valued the plant-based meal company at roughly $482 million.

Alongside Sam Galletti, his daughter, Sarah Galletti, serves as the company’s chief creative officer and largely acts as the public face of the company. In addition, the company has 800 full time employees in the U.S. and 140 full time employees in Italy.

From April 2021 through August 2022, Tattooed Chef spent over $66 million to acquire a sizable pool of assets including: Ittella Italy SRL (“Ittella Italy”), a 100,000 square foot processing plant in Italy; New Mexico Food Distributors; Karsten Tortilla Factory; Belmont Confections and Desert Premium Group. The debtors also lease processing facilities in California, New Mexico and Ohio; as well as storage facilities in Italy and California.

According to the court fi ling, at the time of Tattooed Chef’s IPO the brand had household awareness of under 6% and was only available in 4 major retailers, for less than 4,000 doors. By 2022, household awareness was at over 26% and door count had increased to around 20,000 doors. To try to further drive sales, earlier this year the company expanded beyond frozen into refrigerated snack bars and tortilla chips.

Still, this accelerated growth has come at a cost, with the bankruptcy document stating that Tattooed Chef has invested over $100 million into marketing and promotions over the three year time period. Revenue also did not keep pace, the company reported in the document, growing from $147 million in 2020 to $230 million in 2022.

The bankruptcy filing comes on the heels of other legal woes, with several lawsuits stemming from the company’s October 2022 disclosure that its 2021 annual report and first, second and third quarter earnings contained material errors such as overstating revenue and understating net losses. According to the allegations, even once the error was discovered, executives continued to downplay the scope of the company’s financial difficulties or the lack of internal controls that had led to the issue.

The bankruptcy news also follows several other notable closures by plant-based companies, with both The Meatless Farm and The Very Good Food Company running into fi nancial difficulties in the last five months.