UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192020
Or
| ☐ | 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:File Number: 333-161943
Better Choice Company Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 83-4284557 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
164 Douglas Road East
Oldsmar, Florida 34677
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s telephone number, including area code)Telephone Number, Including Area Code): (813) 659-5921
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Registered |
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check markcheckmark whether the registrant: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 ☒*☒
*(As a voluntary filer, the Registrantregistrant has not been subject to the filing requirements of Section 13 or 15(d) of the Exchange Act for the past 90 days. The Registrantregistrant has filed all reports required under Section 13 or 15(d) of the Exchange Act during the preceding 12 months).
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 markcheckmark 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”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 a 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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧
The number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date was: 48,939,708 shares of $0.001 par value $0.001 per share,common stock outstanding as of October 7, 2019 was 45,427,659.August 12, 2020.
| Item | Page | |
| PART I – FINANCIAL INFORMATION | ||
| 1. | Financial Statements | 4 |
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| 8 | ||
| Notes to the Condensed Consolidated Financial Statements | 10 | |
| 2. | 30 | |
| 3. | 38 | |
| 4. | 38 | |
| PART II – OTHER INFORMATION | ||
| 1. | 39 | |
| 1A. | Risk Factors | 39 |
| 2. | 39 | |
| 3. | 39 | |
| 4. | 39 | |
| 5. | 39 | |
| 6. | 39 | |
| 44 |
This Quarterly Report on Form 10-Q (“Quarterly Report”) is filed by Better Choice Company Inc. (“Better Choice Company” or the “Company”) and as discussed in more detail in our TransitionAnnual Report on Form 10-KT,10-K, filed on July 25, 2019,May 1, 2020, the Company completed its acquisitions (the “acquisitions”“May Acquisitions”) of TruPet LLC (“TruPet”) and Bona Vida, Inc. (“Bona Vida”). The acquisition of TruPet is treated as a reverse merger with TruPet determined to be the accounting acquirer of the Company. As such, the historical financial statements of the registrant prior to the May Acquisitions are those of TruPet and TruPet’s equity has been re-cast to reflect shares of Better Choice Company common stock received in the acquisitions. The acquisition of Better Choice Company and Bona Vida iswere treated as an asset acquisition.acquisitions. On December 19, 2019, Better Choice Company acquired (the “Halo Acquisition”, and together with the May Acquisitions, the “Acquisitions”) 100% of the issued and outstanding capital stock of Halo, Purely for Pets, Inc. (“Halo”). Unless otherwise stated or the context otherwise requires, the historical business information described in this Quarterly Report prior to consummation of the May Acquisitions is that of TruPet and, following consummation of the May Acquisitions through December 19, 2019, reflects business information of the Company, TruPet, and Bona VidaVida. From December 19, 2019 onward, the results of operations reflects business information of Better Choice Company and Halo as a combined business. References to the “Company”, “we”, “us” and “our” in this Report, refer to TruPet and its consolidated subsidiaries prior to May 6, 2019 and to Better Choice Company, TruPet and Bona Vida and their consolidated subsidiaries post May 6, 2019.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report are “forward-looking statements” for purposes of federal and state securities laws, including statements regarding our expectations and projections regarding future developments, operations and financial conditions, and the anticipated impact of COVID-19 and our acquisitions, business strategy, and strategic priorities. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” “potential,”or “continue” “continue,”or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions. Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report. Accordingly, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise. You should, however, consult further disclosures we make in future filings and public disclosures, including without limitation, our Annual Report on Form 10-K, Transition Report on Form 10-KT, Quarterly Reports on Forms 10-Q, and Current Reports on Forms 8-K.
PART I. FINANCIAL INFORMATIONI
Better Choice Company Inc.
As of June 30, 20192020 and December 31, 20182019
(Dollars in thousands)thousands, except share and per share amounts)
June 30, 2020 (unaudited) | December 31, 2019 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,462 | $ | 2,361 | ||||
| Restricted cash | 25 | 173 | ||||||
| Accounts receivable, net | 4,203 | 5,824 | ||||||
| Inventories, net | 5,420 | 6,580 | ||||||
| Prepaid expenses and other current assets | 3,317 | 2,641 | ||||||
| Total Current Assets | 16,427 | 17,579 | ||||||
| Property and equipment, net | 321 | 417 | ||||||
| Right-of-use assets, operating leases | 801 | 951 | ||||||
| Intangible assets, net | 13,878 | 14,641 | ||||||
| Goodwill | 18,614 | 18,614 | ||||||
| Other assets | 687 | 1,330 | ||||||
| Total Assets | $ | 50,728 | $ | 53,532 | ||||
| Liabilities & Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Short term loan, net | $ | 18,157 | $ | 16,061 | ||||
| Line of credit, net | 5,687 | 4,819 | ||||||
| PPP loans | 333 | - | ||||||
| Other liabilities | 209 | 500 | ||||||
| Accounts payable | 4,044 | 4,049 | ||||||
| Accrued liabilities | 4,731 | 4,721 | ||||||
| Deferred revenue | 354 | 311 | ||||||
| Operating lease liability, current portion | 341 | 345 | ||||||
| Warrant derivative liability | 4,315 | 2,220 | ||||||
| Total Current Liabilities | 38,171 | 33,026 | ||||||
| Noncurrent Liabilities | ||||||||
| Notes payable, net | 17,594 | 16,370 | ||||||
| PPP loans | 519 | - | ||||||
| Operating lease liability | 492 | 641 | ||||||
| Total Noncurrent Liabilities | 18,605 | 17,011 | ||||||
| Total Liabilities | 56,776 | 50,037 | ||||||
| Redeemable Series E Convertible Preferred Stock | ||||||||
| Redeemable Series E preferred stock, $0.001 par value, 2,900,000 shares authorized, 1,387,378 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 10,566 | 10,566 | ||||||
| Stockholders’ Deficit | ||||||||
| Common stock, $0.001 par value, 88,000,000 shares authorized, 48,939,708 and 47,977,390 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 49 | 48 | ||||||
| Additional paid-in capital | 212,532 | 194,150 | ||||||
| Accumulated deficit | (229,195 | ) | (201,269 | ) | ||||
| Total Stockholders’ Deficit | (16,614 | ) | (7,071 | ) | ||||
| Total Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit | $ | 50,728 | $ | 53,532 | ||||
6/30/2019 (Unaudited) | 12/31/2018 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 5,019 | $ | 3,946 | ||||
| Restricted cash | 6,243 | - | ||||||
| Accounts receivable, net | 333 | 276 | ||||||
| Inventories, net | 1,707 | 1,557 | ||||||
| Prepaid expenses and other current assets | 1,134 | 269 | ||||||
| Total Current Assets | 14,436 | 6,048 | ||||||
| Property and equipment, net | 59 | 71 | ||||||
| Right of use asset, operating lease, net of accumulated amortization | 840 | - | ||||||
| Intangible assets, net | 961 | - | ||||||
| Other assets | 182 | 28 | ||||||
| Total Assets | $ | 16,478 | $ | 6,147 | ||||
| Liabilities & Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Line of credit | $ | - | $ | 4,600 | ||||
| Other liabilities | - | 1,899 | ||||||
| Long-term debt, current portion | 6,200 | 1,600 | ||||||
| Accounts payable | 2,413 | 765 | ||||||
| Due to related parties | 134 | - | ||||||
| Accrued liabilities | 2,198 | 244 | ||||||
| Deferred revenue | 318 | 66 | ||||||
| Operating lease liability, current portion | 262 | - | ||||||
| Warrant derivative liability | 2,304 | - | ||||||
| Total Current Liabilities | 13,829 | 9,174 | ||||||
| Operating lease liability | 590 | - | ||||||
| Deferred rent | 15 | 15 | ||||||
| Total Liabilities | 14,434 | 9,189 | ||||||
Commitments and contingencies | - | - | ||||||
| Redeemable Series E Convertible Preferred Stock, $0.001 par value, 2,900,000 & 0 shares authorized, 1,707,919 & 0 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively. | 13,007 | - | ||||||
| Stockholders’ Deficit | ||||||||
| Common Stock, $0.001 par value, 88,000,000 shares authorized, 43,168,161 & 11,661,485 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively. | 43 | 12 | ||||||
| Convertible Series A Preferred Units, $0.001 par value, units equivalent to 0 & 2,391,403 Common Stock issued and outstanding at June 30, 2019 and December 31, 2018, respectively | - | 2 | ||||||
| Additional paid-in capital | 170,017 | 13,642 | ||||||
| Accumulated deficit | (181,023 | ) | (16,698 | ) | ||||
| Total Stockholders’ Deficit | (10,963 | ) | (3,042 | ) | ||||
| Total Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit | $ | 16,478 | $ | 6,147 | ||||
Better Choice Company Inc.
(Dollars in thousands, except share and per share amounts)
| For the Six Months ended June 30, | For the Three Months ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net Sales | $ | 7,635 | $ | 7,064 | $ | 4,084 | $ | 3,817 | ||||||||
| Cost of Goods Sold | 4,082 | 3,329 | 2,421 | 1,384 | ||||||||||||
| Gross Profit | 3,553 | 3,735 | 1,663 | 2,433 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| General & Administrative Expense | 6,004 | 1,351 | 4,571 | 665 | ||||||||||||
| Share-Based Compensation Expense | 4,212 | - | 4,006 | - | ||||||||||||
| Sales & Marketing | 5,597 | 2,819 | 3,412 | 1,512 | ||||||||||||
| Other Operating Expenses | 1,721 | 1,899 | 937 | 958 | ||||||||||||
| Total Operating Expenses | 17,534 | 6,069 | 12,926 | 3,135 | ||||||||||||
| Loss from Operations | (13,981 | ) | (2,334 | ) | (11,263 | ) | (702 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Expense | (124 | ) | (66 | ) | (62 | ) | (43 | ) | ||||||||
| Loss on Acquisition | (149,988 | ) | - | (149,988 | ) | - | ||||||||||
| Change in Fair Value of Derivative Liability | (193 | ) | - | (193 | ) | - | ||||||||||
| Total Other Expenses | (150,305 | ) | (66 | ) | (150,243 | ) | (43 | ) | ||||||||
| Net Loss | (164,286 | ) | (2,400 | ) | (161,506 | ) | (745 | ) | ||||||||
| Preferred dividends | 27 | - | 27 | - | ||||||||||||
| Net Loss Available to Common Stockholders | $ | (164,313 | ) | $ | (2,400 | ) | $ | (161,533 | ) | $ | (745 | ) | ||||
| Weighted Average Number of Shares Outstanding | 21,202,188 | 11,497,128 | 30,638,048 | 11,497,128 | ||||||||||||
| Loss per share, basic and diluted | $ | (7.75 | ) | $ | (0.21 | ) | $ | (5.27 | ) | $ | (0.06 | ) | ||||
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net sales | $ | 22,167 | $ | 7,635 | $ | 9,941 | $ | 4,084 | ||||||||
Cost of goods sold | 13,886 | 4,082 | 5,817 | 2,421 | ||||||||||||
| Gross profit | 8,281 | 3,553 | 4,124 | 1,663 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 19,650 | 7,174 | 11,594 | 5,211 | ||||||||||||
| Share-based compensation | 5,504 | 4,212 | 3,020 | 4,006 | ||||||||||||
| Sales and marketing | 3,807 | 5,597 | 1,848 | 3,412 | ||||||||||||
| Customer service and warehousing | 352 | 551 | 162 | 297 | ||||||||||||
| Total operating expenses | 29,313 | 17,534 | 16,624 | 12,926 | ||||||||||||
| Loss from operations | (21,032 | ) | (13,981 | ) | (12,500 | ) | (11,263 | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense, net | 4,731 | 124 | 2,430 | 62 | ||||||||||||
| Loss on acquisitions | - | 149,988 | - | 149,988 | ||||||||||||
| Change in fair value of warrant derivative liability | 2,095 | 193 | 3,474 | 193 | ||||||||||||
| Total other expense, net | 6,826 | 150,305 | 5,904 | 150,243 | ||||||||||||
| Net and comprehensive loss | (27,858 | ) | (164,286 | ) | (18,404 | ) | (161,506 | ) | ||||||||
| Preferred dividends | 68 | 27 | 34 | 27 | ||||||||||||
| Net and comprehensive loss available to common stockholders | (27,926 | ) | (164,313 | ) | (18,438 | ) | (161,533 | ) | ||||||||
| Weighted average number of shares outstanding, basic and diluted | 48,733,052 | 21,202,188 | 48,939,708 | 30,638,048 | ||||||||||||
| Loss per share, basic and diluted | $ | (0.57 | ) | $ | (7.75 | ) | $ | (0.38 | ) | $ | (5.27 | ) | ||||
| Common Stock | Series A Preferred Units | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2017 | 11,497,128 | $ | 11,497 | $ | 8,545,446 | $ | (10,672,090 | ) | $ | (2,115,147 | ) | |||||||||||||||||
| Net loss for the period | (1,655,302 | ) | (1,655,302 | ) | ||||||||||||||||||||||||
| Subtotal - March 31, 2018 | 11,497,128 | 11,497 | 8,545,446 | (12,327,392 | ) | (3,770,449 | ) | |||||||||||||||||||||
| Net loss for the period | (744,558 | ) | (744,558 | ) | ||||||||||||||||||||||||
| Subtotal - June 30, 2018 | 11,497,128 | 11,497 | 8,545,446 | (13,071,950 | ) | (4,515,007 | ) | |||||||||||||||||||||
| Shares issued pursuant to private placement | 2,391,403 | 2,391 | 4,665,609 | 4,668,000 | ||||||||||||||||||||||||
| Stock compensation pursuant to services provided | 164,357 | 164 | 430,647 | 430,811 | ||||||||||||||||||||||||
| Net loss for the period | (3,626,157 | ) | (3,626,157 | ) | ||||||||||||||||||||||||
| Balance at December 31, 2018 | 11,661,485 | 11,661 | 2,391,403 | 2,391 | 13,641,701 | (16,698,107 | ) | (3,042,353 | ) | |||||||||||||||||||
| Impact on Prior Year of Adoption of ASC 842 | (11,824 | ) | (11,824 | ) | ||||||||||||||||||||||||
| Shares issued pursuant to private placement | 69,115 | 69 | 149,931 | 150,000 | ||||||||||||||||||||||||
| Stock compensation pursuant to services provided | 18,964 | 19 | 206,147 | 206,166 | ||||||||||||||||||||||||
| Net loss for the period | (2,780,082 | ) | (2,780,082 | ) | ||||||||||||||||||||||||
| Subtotal - March 31, 2019 | 11,680,449 | 11,680 | 2,460,517 | 2,461 | 13,997,779 | (19,490,013 | ) | (5,478,093 | ) | |||||||||||||||||||
| Stock compensation pursuant to services provided | 1,099,822 | 1,100 | 2,225,907 | 2,227,006 | ||||||||||||||||||||||||
| Stock based commissions to third parties | 798,492 | 798 | 4,790,156 | 4,790,955 | ||||||||||||||||||||||||
| Conversion of Series A Preferred Units to Common Stock | 2,460,517 | 2,461 | (2,460,517 | ) | (2,461 | ) | - | |||||||||||||||||||||
| Retired TruPet Units | (1,011,748 | ) | (1,012 | ) | (2,198,988 | ) | (2,200,000 | ) | ||||||||||||||||||||
| Subtotal - May 6, 2019 (Pre-Transaction) | 15,027,533 | 15,028 | - | - | 18,814,854 | (19,490,013 | ) | (660,132 | ) | |||||||||||||||||||
| Acquisition of Better Choice Company | 3,117,364 | 3,117 | 18,701,067 | 18,704,184 | ||||||||||||||||||||||||
| Acquisition of Bona Vida | 18,003,273 | 18,003 | 108,001,637 | 108,019,640 | ||||||||||||||||||||||||
| PIPE (net of issuance costs) | 5,744,991 | 5,745 | 15,670,045 | 15,675,790 | ||||||||||||||||||||||||
| Subtotal - May 6, 2019 (Post-Transaction) | 41,893,161 | 41,893 | 161,187,602 | (19,490,013 | ) | 141,739,482 | ||||||||||||||||||||||
| Stock compensation pursuant to services provided | 100,000 | 100 | 599,900 | 600,000 | ||||||||||||||||||||||||
| Conversion of Series E Preferred Stock | 1,175,000 | 1,175 | 7,050,678 | 7,051,853 | ||||||||||||||||||||||||
| Vesting of stock options for services provided | 1,178,997 | 1,178,997 | ||||||||||||||||||||||||||
| Net loss for the period | (161,533,182 | ) | (161,533,182 | ) | ||||||||||||||||||||||||
| Balance at June 30, 2019 | 43,168,161 | $ | 43,168 | $ | 170,017,177 | $ | (181,023,195 | ) | $ | (10,962,849 | ) | |||||||||||||||||
Better Choice Company Inc.
For the Six Months Ended June 30, 2019 and 20182020
(unaudited)
(Dollars in thousands except shares)
| Common Stock | Redeemable Series E Convertible Preferred Stock | |||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Deficit | Shares | Amount | ||||||||||||||||||||||
| Balance as of December 31, 2019 | 47,977,390 | $ | 48 | $ | 194,150 | $ | (201,269 | ) | $ | (7,071 | ) | 1,387,378 | $ | 10,566 | ||||||||||||||
| Shares issued pursuant to a private placement | 308,642 | - | 500 | - | 500 | - | - | |||||||||||||||||||||
| Share-based compensation | 455,956 | 1 | 2,484 | - | 2,485 | - | - | |||||||||||||||||||||
| Shares and warrants issued to third party for contract termination | 72,720 | - | 198 | - | 198 | - | - | |||||||||||||||||||||
| Shares issued to third parties for services | 125,000 | - | 125 | - | 125 | - | - | |||||||||||||||||||||
| Warrants issued to third parties for services | - | - | 2,594 | - | 2,594 | - | - | |||||||||||||||||||||
| Net and comprehensive loss available to common stockholders | - | - | - | (9,488 | ) | (9,488 | ) | - | - | |||||||||||||||||||
| Balance as of March 31, 2020 | 48,939,708 | $ | 49 | $ | 200,051 | $ | (210,757 | ) | $ | (10,657 | ) | 1,387,378 | $ | 10,566 | ||||||||||||||
| Warrants issued to third parties for services | - | - | 7,390 | - | 7,390 | - | - | |||||||||||||||||||||
| Share-based compensation | - | - | 3,020 | - | 3,020 | - | - | |||||||||||||||||||||
Warrants issued in connection with June 2020 Notes | - | - | 337 | - | 337 | - | - | |||||||||||||||||||||
| Beneficial conversion feature of June 2020 Notes | - | - | 1,163 | - | 1,163 | - | - | |||||||||||||||||||||
| Modification of conversion feature for November 2019 Notes, Seller Notes, and ABG Notes | - | - | 528 | - | 528 | - | - | |||||||||||||||||||||
| Modification of warrants | - | - | 43 | - | 43 | - | - | |||||||||||||||||||||
| Net and comprehensive loss available to common stockholders | - | - | - | (18,438 | ) | (18,438 | ) | - | - | |||||||||||||||||||
| Balance as of June 30, 2020 | 48,939,708 | $ | 49 | $ | 212,532 | $ | (229,195 | ) | $ | (16,614 | ) | 1,387,378 | $ | 10,566 | ||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Better Choice Company Inc.
(unaudited)
(Dollars in thousands except shares)
| Common Stock | Series A Preferred Units | Redeemable Series E Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional paid-in capital | Accumulated deficit | Total Stockholders’ Deficit | Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | 11,661,485 | $ | 12 | 2,391,403 | $ | 2 | $ | 13,642 | $ | (16,698 | ) | $ | (3,042 | ) | - | $ | - | |||||||||||||||||||
| Shares issued pursuant to a private placement – net proceeds | - | - | 69,115 | - | 150 | - | 150 | |||||||||||||||||||||||||||||
| Share-based compensation | 18,964 | - | - | - | 206 | - | 206 | - | - | |||||||||||||||||||||||||||
| Net and comprehensive loss available to common stockholders | - | - | - | - | - | (2,776 | ) | (2,776 | ) | - | - | |||||||||||||||||||||||||
| Balance as of March 31,2019 | 11,680,449 | $ | 12 | 2,460,518 | $ | 2 | $ | 13,998 | $ | (19,474 | ) | $ | (5,462 | ) | - | $ | - | |||||||||||||||||||
| Share-based compensation | 1,199,822 | 2 | - | - | 4,006 | - | 4,008 | - | - | |||||||||||||||||||||||||||
| Conversion of Series A shares to common stock | 2,460,518 | 2 | (2,460,518 | ) | (2 | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Acquisition of treasury shares | (1,011,748 | ) | (1 | ) | - | - | (2,199 | ) | - | (2,200 | ) | - | - | |||||||||||||||||||||||
| Acquisition of Better Choice | 3,915,856 | 3 | - | - | 23,490 | - | 23,493 | 2,633,678 | 20,059 | |||||||||||||||||||||||||||
| Acquisition of Bona Vida | 18,003,273 | 18 | - | - | 108,002 | - | 108,020 | - | - | |||||||||||||||||||||||||||
| Shares and warrants issued pursuant to private issuance of public equity (PIPE) – net proceeds | 5,744,991 | 6 | - | - | 15,670 | - | 15,676 | - | - | |||||||||||||||||||||||||||
| Conversion of Series E Preferred Stock | 1,175,000 | 1 | - | - | 7,050 | - | 7,051 | (925,758 | ) | (7,052 | ) | |||||||||||||||||||||||||
| Net and comprehensive loss available to common stockholders | - | - | - | - | - | (161,533 | ) | (161,533 | ) | - | - | |||||||||||||||||||||||||
| Balance as of June 30, 2019 | 43,168,161 | $ | 43 | - | $ | - | $ | 170,017 | $ | (181,007 | ) | $ | (10,947 | ) | 1,707,920 | $ | 13,007 | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Cash Flow from Operating Activities | June 30, 2019 | June 30, 2018 | ||||||
| Net loss | $ | (164,286 | ) | $ | (2,400 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 45 | 7 | ||||||
| Stock-based compensation expense | 4,212 | - | ||||||
| Non-cash lease expense | 2 | - | ||||||
| Change in fair value of derivative liability | 193 | - | ||||||
| Loss on acquisition | 149,988 | - | ||||||
| Other | (4 | ) | - | |||||
| (Increase) decrease in operating assets | ||||||||
| Accounts receivable | (27 | ) | (50 | ) | ||||
| Inventories | 42 | (296 | ) | |||||
| Prepaid expenses and other assets | (466 | ) | 48 | |||||
| Change in operating lease right of use asset | (457 | ) | - | |||||
| (Decrease) increase in current liabilities | ||||||||
| Accounts payable | (32 | ) | 530 | |||||
| Accrued liabilities | 1,600 | 76 | ||||||
| Deferred revenue | 252 | 68 | ||||||
| Deferred rent | - | (9 | ) | |||||
| Change in Lease liability | 457 | - | ||||||
Cash Used in Operating Activities | $ | (8,481 | ) | $ | (2,026 | ) | ||
| Cash Flow from Investing Activities | ||||||||
| Cash spent for acquisition of fixed assets (Office Furniture) | (4 | ) | (31 | ) | ||||
| Cash acquired in merger | 1,955 | - | ||||||
| Security deposits paid | (81 | ) | - | |||||
Cash Provided by (Used in) Investing Activities | $ | 1,870 | $ | (31 | ) | |||
| Cash Flow from Financing Activities | ||||||||
| Repayment of advance | (1,899 | ) | - | |||||
| Proceeds from private placement of Series A Preferred Units | 150 | - | ||||||
| Proceeds from private issuance of public equity | 15,676 | - | ||||||
| Payment of old debt | (6,200 | ) | - | |||||
| Proceeds from the issuance of debt | 6,200 | 2,013 | ||||||
| Cash Provided by Financing Activities | $ | 13,927 | $ | 2,013 | ||||
| Net Changes in Cash, Cash Equivalents and Restricted Cash | $ | 7,316 | $ | (44 | ) | |||
| Total Cash, Cash Equivalents and Restricted Cash, Beginning of Period | 3,946 | 157 | ||||||
| Total Cash, Cash Equivalents and Restricted Cash, End of Period | $ | 11,262 | $ | 113 | ||||
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flow from Operating Activities: | ||||||||
Net and comprehensive loss available to common stockholders | $ | (27,926 | ) | $ | (164,313 | ) | ||
Adjustments to reconcile net and comprehensive loss to net cash used in operating activities: | ||||||||
Non-cash expenses | ||||||||
| Shares and warrants issued to third parties for services | 10,182 | - | ||||||
| Modification of warrants | 43 | - | ||||||
| Contract termination costs | 649 | - | ||||||
Depreciation and amortization | 866 | 45 | ||||||
Amortization of debt issuance costs and discounts | 2,353 | - | ||||||
Share-based compensation | 5,504 | 4,212 | ||||||
Lease expenses | (3 | ) | 2 | |||||
Change in fair value of warrant derivative liability | 2,095 | 193 | ||||||
Payment In Kind (PIK) interest expense on notes payable | 939 | - | ||||||
Loss on acquisitions | - | 149,988 | ||||||
Changes in operating assets and liabilities, net of effects of business acquisition: | ||||||||
Accounts receivable, net | 1,621 | (27 | ) | |||||
Inventories, net | 1,161 | 42 | ||||||
Prepaid expenses and other current assets | 176 | (466 | ) | |||||
Other assets | (84 | ) | (457 | ) | ||||
Accounts payable | (5 | ) | (32 | ) | ||||
Accrued liabilities | 10 | 1,627 | ||||||
Deferred revenue | 43 | 252 | ||||||
Change in lease liability | - | 457 | ||||||
Other | 208 | (4 | ) | |||||
| Cash Used in Operating Activities | $ | (2,168 | ) | $ | (8,481 | ) | ||
| Cash Flow from Investing Activities | ||||||||
Cash acquired in the May Acquisitions | $ | - | $ | 1,955 | ||||
Security deposits | - | (81 | ) | |||||
Acquisition of property and equipment, net | (6 | ) | (4 | ) | ||||
| Cash (Used in) Provided by Investing Activities | $ | (6 | ) | $ | 1,870 | |||
Cash Flow from Financing Activities | ||||||||
Proceeds from shares issued pursuant to private placement, net | $ | - | $ | 15,826 | ||||
Payment of old debt | - | (6,200 | ) | |||||
Proceeds from issuance of debt | - | 6,200 | ||||||
Proceeds from revolving line of credit | 1,075 | - | ||||||
Payments on revolving line of credit | (300 | ) | - | |||||
Proceeds from PPP loans | 852 | - | ||||||
Proceeds from June 2020 Notes | 1,500 | - | ||||||
Cash advance, net | - | (1,899 | ) | |||||
| Cash Provided by Financing Activities | $ | 3,127 | $ | 13,927 | ||||
Net Increase in Cash and cash equivalents and Restricted cash | $ | 953 | $ | 7,316 | ||||
Total Cash and cash equivalents, Beginning of Period | 2,534 | 3,946 | ||||||
Total Cash and cash equivalents and Restricted cash, End of Period | $ | 3,487 | $ | 11,262 | ||||
Supplemental Cash Flow Informationcash flow information
The following represent noncash financing and investing activities and other supplemental disclosures related to the statement of cash flows:
On May 6,January 1, 2019, the Company acquiredadopted ASC 842 which resulted in the netacquisition of right-of-use assets of Bona Vida and Better Choice in exchange for shares:operating lease liabilities as follows:
| Right-of-use assets and operating lease liability acquired under operating leases | ||||
| Right-of-use assets recorded upon adoption of ASC 842 | $ | 421 | ||
| Operating lease liability recorded upon adoption of ASC 842 | (429 | ) | ||
| Noncash acquisition of right-of-use assets for leases entered into during period | 607 | |||
| Noncash acquisition of operating lease liability for leases entered into during the period | (594 | ) | ||
| Assets | ||||
| Current Assets | ||||
| Accounts receivable, net | $ | 30 | ||
| Inventories, net | 193 | |||
| Prepaid expenses and other current assets | 399 | |||
| Total Current Assets | 622 | |||
| Intangible Assets | 986 | |||
| Other assets | 74 | |||
| Total Assets | $ | 1,682 | ||
| Liabilities | ||||
| Current Liabilities | ||||
| Accounts payable | $ | (1,814 | ) | |
| Accrued liabilities | (325 | ) | ||
| Total Current Liabilities | (2,139 | ) | ||
| Warrant derivative liability | (2,111 | ) | ||
| Total Liabilities | $ | (4,250 | ) | |
| Redeemable Series E Preferred Stock | $ | 20,059 | ||
| On January 1, 2019, the Company adopted ASC 842 which resulted in the acquisition of right of use assets and lease liabilities as follow: | ||||
| Right of use asset and lease liability acquired under operating leases | ||||
| Right of Use asset recorded upon adoption of ASC 842 | $ | 477 | ||
| Lease liability recorded upon adoption of ASC 842 | (489 | ) | ||
The Company paid no income taxes during the six months ended June 30, 2019 or 2018.2020 and 2019.
See accompanying notes to the unaudited condensed consolidated financial statements.
(Unaudited)
Note 1 – Nature of Business and Summary of Significant Accounting Policies
Nature of the Business
Better Choice Company Inc. (the “Company”) is a holistic petrapidly growing animal health and wellness company providing high quality, hemp-based, raw cannabidiol (“CBD”) infused and non-CBD infused food, treats and supplements, dental carecommitted to leading the industry shift toward pet products and accessories for petsservices that help dogs and their human parents. Our productscats live heathier, happier and longer lives. The Company sells the majority of its dog food, cat food and treats under the Halo and TruDog brands, which are formulatedfocused, respectively, on providing sustainably sourced kibble and manufactured using only high-quality ingredients manufactured, testedcanned food derived from real whole meat, and packaged to our specifications. minimally processed raw-diet dog food and treats.
On May 6, 2019, the Company acquiredcompleted the reverse acquisition of TruPet LLC (“TruPet”) and Bona Vida Inc. (“Bona Vida”) in a pair of all-stockall stock transactions (the “acquisitions”(together referred to as the “May Acquisitions”). through the issuance of shares of common stock. Following the completion of the May Acquisitions, the business conducted by the Company became primarily the businesses conducted by TruPet and Bona Vida. As a result, the consolidated financial statements for the year ended December 31, 2019 are comprised of the results of TruPet for the period between January 1, 2019 and December 31, 2019 and the results of Bona Vida beginning May 6, 2019 through December 31, 2019. The Company completed the acquisition of TruPet LLC is a reverse acquisition for accounting purposes, with TruPet asHalo on December 19, 2019 (see “Note 2 – Acquisitions”). Accordingly, Halo’s operations are included in the accounting acquirer.Company’s consolidated financial statements beginning on December 19, 2019.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have beenreflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for the full year.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”).
Tables are presented in U.S. dollars (thousands) and percentage as rounded up or down. In the notes, the Company represents U.S. dollars (millions) and percentage as rounded up or down.
Consolidation
The Company’s interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim(GAAP). The financial information and with the instructions to Form 10–Q and Article 10 of Regulation S–X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and operating results have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2019. The significant accounting policies applied by the Company are described below. We present our tables, except for the Statements of Stockholders’ Deficit, in dollars (thousands), numbers in the text in dollars (millions) and % as rounded up or down.
The Company is subject to risks common in the pet wellness consumer market including, but not limited to, dependence on key personnel, competitive forces, successful marketing and Cash Equivalents
Restricted cash and cash equivalents.
| Dollars in thousands | June 30, 2019 | December 31, 2018 | ||||||
| Cash and cash equivalents | $ | 5,019 | $ | 3,946 | ||||
| Restricted cash | 6,243 | 0 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 11,262 | $ | 3,946 | ||||
Accounts receivable represents amounts due from customers less an allowance for doubtful accounts. A provision is recorded for impairment when there is objective evidence (such as significant financial difficultiesconsist of the debtor) that the Company will not be able to collect all amounts due according to the original terms of the receivable. A provision is recorded as the difference between the carrying value of the receivable and the present value of future cash flows expectedunpaid buyer invoices from the debtor, with an offsettingCompany’s Retail customers and credit card payments receivable from third-party credit card processing companies. Accounts receivable is stated at the amount billed to customers, net of point of sale and cash discounts. The Company recorded as an allowance, reducing the carrying value of the receivable. The provision is included in general and administrative expense in the statements of operations. As of the period ended June 30, 2019 and December 31, 2018, the Company considers accounts receivable to be fully collectible and, accordingly, noa less than $0.1 million allowance for doubtful accounts has been recorded.as of June 30, 2020 and December 31, 2019, respectively.
Intangible assets
The Company assesses potential impairmentsacquired an intangible asset related to the Houndog license with the acquisition of Bona Vida on May 6, 2019. The Company fully impaired the asset as of December 31, 2019 as the Company terminated the contract on January 13, 2020. The Company also acquired intangible assets consisting of customer relationships and trade name with the acquisition of Halo on December 19, 2019. There were no indicators of impairment of intangible assets as of June 30, 2020.
Leases
The Company’s leases relate to its propertycorporate offices and equipment whenever events or changes in circumstances indicate thatwarehouses. Effective January 1, 2019, the asset’s carrying value may not be recoverable. An impairment charge wouldCompany adopted the FASB guidance on leases (“Topic 842”), which requires leases with durations greater than twelve months to be recognized whenon the carrying amountbalance sheets. The Company adopted Topic 842 using the modified retrospective transition approach.
Redeemable convertible preferred stock
The Company’s Redeemable Series E Convertible Preferred Stock (the “Series E”) contains redemption provisions that require it to be presented outside of property and equipment is not recoverable and exceeds its fair value. The carrying amount of property and equipment is not recoverable if it exceedsstockholders’ deficit. Changes in the sumredemption value of the undiscounted cash flows expectedredeemable convertible preferred stock, if any, are recorded immediately in the period occurred as an adjustment to result fromadditional paid-in capital in the use and eventual disposition of the property and equipment.condensed consolidated balance sheets.
Income Taxestaxes
Revenue
The Company recognizes revenue to depict the transfer of promised goods to the customer in an amount thatthe reflects the consideration to which the Company expects to be entitled in exchange for those goods.goods in accordance with the provisions of ASC 606, “Revenue from Contracts with Customers”.
The redemption requirements are the same under both levels and, for every five hundred points earned, customers receive a $5 gift code which can be redeemed for goods purchased in the future. The Company records a reduction to sales revenue and deferred revenue when the customer accumulates loyalty points.
Reclassification of Prior Period Presentationprior period presentation
Certain reclassifications have been made to conform the prior period data to the current presentations.presentation. These reclassifications had no material effect on the reported results.
Recently Issued Accounting Pronouncementsissued accounting pronouncements
The Company has reviewed the Accounting Standards Update (“ASU”)(ASU), accounting pronouncements and interpretations thereof issued by the FASB that have effective dates during the reporting period and in future periods.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure RequirementRequirements for Fair Value Measurement” which amends ASC 820Measurement.” This new guidance removes certain disclosure requirements related to expand the disclosures requiredfair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for items subject tothe period included in other comprehensive income for recurring Level 3 fair value remeasurement, includingmeasurements held at the underlying assumptions. ASU 2018-13 isend of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance was effective for public companiesthe Company beginning on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements.
ASU 2018-15 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)”
In August 2018, the FASB issued ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)” to amend ASU 2015-05 in an effort to provide additional guidance on the accounting for fiscal years beginning after December 15, 2019.costs implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalizing implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The new standard was effective for the Company on January 1, 2020. The Company has early adopted the disclosures as permitted under the ASU.no internal use software.
ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses: Measurement of CreditInstruments-Credit Losses on Financial Instruments (Topic 326)” Codification Improvements to Financial Instruments-Credit Losses (Topic 326). Subsequent updates were released in November 2018 (ASU No. 2018-19), November 2019 (ASU No. 2019-10 and 2019-11) and February 2020 (ASU No. 2020-02) that provided additional guidance on this Topic. This ASU 2016-13 changesintroduces the impairmentcurrent expected credit loss (CECL) model, for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlierrequire an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of allowances for losses. ASU 2016-13credit losses expected to be incurred over the life of the financial instrument. The standard is effective for annualthe Company on January 1, 2023, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements and related disclosures.
ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019- 12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.2020, with early adoption permitted. The Company does not anticipate any materialis currently evaluating the impact from the implementation of this ASU.standard on its consolidated financial statements and related disclosures.
ASU 2020-04 “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company is currently evaluating the impact the standard will have on its consolidated financial statements and related disclosures.
ASU 2020-03 “Codification Improvements to Financial Instruments”
In March 2020, FASB issued ASU 2020-03. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the impact the accounting guidance will have on its consolidated financial statements and related disclosures.
The Company has carefully considered other new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the Company’s reported balance sheetsheets or operations in 2019.operations.
Note 2 - Acquisitions Acquisition of TruPet LLCHalo
On October 15, 2019, the Company entered into a Stock Purchase Agreement (the “Agreement”) to acquire Halo and the acquisition (the “Halo Acquisition”) was completed on December 19, 2019 (“Halo Acquisition Date”) for $38.2 million. The consideration was subject to customary adjustments for Halo’s net working capital, cash, and indebtedness, and consisted of a combination of cash consideration ($20.5 million), shares of the Company’s common stock ($3.9 million), seller notes ($15.0 million), and seller warrants ($0.3 million).
The Halo Acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price was allocated to the identifiable assets and liabilities based on their estimated fair values at the Halo Acquisition Date. The determination of the preliminary purchase price allocation to specific assets acquired and liabilities assumed is incomplete for Halo. The preliminary purchase price allocation may change in future periods as the fair value estimates of assets and liabilities and the valuation of the related tax assets and liabilities are completed. The preliminary purchase price allocation is summarized as follows:
| Dollars in thousands | ||||
| Total Purchase Price | $ | 38,244 | ||
Assets | ||||
| Property and equipment | $ | 260 | ||
| Accounts receivable | 5,540 | |||
| Inventories | 5,160 | |||
| Intangible assets | 14,690 | |||
| Other assets | 329 | |||
| Total assets | 25,979 | |||
Liabilities | ||||
| Accounts payable | 4,628 | |||
| Accrued liabilities | 1,553 | |||
| Long term liability | 168 | |||
| Total liabilities | 6,349 | |||
| Net assets acquired | 19,630 | |||
| Goodwill | $ | 18,614 | ||
The intangible assets acquired relate to customer relationships and trade name. Acquired customer relationships are finite-lived intangible assets and are amortized over their estimated life of 7 years using the straight-line method, which approximates the customer attrition rate, reflecting the pattern of economic benefits associated with these assets.
All of Halo’s products and services are sold under the “Halo” trade name, and each major product is identified by this trade name. The trade name is a finite-lived intangible asset and is being amortized over its estimated life of 15 years using the straight-line method, which reflects the pattern of economic benefits associated with this asset.
The excess of purchase price over the fair value amounts assigned to the identifiable assets acquired and liabilities assumed represents goodwill from the acquisition. The Company believes the factors that contributed to goodwill include the acquisition of a talented workforce and administrative cost synergies. The Company does not expect any portion of this goodwill to be deductible for tax purposes. See “Note 9 – Intangible assets, royalties, and goodwill” for more information.
Reverse Acquisitions of Better Choice and Bona Vida Inc.by TruPet
On May 6, 2019, theBetter Choice Company completed the reverse acquisitions through the issuance of shares of Common Stock, par value $0.001 of the Company (the “Common Stock”). Following the completion of the acquisitions, the business conducted by the Company became primarily the businesses conducted by TruPet and Bona Vida.Vida whereby TruPet is a North American online seller of pet foods, pet nutritional productsconsidered the acquirer for accounting and related pet supplies. Bona Vida is an emerging hemp based CBD platform focused on developing a portfolio of brand and product verticals within the animal health and wellness space.financial reporting purposes. The completion of the acquisitions has created a vertically integrated pet wellness company providing high-quality raw CBD infused and non-CBD infused food, treats and supplements in addition to dental care products and accessorieswere accounted for pets and their human parents.
The fair value ofpurchase price for Bona Vida’s net assets acquired is estimated to be $1.0 million. TheVida was $108.6 million and the estimated purchase price has been allocated based on a preliminaryan estimate of the fair value of assets acquired and liabilities.liabilities assumed. The excess of the consideration paidpurchase price over the net assets acquired has been recorded as an expense. The loss on acquisition of Bona Vida’s net assets was $107.0is $107.8 million.
On May 6, 2019, the fair value of the following assets and liabilities were acquired:acquired was:
Dollars in thousands | Better Choice Company | Bona Vida | Total | |||||||||
| Total Purchase Price | $ | 37,949 | $ | 108,620 | $ | 146,569 | ||||||
Net Assets (Liabilities) Acquired: | ||||||||||||
Assets | ||||||||||||
Cash and cash equivalents | 7 | 384 | 391 | |||||||||
Restricted cash | - | 25 | 25 | |||||||||
Accounts receivable | - | 69 | 69 | |||||||||
Inventories | - | 95 | 95 | |||||||||
Prepaid expenses and other current assets | 32 | 348 | 380 | |||||||||
Intangible assets | 986 | - | 986 | |||||||||
Other assets | - | 74 | 74 | |||||||||
Total Assets | 1,025 | 995 | 2,020 | |||||||||
Liabilities | ||||||||||||
Warrant derivative liability | (2,130 | ) | - | (2,130 | ) | |||||||
Accounts payable & accrued liabilities | (544 | ) | (153 | ) | (697 | ) | ||||||
Total Liabilities | (2,674 | ) | (153 | ) | (2,827 | ) | ||||||
| Net Assets (Liabilities) Acquired | (1,649 | ) | 842 | (807 | ) | |||||||
| Loss on Acquisitions | $ | (39,598 | ) | $ | (107,778 | ) | $ | (147,376 | ) | |||
| Correction recorded in the third quarter of 2019 | (2,612 | ) | ||||||||||
| Loss on acquisitions as reported for the six months ended June 30, 2019 | $ | (149,988 | ) | |||||||||
| Dollars in thousands | Better Choice Company | Bona Vida | Total | |||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 1,546 | $ | 384 | $ | 1,930 | ||||||
| Restricted cash | 25 | 25 | ||||||||||
| Accounts receivable | 30 | 30 | ||||||||||
| Intercompany receivables | 6,161 | 38 | 6,199 | |||||||||
| Inventories | 193 | 193 | ||||||||||
| Prepaid expenses and other current assets | 52 | 347 | 399 | |||||||||
| Total Current Assets | 7,759 | 1,017 | 8,776 | |||||||||
| Intangible assets, net of amortization | 986 | 986 | ||||||||||
| Other assets | 74 | 74 | ||||||||||
| Total Assets | $ | 8,745 | $ | 1,091 | $ | 9,836 | ||||||
| Liabilities and Redeemable Preferred Stock | ||||||||||||
| Current Liabilities | ||||||||||||
| Warrant derivative liability | $ | 2,111 | $ | - | $ | 2,111 | ||||||
| Accounts payable & accrued liabilities | 2,071 | 69 | 2,140 | |||||||||
| Long term debt, current portion | 6,200 | 6,200 | ||||||||||
| Total Current Liabilities | $ | 10,382 | $ | 69 | $ | 10,451 | ||||||
| Total Liabilities | $ | 10,382 | $ | 69 | $ | 10,451 | ||||||
| Redeemable Series E Preferred Stock | $ | 20,059 | $ | - | $ | 20,059 | ||||||
In connection with the preparation of the Company’s consolidated financial statements for the period ended September 30, 2019, the Company identified an error in the consolidated financial statements for the six month period ended June 30, 2019 related to the overstatement of loss on acquisitions of $2.6 million in the consolidated statement of operations and comprehensive loss. This was primarily due to a change in the estimated purchase price, which also resulted in errors in the statement of stockholders’ deficit and statement of cash flows. The errors were all corrected during the three-month period ended September 30, 2019. The Company believes the correction of these errors is not material to the consolidated financial statements as of and for the period ended June 30, 2019.
Note 3 - Revenue
The Company has two categories of revenue channels: retail-partner based (“Retail”), which includes the sale of product to e-commerce retailers, pet specialty chains, grocery, mass and distributors, and direct to consumer (“DTC”), which is focused on driving consumers to directly purchase product through its online web platform.
Retail-partner based channel
The Company’s Retail channel includes the sale of goods to customers for resale. The Company records revenue net of discounts. Discounts primarily consist of early pay discounts, general percentage allowances and contractual trade promotions such as auto-ship subscriptions, and cooperative agreements with third party distributors. Retail-partner based customers are not subject to sales tax. The Retail channel represents 73% and 75% of consolidated revenue for the three and six months ended June 30, 2020, respectively, and 11% for the three and six months ended June 30, 2019.
Shipping costs associated with moving finished products to customers through third party carriers were less than $0.1 million and $0.1 million for the three and six months ended June 30, 2020, respectively, and no shipping costs were recorded for the three and six months ended June 30, 2019, respectively. Such shipping costs are recorded as part of general and administrative expenses.
Direct to consumer channel
The Company’s DTC products are offered through online stores where customers place orders directly for delivery across the United States. The DTC channel represents 27% and 25% of consolidated revenue of the Company for the three and six months ended June 30, 2020, respectively, and 89% for the three and six months ended June 30, 2019.
The Company excludes sales taxes collected from revenues. Revenue is deferred for orders that have been paid for, but not shipped. Based on historical experience, the Company records an estimated liability for returns. Product returns were $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, and $0.2 million for the three and six months ended June 30, 2019.
Shipping costs associated with moving finished products to customers were $0.3 million and $0.7 million for the three and six months ended June 30, 2020, respectively, and $0.6 million and $1.2 million for the three and six months ended June 30, 2019, respectively. Such shipping costs are recorded as part of general and administrative expenses.
The Company’s DTC loyalty program enables customers to accumulate points based on spending. A portion of revenue is deferred at the time of the sale when points are earned and recognized when the loyalty points are redeemed. As of June 30, 2020 and December 31, 2019, customers held unredeemed loyalty program awards of $0.3 million and $0.2 million, respectively. The Company recognized revenue of $0.1 million and $0.3 million from the loyalty program for the three and six months ended June 30, 2020, respectively, and less than $0.1 million and $0.1 million for the three and six months ended June 30, 2019, respectively.
The amount included in net sales related to recoveries of shipping costs from customers for direct to consumer sales was $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.
Note 34 - Inventories
Inventories reflected on the accompanying balance sheets are summarized as follows:
Dollars in thousands | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 | ||||||||||||
| Food, treats and supplements | $ | 1,682 | $ | 1,301 | $ | 5,454 | $ | 6,425 | ||||||||
| Inventory packaging and supplies | 512 | 504 | ||||||||||||||
| Other products and accessories | 87 | 191 | 17 | 73 | ||||||||||||
| Inventory packaging and supplies | 168 | 133 | ||||||||||||||
1,937 | 1,625 | |||||||||||||||
| Total Inventories | 5,983 | 7,002 | ||||||||||||||
| Inventory reserve | (230 | ) | (68 | ) | (563 | ) | (422 | ) | ||||||||
$ | 1,707 | $ | 1,557 | |||||||||||||
Inventories, net | $ | 5,420 $ | $ | 6,580 | ||||||||||||
Note 5 – Prepaid expenses and other current assets
On August 28, 2019, the Company entered into a radio advertising agreement with iHeart and issued 1,000,000 shares of common stock valued at $3.4 million for future advertising to be provided to the Company from August 2019 to August 2021. The Company issued an additional 125,000 shares valued at $0.1 million on March 5, 2020 pursuant to the agreement. The agreement requires the Company to spend a minimum amount for talent and other direct iHeart costs. The Company committed to using $1.7 million of the media inventory by August 28, 2020, with the remainder of the advertising available through August 28, 2021. The Company is in the process of amending the contract to extend the dates by which the related media spend is to be used and expects an amendment to be finalized prior to the first commitment date. Prepaid advertising was $3.0 million as of June 30, 2020 and $2.8 million as of December 31, 2019. Of the total prepaid amount, $2.6 million and $1.7 million is recorded in prepaid expenses and other current assets and $0.4 million and $1.1 million in other noncurrent assets as of June 30, 2020 and December 31, 2019, respectively.
Note 46 - Property and Equipmentequipment
Property and equipment consist of the following:
Dollars in thousands | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 | ||||||||||||
| Warehouse equipment | $ | 49 | $ | 49 | ||||||||||||
| Equipment | $ | 225 | $ | 222 | ||||||||||||
| Furniture and fixtures | 164 | 138 | ||||||||||||||
| Computer software | 115 | 115 | ||||||||||||||
| Computer equipment | 14 | 14 | 4 | 4 | ||||||||||||
| Furniture and fixtures | 76 | 46 | ||||||||||||||
Total property and equipment | 139 | 109 | 508 | 479 | ||||||||||||
| Accumulated depreciation | (80 | ) | (38 | ) | (187 | ) | (62 | ) | ||||||||
$ | 59 | $ | 71 | |||||||||||||
| Property and equipment, net | $ | 321 | $ | 417 | ||||||||||||
Depreciation expense was immaterialless than $0.1 million and $0.1 million for the three and six-month periodssix months ended June 30, 20192020, respectively, and 2018, respectively.less than $0.1 million for both the three and six months ended June 30, 2019. Depreciation expense is included as a component of general and administrative expenses.
Note 7 – Accrued liabilities
Accrued liabilities consist of the following:
| Dollars in thousands | June 30,2020 | December 31, 2019 | ||||||
| Accrued professional fees | $ | 2,039 | $ | 1,695 | ||||
| Accrued sales tax | 1,028 | 1,233 | ||||||
| Accrued payroll and benefits | 916 | 994 | ||||||
| Accrued trade promotions | 186 | 357 | ||||||
| Accrued dividends | 324 | 256 | ||||||
| Accrued interest | 228 | 109 | ||||||
| Other | 10 | 77 | ||||||
| Total accrued liabilities | $ | 4,731 | $ | 4,721 | ||||
Pursuant to waiver letters executed by each investor, the holders of the Company’s Series E preferred stock agreed to waive their right to the distribution of dividends until October 22, 2020. Accrued dividends related to the Series E are $0.3 million as of June 30, 2020 and December 31, 2019, respectively, and remain unpaid.
Note 58 – Operating Leases
The new standard provides a number of optional practical expedients in transition. We electedtable below presents certain information related to the ‘package of practical expedients’, which permits us not to reassess underlease costs for operating leases for the new standard our prior conclusions about lease identification, lease classificationthree and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. We elected all of the new standard’s available transition practical expedients.six months ended June 30, 2020 and 2019:
| For the Six Months Ended | For the Three Months Ended | |||||||||||||||
| Dollars in thousands | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | ||||||||||||
| Operating lease costs | $ | 221 | $ | 124 | $ | 111 | $ | 80 | ||||||||
| Variable lease costs | 16 | 16 | 8 | 8 | ||||||||||||
Total operating lease costs | $ | 237 | $ | 140 | $ | 119 | $ | 88 | ||||||||
Rent expense was $0.1 and $0.2 million for the three and six months ended June 30, 2020, respectively, and $0.1 million for both the three and six months ended June 30, 2019.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for the remaining term of the operating lease liabilities recorded on the condensed consolidated balance sheets.
Operating Leases
| Remainder of 2020 | $ | 226 | ||
| 2021 | 464 | |||
| 2022 | 246 | |||
| 2023 | 7 | |||
| Total minimum lease payments | $ | 943 | ||
| Less: amount of lease payments representing interest | 110 | |||
| Present value of future minimum lease payments | $ | 833 | ||
| Less: current obligations under leases | 341 | |||
| Long-term lease obligations | $ | 492 |
Note 9 – Intangible assets, royalties, and goodwill Intangible assets and royalties
The Company’s intangible assets as of June 30, 2020 and December 31, 2019 consist of customer relationships and trade name acquired in the consolidated statementsHalo Acquisition. The customer relationships and trade name are amortized over their estimated useful lives of operations7 and 15 years respectively, using the straight-line method.
In May 2019, the Company acquired a licensing agreement with Authentic Brands and Elvis Presley Enterprises (“ABG”) whereby Better Choice was to sell newly developed hemp-derived CBD products that will be marketed under the Elvis Presley Houndog name. The license agreement required an upfront equity payment of $1.0 million worth of common stock and the license was recorded at its amortized cost which approximated fair value. The Company does not plan to use the license in the future and therefore terminated the agreement on January 13, 2020. The Company recognized an impairment charge for the net book value of the licensing agreement as incurred. Weof and for the year ended December 31, 2019.
As part of the termination, the Company: (1) paid ABG $0.1 million in cash upon the signing of the termination agreement on January 13, 2020, (2) issued ABG 72,720 shares of the Company’s common stock on January 13, 2020, (3) agreed to pay ABG $0.1 million in cash in four equal installments each month from July 31, 2020 through October 31, 2020, (4) issued ABG $0.6 million aggregate principal amount of Subordinated Promissory Notes (the “ABG Notes”) effective January 20, 2020, and (5) issued ABG a common stock purchase warrant (the “ABG Warrants”) equal to a fair value of $150,000 on January 20, 2020. The terms of the ABG Notes match those of the Seller Notes, including convertible features exercisable any time after the date of issuance, a 10% interest rate and maturity date of June 30, 2023. The ABG Warrants are exercisable for 24 months from the date of the consummation of an IPO (as defined in the ABG Warrants) and carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock was sold in the IPO. The fair values of the ABG Notes and ABG Warrants on their issuance dates were $0.6 million and less than $0.1 million, respectively. On June 24, 2020, the exercise price of the ABG Warrants was amended in connection with the issuance of the June 2020 Notes (defined below) to lower the maximum exercise price from $5.00 to $4.25 per share.
The total cost of the contract termination noted above is measured at its fair value of $1.1 million and is included in general and administrative expense.
The Company’s intangible assets are as follows:
Dollars in thousands
| June 30, 2020 | |||||||||||||||
Weighted-Average Remaining Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Customer relationships | 7 | $ | 7,500 | $ | (577 | ) | $ | 6,923 | |||||||
| Trade name | 15 | 7,190 | (235 | ) | 6,955 | ||||||||||
| Total intangible assets | $ | 14,690 | $ | (812 | ) | $ | 13,878 | ||||||||
| December 31, 2019 | |||||||||||||||
Weighted-Average Remaining Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Customer relationships | 7 | $ | 7,500 | $ | (35 | ) | $ | 7,465 | |||||||
| Trade name | 15 | 7,190 | (14 | ) | 7,176 | ||||||||||
| Total intangible assets | $ | 14,690 | $ | (49 | ) | $ | 14,641 | ||||||||
The Company did not have intangible assets or amortization expense during the three and six months ended June 30, 2019.
The estimated future amortization of intangible assets over the weighted average remaining useful life of 10.5 years is as follows:
Dollars in thousands Years ended December 31, | ||||
Remainder of 2020 | $ | 739 | ||
2021 | 1,551 | |||
2022 | 1,551 | |||
2023 | 1,551 | |||
2024 | 1,551 | |||
Thereafter | 6,935 | |||
$ | 13,878 | |||
Note 10 - Debt
The components of the Company’s debt consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||||||||||||||||
| Amount | Rate | Maturity Date | Amount | Rate | Maturity Date | |||||||||||||||||
| Short term loan, net | $ | 18,157 | (1 | ) | 12/19/2020 | $ | 16,061 | (1 | ) | 12/19/2020 | ||||||||||||
| Line of credit, net | 5,687 | (1 | ) | 12/19/2020 | 4,819 | (1 | ) | 12/19/2020 | ||||||||||||||
| November 2019 notes payable, net (November 2019 Notes) | 2,644 | 10 | % | 6/30/2023 | 2,769 | 10 | % | 11/4/2021 | ||||||||||||||
| December 2019 senior notes payable, net (Seller Notes) | 9,664 | 10 | % | 6/30/2023 | 9,191 | 10 | % | 6/30/2023 | ||||||||||||||
| December 2019 junior notes payable, net (Seller Notes) | 4,626 | 10 | % | 6/30/2023 | 4,410 | 10 | % | 6/30/2023 | ||||||||||||||
| ABG Notes | 660 | 10 | % | 6/30/2023 | - | - | - | |||||||||||||||
| June 2020 notes payable, net (June 2020 Notes) | - | 10 | % | 6/30/2023 | - | - | - | |||||||||||||||
| Halo PPP Loan | 431 | 1 | % | 5/3/2022 | - | - | ||||||||||||||||
| TruPet PPP Loan | 421 | .98 | % | 4/6/2022 | - | - | - | |||||||||||||||
| Total debt | $ | 42,290 | $ | 37,250 | ||||||||||||||||||
(1) | Interest at Bank of Montreal Prime plus 8.05% |
Short term loan and line of credit
On the Halo Acquisition Date, the Company entered into a Loan Facilities Agreement (the “Facilities Agreement”) by and among the Company, as the borrower, the several lenders from time to time parties thereto (collectively, the “Lenders”) and a private debt lender, as agent (the “Agent”). The Facilities Agreement provides for (i) a term loan facility of $20.5 million and (ii) a revolving demand loan facility not to exceed $7.5 million.
As of June 30, 2020 and December 31, 2019, the term loan outstanding was $18.2 million and $16.1 million, net of debt issuance costs and discounts of $2.3 million and $4.4 million, respectively, and the line of credit outstanding was $5.7 million and $4.8 million, respectively, net of debt issuance costs of $0.1 million and $0.2 million, respectively. The debt issuance costs and discounts are amortized using the effective interest method. The term loan and line of credit are scheduled to mature on December 19, 2020 or such earlier date on which a demand is made by the Agent or any Lender.
Certain directors and shareholders of the Company (“Shareholder Guarantors”) agreed to enter into a Continuing Guaranty (the “Shareholder Guaranties”) in the amount of $20.0 million and guarantee the Company’s obligations under the agreement. As consideration for the Shareholder Guaranties, the Company agreed to issue common stock purchase warrants to the Shareholder Guarantors in an amount equal to 0.325 warrants for each dollar of debt under the agreement guaranteed by such Shareholder Guarantors (the “Guarantor Warrants”). The Guarantor Warrants are exercisable any time from the date of issuance for up to 24 months from the date of the consummation of an IPO (as defined therein) at an exercise price $1.82 per share. The Guarantor Warrants had a fair value of $4.2 million on the date of issuance.
As of June 30, 2020 and December 31, 2019, the Company was in compliance with its debt covenants.
Notes payable
On November 4, 2019, the Company issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carry a 10% interest rate and mature on November 4, 2021. The interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. Payment in kind (“PIK”) interest is payable by increasing the aggregate principal amount of the November 2019 Notes. The November 2019 Notes are exercisable any time from the date of issuance and carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The IPO Price is the price at which the Company’s stock will be sold in a future IPO. The Company issued incremental warrants associated with the November 2019 Notes with a fair value of less than $0.1 million on the date of issuance.
The November 2019 Notes were amended on January 6, 2020. The amendment incorporates only the preferable terms of the Seller Notes as noted below, and all other terms and provisions of the November 2019 Notes remain in full force and effect. Pursuant to the amended November 2019 Notes, PIK interest shall be payable by increasing the aggregate principal amount of the November 2019 Notes. As amended, for so long as any event of default (as defined in the November 2019 Note) exists, interest shall accrue on the November 2019 Note principal at the default interest rate of 12.0% per annum, and such accrued interest shall be immediately due and payable.
The November 2019 Notes were amended for the second time on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share and extends the maturity date from November 4, 2021 to June 30, 2023. Under the applicable accounting guidance, the Company accounted for the change in conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of $0.3 million as a reduction to the carrying amount of the debt instrument by increasing the associated debt discount with a corresponding increase in additional paid-in capital.
As of June 30, 2020 and December 31, 2019, the aggregate amount of November 2019 Notes outstanding was $2.6 million and $2.8 million, respectively, net of discounts of less than $0.3 million and less than $0.1 million, respectively. The discounts are being amortized over the life of the November 2019 Notes using the effective interest method.
On December 19, 2019, the Company issued $10.0 million and $5.0 million in senior subordinated convertible notes (the “Senior Seller Notes”) and junior subordinated convertible notes (the “Junior Seller Notes”), jointly the “Seller Notes” to the sellers of Halo. The Seller Notes are exercisable any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. Interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the Seller Notes. The Seller Notes carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price.
The Seller Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than of $0.3 million as a reduction to the carrying amounts of the debt instruments by increasing the associated debt discounts with a corresponding increase in additional paid-in capital.
As of June 30, 2020, the Senior Seller Notes outstanding were $9.7 million, net of discounts of $0.9 million, and the Junior Seller Notes outstanding were $4.6 million, net of discounts of $0.6 million. As of December 31, 2019, the Senior Seller Notes outstanding were $9.2 million, net of discounts of $0.9 million, and the Junior Seller Notes outstanding were $4.4 million, net of discounts of $0.5 million. The discounts are being amortized over the life of the Seller Notes using the effective interest method.
On January 13, 2020, the Company issued $0.6 million in senior subordinated convertible notes to ABG. The ABG Notes are exercisable any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. The interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the ABG Notes. The ABG Notes carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price.
The ABG Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than $0.1 million as a reduction to the carrying amount of the debt instrument by decreasing the associated debt premium with a corresponding increase in additional paid-in capital.
As of June 30, 2020, the ABG Notes outstanding was $0.7 million, including a debt premium of less than $0.1 million. The debt premium is being amortized over the life of the ABG Notes using the effective interest method.
On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “June 2020 Notes”) which carry a 10% interest rate and mature on June 30, 2023. The interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the June 2020 Notes. The June 2020 Notes are exercisable any time from the date of issuance and carry a conversion price $0.75 per share. The June 2020 Notes are also convertible automatically upon the Company’s consummation of an initial public offering or change in control (each as defined in the June 2020 Notes).
The Company evaluated the conversion option within the June 2020 Notes to determine whether the conversion price was beneficial to the note holders. The Company recorded a beneficial conversion feature (“BCF”) related to the issuance of the June 2020 Notes. The BCF for the June 2020 Notes was recognized and measured by allocating a portion of the proceeds to beneficial conversion feature, based on relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature. The Company will accrete the discount recorded in connection with the BCF valuation as interest expense over the term of the June 2020 Notes, using the effective interest rate method.
As of June 30, 2020, the amount outstanding on the June 2020 Notes was $0.0 million, net of discounts of $1.5 million. The discounts are being amortized over the life of the June 2020 Notes using the effective interest method.
The exercise, conversion or exchange of convertible securities, including for other securities, will dilute the percentage ownership of the Company’s stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect the Company’s ability to obtain additional capital.
As of June 30, 2020 and December 31, 2019, the Company was in compliance with all covenant requirements and there were no leases thatevents of default. All notes payable are consideredsubordinated to the short term (one year or less)loan and line of credit.
PPP loans
On April 10, 2020, TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc., was granted a loan from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program (PPP) under Division A, Title I of the CARES Act (the “TruPet PPP Loan”).
The loan matures on April 6, 2022, and bears interest at a rate of 0.98% per annum, payable monthly, commencing on November 6, 2020. As of June 30, 2020, the TruPet PPP Loan outstanding was $0.4 million.Under the terms of the PPP, certain amounts of the loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company intends to use the entire loan amounts for qualifying expenses.
The Company recorded interest expense related to our real estate leasesits outstanding indebtedness of $2.4 million and $4.7 million for which a right of use asset has been recognized totaledthe three and six months ended June 30, 2020, respectively, and less than $0.1 million and $0.1 million for the three and six months ended June 30, 2019, respectively. Estimated expenses for variable lease costs are immaterial for the three and six months period ended June 30, 2019.
The table below presentscarrying amounts of the operating lease-related assetsNovember 2019, Senior Seller Notes and liabilities recorded on the consolidated balance sheets:
Dollars in thousands Leases | Balance Sheet Classification | June 30, 2019 | |||
| Assets | |||||
| Non-current assets | Operating lease right-of-use assets, net of accumulated amortization | $ | 840 | ||
| Total operating lease assets | $ | 840 | |||
| Liabilities | |||||
| Current | |||||
| Operating | Operating lease liabilities | (262 | ) | ||
| Non-current | |||||
| Operating | Operating lease liabilities | (590 | ) | ||
| Total operating lease liabilities | $ | (852 | ) | ||
Dollars in thousands Lease payments | Operating Leases | |||
| Remainder of 2019 | $ | 147 | ||
| 2020 | 299 | |||
| 2021 | 303 | |||
| 2022 | 169 | |||
| Total undiscounted minimum future lease payments | 918 | |||
| Less: imputed interest | 66 | |||
| Present value of lease liabilities | $ | 852 | ||
The initial termcarrying amount of the licensing agreement ends on December 31, 2025.Company’s short term loan approximates fair value due to its short term nature. The license agreement is amortized oncarrying amount for the Company’s line of credit approximates fair value as the instrument has a straight-line basis over the life of the agreement. During the period from May 6, 2019 through June 30, 2019, an immaterial amount in amortization was expensed related to the Hound Dog license.variable interest rate that approximates market rates.
Dollars in thousands | Guaranteed Minimum Royalty | ||||
| 2019-2020 | $ | 1,500 | |||
| 2021 | $ | 1,000 | |||
| 2022 | $ | 1,125 | |||
| 2023 | $ | 1,250 | |||
| 2024 | $ | 1,500 | |||
| 2025 | $ | 1,750 | |||
Note 811 – Warrant Derivative Liabilityderivative liability
On December 12, 2018, the Company closed a private placement offering (the “December Offering”) of 1,425,641 units (the “Units”), each unit consisting of (i) one share of the Company’s Common Stockcommon stock and (ii) a warrant to purchase one half of a share of Common Stock.common stock. The Units were offered at a fixed price of $1.95 per Unit for gross proceeds of $2.8 million. Costs associated with the December Offering were $0.1 million, and net proceeds were $2.7 million. The December Offering generated $2.6 million of the net proceeds that were received by the Company during the periodyear ended December 31, 2018 for the sale of 1,400,000 common shares,Units, and $0.1 million of the net proceeds were received on January 8, 2019 for the sale of 25,641 common shares.Units. The warrants are exercisable anytime from the date of issuance over a two-year period at theand carried an initial exercise price of $3.90 per share.
The warrant holders havewarrants include an option to settle in cash in the event of a change of control of the Company.Company and a reset feature if the Company issues shares of common stock with a strike price below the exercise price of the warrants, which requires the Company to record the warrants as a derivative liability. The Company considers these warrants a derivative liability and calculatedcalculates the fair value of thisthe derivative liability utilizingthrough a LatticeMonte Carlo Model that values the warrantwarrants based upon a probability weighted discounted cash flow model.
$1.62.
During June 2020, the Company issued common stock equivalents below the exercise price of the warrants issued on March 17, 2020. Pursuant to the warrant agreement, the Company will issue an additional 1,990,624 warrants to certain of its warrant holders at an exercise price of $0.75 and will modify the exercise price of the existing warrants to $0.75.
The warrants are valued based on future assumptions and, as the reset triggers were known events on June 30, 2020 and December 31, 2019, the derivative liability was recorded at fair valueCompany included the triggers in the valuations performed as part of the purchase price of Better Choice Company by TruPet.June 30, 2020 and December 31, 2019.
The following schedule shows the fair value of the warrant derivative liability as of June 30, 2020 and December 31, 2019, and the change in fair value ofduring the derivative liabilities for the period from May 6, 2019 throughthree and six months ended June 30, 2019.2020:
Dollars in thousands | Warrant Liability | Warrant derivative liability | ||||||
| Assumption of warrants pursuant to May 6, 2019 acquisition of Better Choice Company | $ | 2,110 | ||||||
| Balance as of December 31, 2019 | $ | 2,220 | ||||||
| Change in fair value of derivative liability | 193 | (1,379 | ) | |||||
| Balance as of June 30, 2019 | $ | 2,304 | ||||||
| Balance as of March 31, 2020 | $ | 841 | ||||||
| Change in fair value of derivative liability | 3,474 | |||||||
| Balance as of June 30, 2020 | $ | 4,315 | ||||||
| May 6, 2019 | June 30, 2019 | |||||||
| Warrant Liability | ||||||||
| Stock Price | $ | 6.00 | $ | 6.35 | ||||
| Exercise Price | $ | 3.90 | $ | 3.90 | ||||
| Remaining term (in years) | 1.60 – 1.68 | 1.45 – 1.53 | ||||||
| Volatility | 64 | % | 65 | % | ||||
| Risk-free interest rate | 2.39 | % | 1.98 | % | ||||
| Warrant derivative liability | May 6, 2019 | December 31, 2019 | June 30, 2020 | |||||||||
Stock price | $ | 6.00 | $ | 2.70 | $ | 1.90 | ||||||
Exercise price | $ | 3.90 | $ | 1.62 | $ | 0.75 | ||||||
Expected remaining term (in years) | 1.60 - 1.68 | 0.95 - 1.02 | 0.472 | |||||||||
Volatility | 64 | % | 69 | % | 85 | % | ||||||
Risk-free interest rate | 2.39 | % | 1.60 | % | 0.18 | % | ||||||
The warrants feature provisions to reset the exercise price in the eventvaluation of certain fundamental transactions. Such a transaction is considered a likelihood of 50% for December 31, 2019.
23
Note 1012 – Other Liabilitiesliabilities
Note 13 – Commitments and contingencies
In the normal course of business, the Company may be subject to various legal claims and contingencies that arise, including claims related to commercial transactions, product liability, health and safety, taxes, environmental matters, employee matters and other matters. Litigation is subject to numerous uncertainties and the outcome of individual claims and contingencies is not predictable. It is possible that some legal matters for which reserves have or have not been established could result in an unfavorable outcome for the Company and any such unfavorable outcome could be of a material nature or have a material adverse effect on the issued credit cards was 22% for purchasesCompany’s consolidated financial condition, results of operations and 24.24% for cash advances forflows. Management is not aware of any claims or lawsuits that may have a material adverse effect on the three and six months ended June 30, 2019 and 2018.
The creditorCompany had the right to decline tono purchase any future receivables and/or adjust the amount of the advance. In the event of a sale, disposition, assignment, transfer or otherwise of all or substantially all of the business assets, the creditor’s consent was required or repayment in full of the amount of future receivables remaining. The future receivables were remitted to the creditor based on a percentage of daily cash receipts. All remaining advances were repaidobligations as of June 30, 2019.
Dollars in thousands | Advance #1 | Advance #2 | Advance #3 | Total | ||||||||||||
| Opening balance – January 1, 2018 | $ | - | $ | - | $ | - | $ | - | ||||||||
| Advance of outstanding amounts | 399 | 965 | 1,050 | 2,414 | ||||||||||||
| 2018 Payments | (429 | ) | (256 | ) | (102 | ) | (787 | ) | ||||||||
| Rollover to Advance #3 | (824 | ) | 824 | |||||||||||||
| Advance fixed fee | 30 | 115 | 126 | 271 | ||||||||||||
| Closing Balance – December 31, 2018 | - | - | 1,899 | 1,899 | ||||||||||||
| Payments | (1,899 | ) | (1,899 | ) | ||||||||||||
| Balance June 30, 2019 | $ | - | $ | - | $ | - | $ | - | ||||||||
| Number | Amount | |||||||
Dollars in thousands | ||||||||
| Issued on October 18, 2018 | 2,846,356 | $ | 2,023 | |||||
| Converted to Common Stock | (212,678 | ) | (152 | ) | ||||
| Balance on May 6, 2019 | 2,633,678 | 1,871 | ||||||
| Purchase price adjustment | 18,188 | |||||||
| Outstanding at May 6, 2019 | 2,633,678 | 20,059 | ||||||
| Converted to Common Stock | (925,758 | ) | (7,052 | ) | ||||
| Balance at June 30, 2019 | 1,707,920 | $ | 13,007 | |||||
Note 1214 - Stockholders’ Deficitdeficit
As a result of the transactionreverse acquisition of Better Choice Company and Bona Vida by TruPet in May 2019, the historical TruPet members’ equity (units and incentive units) hashave been recastre-cast to reflect the equivalent Better Choice Common Stockcommon stock for all periods presented after the transaction. Prior to the transaction in May 2019, TruPet was a Limited Liability Companylimited liability company and as such, the concept of authorized shares was not relevant.
On May 6, 2019, all Series A Preferred UnitsShares were converted to 2,460,5172,460,518 shares of Common Stock.common stock.
On May 6, 2019, the Company acquired 2,633,6781,011,748 shares of Series E Preferred Stock issued by Better Choice Company in the transaction. Series E Preferred Stock is treated as mezzanine equity as it has redemption features that can be exercised by the holder under certain instances outside the control of the Company. 925,758 shares of Series E Preferred Stock were converted to Common Stock in the three- and six-month period ended June 30, 2019. As of June 30, 2019, 1,707,920 shares of Series E Preferred Stock remain outstanding. Full conversion of the remaining Series E Preferred Stock would result in the issuance of 2,167,745 shares of Common Stock.
On November 18, 2018 the Company entered into a consulting agreement for management services. The consultant was awarded the equivalent of 303,427 shares of Common Stock, half which vested on November 18, 2018 and the remainder on a monthly schedule over 2 years.
On May 6, 2019, the Company acquired 2,633,678 outstanding shares of Series E, which represented an element of the purchase price and were recorded at fair value (on an as converted into common stock basis) based on the $6.00 per share closing price of Better Choice Company’s shares of common stock as they remained outstanding after the reverse acquisitions discussed in “Note 2 - Acquisitions” above. The Series E has a stated value of $0.99 per share; is convertible to common stock at a price of $0.78 per share.
On May 10, 2019 and May 13, 2019, holders of the Company’s Series E converted 689,394 and 236,364 preferred shares into 875,000 and 300,000 shares of the Company’s common stock, respectively.
Pursuant to Damian Dalla-Longa’s (“Mr. Dalla-Longa”)the employment agreement of an officer with Bona Vida dated October 29, 2018, hethe officer was entitled to a $500,000 Changechange of Controlcontrol payment. It wasThe officer later agreed to and included in Mr. Dalla-Longa’sreceive 100,000 shares of Better Choice Company employment agreement dated May 6, 2019, that he would receive 100,000 common shares in the Company in consideration for the $500,000 Change of Control payment.stock. The 100,000 shares of common sharesstock were valued at $6.00 per share, which was the market value as of the date of Mr. Dalla-Longa’s employment agreement.
the May Acquisitions.On January 2, 2020, the Company issued 308,642 shares of common stock to an investor for net proceeds of $0.5 million, net of issuance costs of less than $0.1 million.
On January 13, 2020, the Company issued 72,720 shares of common stock to ABG in connection with the termination of a licensing agreement discussed in “Note 9 – Intangible assets, royalties and goodwill”.
On March 3, 2020, the Company issued 450,000 shares of restricted common stock to three nonemployee directors in return for services provided in their capacity as directors.
On March 5, 2020, the Company issued 125,000 shares of common stock for advertising services.
On March 30, 2020, the Company issued 5,956 restricted shares of common stock to an officer of the Company.
The Company has reserved common stock for future issuance as follows:
| June 30, 2020 December 31, 2019 | ||||||||
| Conversion of Series E | 1,760,903 | 1,760,903 | ||||||
| Exercise of options to purchase common stock | 7,471,608 | 7,791,833 | ||||||
| Warrants to purchase common stock | 17,087,976 | 16,981,854 | ||||||
| Notes payable | 7,163,589 | 4,437,500 | ||||||
| Total | 33,484,076 | 30,972,090 | ||||||
On May 6, 2019, in connection with the May Acquisitions, the Company acquired 712,823 warrants to purchase common stock with a weighted average exercise price of $3.90. The Company also issued 5,744,991 warrants with an exercise price of $4.25 on May 6, 2019 as part of the PIPE. Additionally, in connection with the PIPE transaction, the Company issued 220,539 warrants to brokers with an exercise price of $3.00. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO.
On September 17, 2019, a Company advisor was issued 2,500,000 warrants with an exercise price of $0.10 and 1,500,000 warrants with an exercise price of $10.00. The warrants were exercisable as follows: 1,250,000 of the warrants with the $0.10 exercise price (the “Tranche 1 Warrants”) were exercisable on the earlier of the twelve- month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company; the remaining 1,250,000 of the warrants with the $0.10 exercise price (the “Tranche 2 Warrants”) and the 1,500,000 warrants with the $10.00 exercise price (the Tranche 3 Warrants) were exercisable on the earlier of the eighteen-month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company.
On June 1, 2020, the Company entered into a termination agreement (the “Termination Agreement”) with the advisor. Pursuant to the terms of the Termination Agreement, the Tranche 1 Warrants were amended to reduce the number of shares of common stock purchasable thereunder to 1,041,666 shares, and the Tranche 2 Warrants and Tranche 3 Warrants were cancelled. The Tranche 1 Warrants (as amended pursuant to the Termination Agreement) were fully vested as of the date of the termination of the agreement and will remain exercisable until September 17, 2029. Furthermore, if the Company engages in any restricted business line as defined in the Termination Agreement, the Company will issue to the former advisor additional shares of common stock based on formulas intended to compensate the former advisor for the warrants that were reduced or terminated.
In connection with the Termination Agreement, the Company recorded expense of $5.7 million during the three and six months ended June 30, 2020. This amount is included in general and administrative expense.
On November 4, 2019, the Company issued 11,000 warrants in connection with the November 2019 Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”). The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO.
On December 19, 2019, the Company issued 937,500 warrants in connection with the Seller Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”). The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO.
On June 24, 2020, the warrants related to the November 2019 Notes and Seller Notes were amended in connection with the issuance of the June 2020 Notes to lower the maximum exercise price applicable to these warrants from $5.00 to $4.25 per share. The decrease in the exercise price resulted in an increase to the fair value of the warrants of less than $0.2 million which the Company recognized in general and administrative expense.
On December 19, 2019 the Company issued 6,500,000 warrants with an exercise price of $1.82 in conjunction with the short term loan (the “Guarantor Warrants”). The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO.
On March 17, 2020, 1,003,232 warrants were issued to holders of warrants issued on May 6, 2019 due to the dilutive impact of subsequent issuances. The Company will issue an additional 1,990,624 warrants to holders of these warrants due to the further dilutive impact of subsequent issuances.
On June 24, 2020, the Company issued common stock purchase warrants (the “June 2020 Warrants”) to purchase up to 1,000,000 shares of the Company’s common stock at $1.25 per share in connection with the June 2020 Notes. The June 2020 Warrants are exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other uplist transaction or (ii) June 30, 2030.
On June 24, 2020, the Company issued warrants to purchase up to 1,000,000 shares of the Company’s common stock at $1.25 per share to two nonemployee directors. The warrants are exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other uplist transaction or (ii) June 30, 2030.
| Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding as of December 31, 2019 | 16,981,854 | $ | 3.23 | |||||
| Issued | 3,064,456 | 1.15 | ||||||
| Terminated | (2,958,334 | ) | (5.12 | ) | ||||
| Warrants outstanding as of June 30, 2020 | 17,087,976 | $ | 2.37 | |||||
The intrinsic value of outstanding warrants was $5.7 million and $12.2 million as of June 30, 2020 and December 31, 2019, respectively.
Note 15 - Share-based compensation
The Company recognizes compensation cost for stock awards with only service conditions that have a graded vesting schedule on a straight-line basis over the service period for each separate vesting portion of the award as if the award was, in-substance, multiple awards. During the three and six months ended June 30, 2020, the Company recognized $3.0 million and $5.5 million of share-based compensation expense, respectively. During the three and six months ended June 30, 2019 $4.0 million and $4.2 million of share-based compensation expense was recognized, respectively.
The Company acquired the Better Choice Company Inc. 2019 Incentive Award Plan (“2019 Incentive Award(the “2019 Plan”) which became effective as of April 29, 2019. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash-based awards or a dividend equivalent award (each an “Award”). Non-employee directors ofOn November 11, 2019, the Company received shareholder approval for the Amended and employees and consultants of the Company or any of its subsidiaries are eligible to receive awards under the 2019 Plan. The 2019 Plan authorizes the issuance of (i) 6,000,000 shares of common stock plus (ii) an annual increase on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029, equal to the lesser of (A) 10% of the shares of common stock outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of common stock as determined by the Board. At the time of acquisition, the following grants had been issued under the 2019 Incentive Award Plan:
During the 2019 Incentive Award Plan:
Note 16 - Related party transactions
| Dollars in thousands except per share amounts | Date of grant(s) | Vesting period (years) | Number | Exercise price ($) | Share-based payment expense ($) | Risk-free rate | Volatility | Dividend yield | Expiry (yrs) | Remaining Life (yrs) | ||||||||||||||||||||||||
| Option grant | 5/21/2019 | 2 | 60,000 | $ | 7.50 | 9 | 2.28 | % | 55.00 | % | Nil | 10 | 9.9 | |||||||||||||||||||||
| Option grant | 5/21/2019 | 3 | 30,000 | $ | 7.50 | 5 | 2.28 | % | 55.00 | % | Nil | 10 | 9.9 | |||||||||||||||||||||
| Option grant | 6/29/2019 | 3 | 3,000 | $ | 7.50 | 0 | 1.84 | % | 56.00 | % | Nil | 10 | 10.0 | |||||||||||||||||||||
| 93,000 | $ | 14 | ||||||||||||||||||||||||||||||||
Range of exercise prices | Number of options outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price of outstanding options | number of options exercisable | Weighted average exercise price of exercisable options | |||||||||||||||||
| $ | 5.00 – 7.50 | 5,381,462 | 9.8 | $ | 5.06 | 260,545 | 5.04 | |||||||||||||||
Number of Options | Weighted Average Exercise Price | |||||||
| Acquired on May 6, 2019 | 5,288,462 | $ | 5.00 | |||||
| Granted | 93,000 | $ | 7.50 | |||||
| Options outstanding at June 30, 2019 | 5,381,462 | $ | 5.04 | |||||
Number of Warrants | Weighted Average Exercise Price | |||||||
| Warrants Acquired on May 6, 2019 | 913,310 | $ | 3.70 | |||||
| Issued | 5,744,991 | $ | 4.50 | |||||
Exercised | - | - | ||||||
| Canceled / expired | - | - | ||||||
| Warrants outstanding at June 30, 2019 | 6,658,301 | $ | 4.39 | |||||
A related party provided management services during 2018. Payments related to this arrangement were immaterial forcompany controlled by a member of the three and six-month period ended June 30, 2018. No payments were made to the related party during 2019. Outstanding balances were immaterial amounts for the periods ending June 30, 2019 and December 31, 2018, respectively.
Notes payable
The Company entered into an agreement in December 2018 for assistance and support regarding its financial operation and capital raise efforts and can be terminated at any time by either party withissued $1.4 million of subordinated convertible notes to a 60-day notice with an affiliatemember of the managing member.board of directors during the year ended December 2019, and $0.8 million of subordinated convertible notes to the same director during June 2020. The agreement requires payments amounting to $21,160 every four weeks through Decembernotes remain outstanding as of June 30, 2020. PaymentsInterest related to this agreement amounted tothe subordinated convertible notes was less than $0.1 million and $0.2$0.1 million for the three and six-month periodsix months ended June 30, 2019,2020, respectively.
Halo transaction bonus and notes payable
The Company entered intoissued $0.1 million of subordinated convertible notes to an executive in satisfaction of a transaction bonus as per his employment agreement upon the close of the Halo Acquisition in February 2019 with a previous executive for a termDecember 2019. These convertible notes are outstanding as of six months. Payments related to this agreement amounted to $0.1 million and $0.2 million forJune 30, 2020.
Note 17 - Income taxes
For the three and six-month periodperiods ended June 30, 2019.
2020 and 2019, the Company recorded no current or deferred income tax expense.
2020 and 2019, the Company recorded no current or deferred income tax expense.
The Company paidCompany’s effective tax rate of 0% differs from the United States federal statutory rate of 21% primarily because the Company’s losses have been fully offset by a finders’ feevaluation allowance due to uncertainty of $0.3 million duringrealizing the tax benefit of net operating losses (“NOLs”) for the periods ended June 30, 2020 and year ended December 31, 2018 to an entity owned by one of its members. Additionally, the Company paid approximately $0.4 million to this entity for other professional services rendered. No amounts have been paid in 2019.
The Company’s deferred tax assets attributed to net operating loss carryforwards begin to expire in 2027.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company entered into a new agreement in December 2018 for accounting management services for a fee of $8,370continues to examine the impact that the CARES Act may have on its business but does not expect the impact to be paid every two weeks. Priormaterial.
The ultimate realization of deferred taxes is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. On the basis of management’s assessment, a valuation allowance equal to this entering into this agreement, the same companynet deferred tax assets was performing similar services in 2018 for $2,600 every two weeks.recorded since it is more likely than not that the deferred tax assets will not be realized.
The Company entered into multiple agreements with marketing services with independent contractors during 2018has no accrued interest and 2019. Paymentspenalties related to uncertain income tax positions. The Company does not anticipate that the marketing agreements amounted to $0.2 millionamount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. As of June 30, 2020 and an immaterial amountDecember 31, 2019, the Company does not have any significant uncertain tax positions. If incurred, the Company would classify interest and penalties on uncertain tax positions as income tax expense.
The Company’s income tax returns generally remain open for examination for three years from the three-monthdate filed with each taxing jurisdiction.
For the period ended June 30, 2019 and 2018, respectively.
May Acquisitions.
Note 1418 - Major Supplierssuppliers
The Company purchasedsourced approximately 77% of its inventory purchases from three vendors for the six months ended June 30, 2020. The Company sourced approximately 83% and 72% of its inventoriesinventory purchases from one vendor for the six months ended June 30, 2019 and 2018, respectively. Additionally, the Company primarily utilized one vendor for outsourced manufacturing of meals for the six-month periods ended June 30, 2019 and the year ended June 30, 2018.2019.
Note 1519 - Concentration of Credit Risk
Cash and cash equivalents and accounts receivables.receivable potentially subject the Company to concentrations of credit risk. As of June 30, 2020 and December 31, 2019 the Company’s cash and cash equivalents were deposited in accounts at several financial institutions. The Company placesmaintains its cash and cash equivalents with primarily onehigh-quality, accredited financial institution. At times,institutions and, accordingly, such amountsfunds are subject to minimal credit risk. The Company may bemaintain balances with financial institutions in excess of the FDICfederally insured limit. limits.
The Company has nevernot experienced any losses relatedhistorically in these accounts and believes it is not exposed to these balances. Assignificant credit risk in its cash and cash equivalents. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements. Accounts receivable from two customers represented 71% of accounts receivable as of June 30, 2019 and2020. Accounts receivable from one customer represented 44% of accounts receivable as of December 31, 20182019.
Two customers represented 39% of gross sales for the Company had deposits in excesssix months ended June 30, 2020. None of the FDIC insured limitsCompany’s customers represented greater than 10% of $10.3 million and $3.4 million, respectively.gross sales for the six months ended June 30, 2019.
Basic and diluted net loss per share attributable to Common Stockholderscommon stockholders is presented using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares.
Basic and diluted net loss per share is calculated by dividing net and comprehensive loss attributable to Common Stockholderscommon stockholders by the weighted-average shares outstanding during the period. For the three and six months ended June 30, 20192020 and 2018,2019, the Company’s basic and diluted net and comprehensive loss per share attributable to Common Stockholderscommon stockholders are the same, because the Company has generated a net loss to Common Stockholderscommon stockholders and Common Stockcommon stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact.
The following table sets forth basic and diluted net loss per share attributable to Common Stockholderscommon stockholders for the three and six months ended June 30, 20192020 and 2018:2019:
| Dollars in thousands except per share amounts | Six Months Ended June 30 | Three Months Ended June 30 | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Common Stockholders | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (164,286 | ) | $ | (2,400 | ) | $ | (161,506 | ) | $ | (745 | ) | ||||
| Less: Preferred Stock Dividends | (27 | ) | - | (27 | ) | - | ||||||||||
| Net loss attributable to Common Stockholders | $ | (164,313 | ) | $ | (2,400 | ) | $ | (161,533 | ) | $ | (745 | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average shares used in computing net loss per share attributable to Common Stockholders, basic and diluted | 21,202,188 | 11,497,128 | 30,638,048 | 11,497,128 | ||||||||||||
| Net loss per share attributable to Common Stockholders, basic and diluted | $ | (7.75 | ) | $ | (0.21 | ) | $ | (5.27 | ) | $ | (0.06 | ) | ||||
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Common stockholders | ||||||||||||||||
| Numerator: | ||||||||||||||||
Net and comprehensive loss | $ | (27,858 | ) | $ | (164,286 | ) | $ | (18,404 | ) | $ | (161,506 | ) | ||||
Less: Preferred stock dividends | 68 | 27 | 34 | 27 | ||||||||||||
Net and comprehensive loss available to common stockholders | $ | (27,926 | ) | $ | (164,313 | ) | $ | (18,438 | ) | $ | (161,533 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 48,733,052 | 21,202,188 | 48,939,708 | 30,638,048 | ||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.57 | ) | $ | (7.75 | ) | $ | (0.38 | ) | $ | (5.27 | ) | ||||
Note 1821 - Subsequent Eventsevents
On July 23, 2019,16, 2020, the Audit CommitteeCompany received a revolving line of credit in the aggregate amount of $7.5 million (the “ABL Facility”) from Citizens Business Bank, a California banking corporation, pursuant to a business loan agreement (the “ABL Agreement”). The proceeds of the Board of Directors of the Company appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal periods on or after January 1, 2019.
The ABL Facility matures on July 5, 2022 and bears interest at a variable rate of LIBOR plus 250 basis points, with an interest rate floor of 3.25% per annum. Accrued interest on the ABL Facility is payable monthly, commencing on August 5, 2020. The ABL Facility provides for customary financial covenants that commence on December 31, 2020 and customary events of default. The Company may prepay the principal of the ABL Facility at any time without penalty.
The ABL Facility is secured by a general security interest on the assets of the Company and is personally guaranteed by a member of the Company’s board of directors. In consideration of the personal guaranty, the Company issued common stock purchase warrants to purchase up to 300,000 shares of the Company’s common stock at a price equal to $1.05 per share (the “July 2020 Guarantor Warrants”). The July 2020 Guarantor Warrants are exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other uplist transaction or (ii) June 30, 2030.
Warrant issuances
On July 20, 2020, the Company issued common stock purchase warrants to purchase up to 200,000 shares of the Company’s common stock to two nonemployee directors at a price equal to $1.05 per share (the “July 2020 Director Warrants,” and together with the July 2020 Guarantor Warrants, the “July 2020 Warrants”). The July 2020 Warrants are exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other uplist transaction or (ii) June 30, 2030.
Common Stock
On July 31, 2020, Better Choice Company Inc. filed a certificate of incorporation with the State of Delaware which increased the number of authorized shares of common stock from 88,000,000 to 200,000,000.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. The financial condition, results of operations and cash flows discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of Better Choice Company Inc. and its consolidated subsidiaries, collectively, the “Company,” “Better Choice,” “we,” “our,” or “us”. These statements represent projections, beliefs, and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview and Outlook
Better Choice Company is a holistic pet wellness company providing high quality raw Cannabidiol (“CBD”) infused and non-CBD infused food, treats, and supplements in addition to dental care products and accessories for pets and their human parents. Our products are formulated and manufactured using only high-quality ingredients manufactured, tested and packaged to our specifications.
Our diverse product offering has enabled us to penetrate multiple channels of trade, which we believe provides us with broad demographic exposure and appeal. We group these channels of trade into two distinct categories: retail- partner based (“Retail”), which includes the sale of product to e-commerce retailers, pet specialty chains, grocery, mass and distributors, and direct to consumer (“DTC”), which is focused on driving consumers to directly purchase product through our online web platform. With regard to our channels of trade, the online purchase of pet food continues to take market share from brick and mortar retail, with Packaged Facts reporting internet shopping growing from 7% of U.S. pet product sales and customer base sincein 2015 to 22% in 2019. We believe that time. TruPet has contributed to and has benefited from the positive trend toward feeding petsonline shopping will continue, and we will continue to reach a healthy, natural diet. We pride ourselves ongrowing base of diverse customers through our DTC and e- commerce partner channels. Because our DTC strategy leverages one-on-one customer servicerelationships and abilityutilizes a targeted, data-driven approach to communicate and educate our customers. During 2017 and 2018, we increased marketing investments to acquire new customers while also maintaining our relationship with our current customers. During 2017, we launched the TruDog Love Club (“TLC”), a loyalty program that provides our customers with unique benefits including discounted prices, subscription shipments of replenishable products, free or reduced shipping, and other benefits not available to non-TLC members. The program has expanded and now has two tiers of loyalty club members. Tier 1 awards customers with six points per dollar spent and tier 2, TLC, awards customers with twelve points per dollar spent and provides opportunities to earn points at a higher rate. The number of loyalty members has grown to approximately 28,000 club members since its inception. Approximately 81% of DTC sales during the six-month period ending June 30, 2019 were from returning customers including TLC club members.
Our marketing strategy is designed to educate consumers about the benefits of our portfolio and build awareness of our products. We deploy a broad set of marketing tools across media, mail and public relations to reach consumers through multiple touch points. Our marketing initiatives include the use of social marketing, social influence marketing, direct response marketing, inbound marketing, email marketing, Search Engine Optimization, Search Engine Marketing, radio, paid media sites(Facebook, Instagram & YouTube), affiliate marketing, and offer productscontent marketing, among other proven strategies to first time buyers at significant discounts. Our goal isgenerate and convert sales prospects into loyal, satisfied customers. In addition to blend different acquisition channels as efficiently as possible in our advertising so that we obtain the most customers for the least amount of spend while maintaining our target growth rates. We are currently evaluating various long-term metrics for customer acquisition to determine the optimum mix of customer acquisition spend.
Our established supply and distribution infrastructure allow us to develop, manufacture and commercialize new products generally in under 12 weeks. We will continue to deliver innovation to expand our product offerings and improve the health and well-being of pets. We leverage our proprietary behavioral database, customer feedback and analytics capabilities to derive valuable insights and launch new products. We recently launched a resultline extension of our Halo brand to offer vegan alternatives for our customers. In addition to our domestic capabilities, we have partnered with a leading Israeli research and development center, Cannasoul, to create a portfolio of indication- specific intellectual property focused on hemp-derived CBD formulations.
Our experienced management and board members have an established track record across the retail, consumer packaged goods, pet health and wellness industries, and they share a common vision to build the premier provider of health and wellness pet products.
The impact that COVID-19 will have on our consolidated results of operations is uncertain. As of July 2020, we have not seen a material decline in sales. We will continue to evaluate the nature and extent of COVID-19’s impact to our business, consolidated results of operations, financial condition and liquidity, and our results presented herein are not necessarily indicative of the detection of salmonella. Since that time, we and our third-party manufacturing partners have increased testing of each product batchresults to avoid any additional recalls. While we do not believe we lost customers becausebe expected for future periods in 2020 or the full fiscal year.
Management cannot predict the full impact of the recalls, we did incur additional shipping and customer service expenses to alleviate and avoid additional backlogs in product shipments caused by the recalls. We allowed products to be shipped from the manufacturing plants to the warehouse using truckloads not at full capacity, or LTL, which is more expensive than limiting our shipments to full-capacity truckloads. We also shipped customer orders in several shipments, rather than waiting to fulfill entire orders as certain products were backlogged due to the recall. To address the additional strainCOVID-19 pandemic on our customer service function, we also expanded the numbersourcing, manufacturing and hoursdistribution of our customer service representativesproducts or to help guide our customers througheconomic conditions generally, including the recall process, resulting ineffects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an increase to our customer service costs.extended period of time even after the pandemic might end.
Fiscal Year End
On May 21, 2019, the Boardour board of Directors of the Companydirectors approved a change in fiscal year end from August 31 to December 31 to align with TruPet’sthe TruPet fiscal year end. The fiscal year change for the Company isbecame effective with our 2019 fiscal year, which begins January 1, 2019 and ends December 31, 2019.
Components of Our Results of Operations
Net Sales
We sell non-CBDpet food and CBD infused product for pets,related items, including private branded freeze dried and dehydrated raw foods, supplements, dental care products for dogs, and treats and accessories for dogs, cats, and pet parents. We sell our products through pet specialty retailers, online retailers, our online portal directly to our consumers and through online retailersretail partners in Asia. We have a deep portfolio of premium animal health and pet specialty retail stores. Ourwellness products arefor dogs and cats sold under the Halo, TruDog, RawGo, TruCat, OraPupTruGold, Rawgo! and Bona Vida brands.
Key factors that affect our future sales growth include: our new product introductioncontinued expansion in both the non-CBD and CBD markets, our expansion into retailRetail and other specialty channels, entry into the market of competitors in the CBD industryinternational expansion and international expansion.our new product introduction. We recognize revenue to depict the transfer of promised goods to the customer in an amount that reflects the consideration to which the Company expectswe expect to be entitled in exchange for those goods. Revenue is recognized upon receiptWe have two categories of revenue channels: Retail, which includes the sale of product byto e-commerce retailers, pet specialty chains, grocery, mass and distributors, and DTC, which is focused on driving consumers to directly purchase product through our online web platform.
A significant portion of our revenue is derived from the DTC customers andchannel which represents 25% of consolidated revenue; the Retail channel represents 75% of consolidated revenue for the six months ended June 30, 2020. The majority of these sales transactions are single performance obligations that are recorded when control is transferred to the customer. DTC revenue is recognized at the time the order is shipped to the DTC customers. For the majority of shipment forRetail customers, we recognize revenue when the product is shipped from our retail and consignmentdistribution centers, when control transfers. For the remaining customers, we defer revenue based on average shipping times to those customers. We record a revenue reserve based on past return rates to account for customer returns.
For our DTC loyalty program, a portion of revenue is deferred at the time of the sale as points are earned based on the relative stand-alone selling price, and not recognized until the redemption of the loyalty points, which do not expire. We have applied a redemption rate based on historical experience.
Cost of Goods Sold and Gross Profit
Our products are manufactured to our specifications by contracted manufacturing plants.plants using raw materials sourced by our contracted manufacturers. We design our packaging in-house for manufacture by third parties. Packagingparties, and packaging is shipped directly to contracted manufacturing plants. We work with our co-manufacturers to secure a supply of raw materials that meet our specifications, such as USA farm-raised beef, GAP 2 certified cage-free whole chicken and associated broths, GAP 2 certified cage-free whole turkey and associated broths, MSC certified wild-caught salmon and MSC certified wild-caught whitefish and associated broths, and select non-GMO fruits and vegetables, such as peas, sweet potatoes and lentils. In addition to procuring raw materials that meet our formulation requirements, our contract manufacturers manufacture, test and package our products. In addition, we intend to directly source the hemp derived CBD oils used in our products from select suppliers to ensure product quality and traceability of the ingredient. CBD oils are shipped to our warehouse and forwarded to our contracted manufacturing partners as needed for production. Our contract manufacturers procure the raw food ingredients, manufacture, test and package our products.
Cost of goods sold consists primarily of the cost of product obtained from thethird-party contract manufacturing plants, packaging materials, and CBD oils directly sourced by the Company, andus, inventory freight for shipping product from ourthird-party contract manufacturing plants to our warehouse.warehouse and third party fulfillment and royalties. We review inventory on hand periodically to identify damages, slow moving inventory, and/or aged inventory. Based on the analysis, we record inventories onat the lower of cost andor net realizable value, with any reduction in value expensed as cost of goods sold.
We calculate gross profit as net sales, including any shipping revenue collected from our customers, less cost of goods sold. Our gross profit has been and we expect, will continue to be affected by a variety of factors, primarily product sales mix including the addition of Halo branded products, volumes sold, discounts offered to Retail customers and our TLC club members, discounts offered to newly acquired and recurring customers, the cost of our manufactured products, and the cost of freight from the manufacturer to our warehouse. Changes in cost of goods sold and gross profit may be driven by the volume and price of our sales, including the extent of discounts offered, variations in the cost of CBDraw materials and the price we pay for our manufactured products and variations in our freight costs.
Operating Expenses
General and administrative expenses include management and office personnel compensation and bonuses, share- based compensation, corporate level information technology related costs, rent, travel, professional service fees, costs related to merchant credit card fees, insurance, product development costs, shipping DTC orders to customers and general corporate expenses.
Sales and marketing expenses include costs related to customer service and warehousing, merchant credit card fees, compensation for sales personnel, shipping costs, other costs related to the selling platform, as well as marketing, including paid media and content creation expenses. Marketing expenses consist primarily of Facebook and other media ads, and other advertising and marketing costs, all geared towards acquiring new customers and building brand awareness.
Customer service and warehousing costs include the cost of our customer service department, including our in-house call center, and costs associated with warehouse operations, including but not limited to payroll, rent, and warehouse management systems. Marketing expenses consist primarily of Facebook and other media ads, other advertising and marketing costs, all geared towards acquiring new customers and building brand awareness. We expect selling expenses to continue to grow as we actively acquire new online customers and begin to build our wholesales channel.
Interest Expense
On December 19, 2019, we entered into in May 2019,a loan facilities agreement with a private debt lender (the “Facilities Agreement”) that provided for a short term loan facility of $20.5 million and under our note payable to a prior TruPet LLC member, corporate credit cards, and ourrevolving line of credit agreementnot to exceed $7.5 million. The short term loan and other debtrevolving line of credit are scheduled to mature on December 19, 2020 or such earlier date on which a demand is made by the agent or any lender.
On January 13, 2020, we issued $0.6 million in place priorsenior subordinated convertible notes to the acquisitions.ABG. These notes accrue interest payable in kind until maturity or conversion to equity.
On June 24, 2020, we issued $1.5 million in subordinated convertible promissory notes. These notes accrue interest payable in kind until maturity or conversion to equity.
Income Taxes
Our income tax provision consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for any allowable credits, deductions and uncertain tax positions. During the periods ended June 30, 2019 and June 30, 2018, wepositions as they arise. We did not record income tax expense becausefor the three and six months ended June 30, 2020 due to the continued losses incurred by us. Prior to the May Acquisitions, TruPet was a limited liability company. Subsequent to the consummation of the acquisitions, the Company, as a corporation, is required to provide for income taxes.
Results of Operations
| Six Months Ended | Three Months Ended | |||||||||||||||||||||||
Dollars in thousands | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||||||||
| Net Sales | $ | 7,635 | $ | 7,064 | 8 | % | $ | 4,084 | $ | 3,818 | 7 | % | ||||||||||||
| Cost of Goods Sold | 4,082 | 3,329 | 23 | % | 2,420 | 1,384 | 75 | % | ||||||||||||||||
| Gross Profit | 3,553 | 3,735 | -5 | % | 1,663 | 2,433 | -32 | % | ||||||||||||||||
| General & Administrative | 6,004 | 1,351 | 344 | % | 4,571 | 665 | 587 | % | ||||||||||||||||
| Share-Based Compensation | 4,212 | 0 | - | 4,006 | 0 | - | ||||||||||||||||||
| Sales & Marketing | 5,597 | 2,819 | 99 | % | 3,412 | 1,512 | 126 | % | ||||||||||||||||
| Other Operating | 1,721 | 1,899 | -9 | % | 936 | 958 | -2 | % | ||||||||||||||||
| Loss from operations | $ | (13,981 | ) | $ | (2,334 | ) | 499 | % | $ | (11,263 | ) | $ | (702 | ) | 1,505 | % | ||||||||
| $ in thousands | 2020 | 2019 | Change | % | ||||||||||||
| Net sales | $ | 22,167 | $ | 7,635 | $ | 14,532 | 190 | % | ||||||||
| Cost of goods sold | 13,886 | 4,082 | 9,804 | 240 | % | |||||||||||
Gross profit | 8,281 | 3,553 | 4,728 | 133 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expense | 19,650 | 7,174 | 12,476 | 174 | % | |||||||||||
| Share-based compensation | 5,504 | 4,212 | 1,292 | 31 | % | |||||||||||
Sales and marketing | 3,807 | 5,597 | (1,790 | ) | (32 | %) | ||||||||||
| Customer service and warehousing | 352 | 551 | (199 | ) | (36 | %) | ||||||||||
| Total operating expenses | 29,313 | 17,534 | 11,779 | 67 | % | |||||||||||
| Loss from operations | $ | (21,032 | ) | $ | (13,981 | ) | $ | (7,051 | ) | 50 | % | |||||
Net Sales
Net sales increased $0.6$14.5 million, or 8%190%, to $22.2 million for the six months ended June 30, 2020 compared to $7.6 million for the six months ended June 30, 2019 compared to $7.12019. Net sales include $15.9 million from Halo for the six months ended June 30, 2018.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased $0.8$9.8 million, or 23%240%, to $13.9 million for the six months ended June 30, 2020 compared to $4.1 million for the six months ended June 30, 2019 compared to $3.3 million for the six months ended June 30, 2018.2019. As a percentage of revenue, cost of goods sold increased to 53%63% during the six months ended June 30, 20192020 compared to 47% during53% for the six months ended June 30, 2018. The increase2019. Cost of goods sold includes $11.0 million of Halo product costs for the six months ended June 30, 2020 following the closing of the Halo Acquisition in December 2019. In addition, cost of goods sold during the first two quarters included $0.9 million of non-cash expense related to the amortization of a purchase accounting adjustment to inventory recorded in connection with the Halo Acquisition. These increases were offset by a comparable decrease in cost of goods sold was primarily duerelated to a mix shift to food and topper products, which have higher costs and lower gross margin than dental products. We continue to negotiate for improved conversion costs from our manufacturing partners and expect to see further cost reductions as we rationalize the product offering and gain scaledecrease in the remaining products. The cost of hemp derived CBD oils has declined in the market, thus, reducing our ingredient costs. In the six-month period ended on June 30, 2018, the inventory reserve taken was $0.2 million for slow moving and discontinued items.TruPet sales.
33
During the six months ended June 30, 2019,2020, gross profit decreased $0.2increased $4.7 million, or 5%133%, to $3.6$8.3 million compared to $3.7$3.6 million during the six months ended June 30, 2018.2019. Gross profit margin decreased to 47%37% from 53%47% for the six months ended June 30, 20192020 compared to the six months ended June 30, 2018. The ongoing shift into food and topper products2019. Gross profit includes $4.9 million from the dental products sold in 2018 and discounting of discontinued products also reduced the gross marginHalo for the six month period ended June 30, 2019.
Operating Expenses
During the six months ended June 30, 2019,2020, general and administrative expenses increased approximately $4.7$12.5 million, or 345%174%, to $6.0$19.7 million compared to $1.4$7.2 million infor the six months ended June 30, 2018.
During the six months ended June 30, 2019, sales and marketing expenses, including paid media,2020, share-based compensation increased approximately $2.8$1.3 million, or 99%31%, to $5.6$5.5 million, from $2.8as compared to share based compensation of $4.2 million during the six months ended in June 30, 2018 as a result of increased new customer acquisition efforts. TruPet traditionally invested in Facebook advertisement to drive traffic to the site. We increased spending on Facebook and Google, and began to invest additional spend in other media outlets to build brand awareness.
During the six months ended June 30, 2019, other operating costs2020, sales and marketing expenses, including customer service and warehousing costspaid media, decreased $0.2$1.8 million, or 9%32%, to $1.7$3.8 million compared to $1.9from $5.6 million during the six months ended June 30, 2019. Marketing expenses include $2.0 million incurred by Halo for the six months ended June 30, 2020, following the closing of the Halo Acquisition in December 2019. TruPet’s sales and marketing expenses decreased from $5.6 million for the six months ended June 30, 2018. We rationalized the operations in our warehouse at the end of 2018, reducing the staff and operating costs. We saw higher than normal shipping costs during2019 to $1.8 million for the six months ended June 30, 2018 due to the product recall. During this period, we shipped partial orders and replacement product, increasing our shipping expenses. During the six months ended June 30, 2019, we began renovating a new facility in Tampa, Florida to house our warehouse, fulfillment and administrative departments. Rent and associated utilities for this period are reflecting both the rent for the new facility as well as the existing facility that houses these departments.
During the six months ended June 30, 2020, customer service and warehousing decreased $0.2 million, or 36%, to $0.4 million, as compared to $0.6 million during the six months ended June 30, 2019 due to a reduction in staff and 2018, there were no research and development expenses incurred. We acquired two CBD related research contracts from Bona Vida on May 6, 2019. We expect to incur expenses in the third and fourth quarters of 2019 for these contracts as our research efforts continue.operating costs.
Interest Expense, Net
During the six months ended June 30, 2019,2020, interest expense remained fairly constant at approximatelyincreased $4.6 million to $4.7 million from $0.1 million compared tofor the six months ended June 30, 2018.2019. Interest expense increasedrelates primarily due to increased debt incurred under a note payable to a director, offset by the refinancing of the Company’s lineexisting and prior indebtedness including short term loans, lines of credit agreement of $4.6 million and the note payable to the director of $1.6 million into a $6.2 million line of credit on May 6, 2019 at a lower interest rate. The increased debt was necessary to finance working capital for the business.subordinated convertible notes.
Income Taxes
No provision has been made for federal and state income taxes prior to the date of the acquisitions sinceMay Acquisitions as the proportionate share of TruPet’s income or loss was included in the personal tax returns of its members becauseas TruPet was a limited liability company. Subsequent to the acquisitions, the Company,we, as a corporation are required to provide for income taxes.
The effective tax rate subsequent to the acquisitions is 0%. The effective tax rate differs from the U.S. Federal statutory rate of 21% as our reported losses are offset by a valuation allowance due to uncertainty as to the realization of those losses.
Three Months Ended June 30, 2020 versus Three Months Ended June 30, 2019
| $ in thousands | 2020 | 2019 | Change | % | ||||||||||||
Net sales | $ | 9,941 | $ | 4,084 | $ | 5,857 | 143 | % | ||||||||
Cost of goods sold | 5,817 | 2,421 | 3,396 | 140 | % | |||||||||||
Gross profit | 4,124 | 1,663 | 2,461 | 148 | % | |||||||||||
Operating expenses: | ||||||||||||||||
| General and administrative expense | 11,594 | 5,211 | 6,383 | 122 | % | |||||||||||
Share-based compensation | 3,020 | 4,006 | (986 | ) | (25 | %) | ||||||||||
Sales and marketing | 1,848 | 3,412 | (1,564 | ) | (46 | %) | ||||||||||
| Customer service and warehousing | 162 | 297 | (135 | ) | (45 | %) | ||||||||||
| Total operating expenses | 16,624 | 12,926 | 3,698 | 29 | % | |||||||||||
Loss from operations | $ | (12,500 | ) | $ | (11,263 | ) | $ | (1,237 | ) | 11 | % | |||||
Net Sales
Net sales increased $5.9 million, or 143%, to $9.9 million for the three months ended June 30, 2020 compared to $4.1 million for the three months ended June 30, 2019. Net sales include $7.0 million from Halo for the three months ended June 30, 2020 following the closing of the Halo Acquisition in December 2019. This was partially offset by a $1.1 million decrease for the three months ended June 30, 2020 in net sales related to TruPet as compared to the comparable prior year period.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased $3.4 million, or 140%, to $5.8 million for the three months ended June 30, 2020 compared to $2.4 million for the three months ended June 30, 2019. As a percentage of revenue, cost of goods sold was consistent at 59% during the three months ended June 30, 2020 compared to 59% for the three months ended June 30, 2019. Cost of goods sold includes $4.5 million of Halo product costs for the three months ended June 30, 2020 following the closing of the Halo Acquisition in December 2019. These increases were offset by a comparable decrease in cost of goods sold related to the decrease in TruPet sales.
During the three months ended June 30, 2020, gross profit increased $2.5 million, or 148%, to $4.1 million compared to $1.7 million during the three months ended June 30, 2019. Gross profit margin was consistent at 41% for the three months ended June 30, 2020 and the three months ended June 30, 2019. Gross profit includes $2.4 million from Halo for the three months ended June 30, 2020, following the closing of the Halo Acquisition. The Halo line of products for the current period carried a profit margin of 35% compared to TruPet’s margin of 58%. TruPet products have higher margins as compared to the Halo product line as Halo’s food and pet food topper products have higher costs than the TruPet dental products. Halo also incurred storage and fulfillment center costs of $0.2 million, an inventory reserve of $0.1 million and product obsolescence costs of $0.1 million due to the nature of Halo’s products.
Operating Expenses
During the three months ended June 30, 2020, general and administrative expenses increased $6.4 million, or 122%, to $11.6 million compared to $5.2 million for the three months ended June 30, 2019. General and administrative expenses include expenses of $1.2 million incurred by Halo for the three months ended June 30, 2020, following the closing of the Halo Acquisition. Halo general and administrative expenses include non-cash amortization of $0.4 million related to the trade name and customer relationship intangible assets acquired as part of the Halo acquisition, salaries and wages and related costs of $0.5 million, as well as other costs such as professional and consulting fees, charitable contributions, and other miscellaneous costs. Better Choice general and administrative expenses accounted for the remaining increase, driven by warrant expense ($7.5 million), and salaries and wages and related costs ($0.8 million) as we continued building the infrastructure to support our status as a public company and the expansion of our corporate staff, partially offset by lower consulting and other professional fees ($0.4 million).
During the three months ended June 30, 2020, share-based compensation decreased $1.0 million, or 25%, to $3.0 million, as compared to share-based compensation of $4.0 million during the three months ended June 30, 2019. The decrease was driven by the acceleration of vesting of option awards in connection with the May Acquisitions in the prior year period.
During the three months ended June 30, 2020, sales and marketing expenses, including paid media, decreased $1.6 million, or 46%, to $1.8 million from $3.4 million during the three months ended June 30, 2019. Marketing expenses include $1.1 million incurred by Halo for the three months ended June 30, 2020, following the closing of the Halo Acquisition in December 2019. TruPet’s sales and marketing expenses decreased from $3.4 million for the three months ended June 30, 2019 to $0.7 million for the three months ended June 30, 2020.
During the three months ended June 30, 2020, customer service and warehousing decreased $0.1 million, or 45%, to $0.2 million, as compared to $0.3 million during the three months ended June 30, 2019 due to a reduction in staff and related operating costs.
Interest Expense, Net
During the three months ended June 30, 2020, interest expense increased $2.4 million to $2.4 million from less than $0.1 million for the three months ended June 30, 2019. Interest expense relates primarily to existing and prior indebtedness including short term loans, lines of credit and subordinated convertible notes.
Income Taxes
No provision has been made for federal and state income taxes prior to the date of the May Acquisitions as the proportionate share of TruPet’s income or loss was included in the personal tax returns of its members as TruPet was a limited liability company. Subsequent to the acquisitions, we, as a corporation are required to provide for income taxes.
The effective tax rate subsequent to the acquisitions is 0%. The effective tax rate differs from the U.S. Federal statutory rate of 21% primarily becauseas our previously reported losses have beenare offset by a valuation allowance due to uncertainty as to the realization of those losses.
Liquidity and Capital Resources
Since our founding, we have financed our operations primarily through sales of member units aswhile a limited liability company, sales of shares of Common Stockour common stock and warrants assince becoming a corporation, preferred stock and cash flows generated by operations. Atloans. On June 30, 2020 and December 31, 2019, we had cash and cash equivalents of $11.2 million (includingand restricted cash of $6.2 million)$3.5 million and $2.5 million, respectively.
We are subject to risks common in the pet wellness consumer market including, but not limited to, dependence on key personnel, competitive forces, successful marketing and sale of its products, the successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government regulations. In late 2019, a novel strain of coronavirus (“COVID-19”) began to spread globally. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil, which represented an increase of $7.3 million from December 31, 2018.could negatively impact our business, financial condition, and cash flows.
If we seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a period of twelve months fromgoing concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable to raise the date ofnecessary funds when needed or achieve planned cost savings, or other strategic objectives are not achieved, we may not be able to continue our unauditedoperations, or we could be required to modify our operations that could slow future growth. The accompanying interim condensed consolidated financial statements.
| Dollars in thousands | June 30, 2019 | June 30, 2018 | ||||||||||||||
| Cash flows provided by (used in): | ||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||
| $ in thousands | 2020 | 2019 | ||||||||||||||
| Cash flows (used in) provided by: | ||||||||||||||||
| Operating activities | $ | (8,481 | ) | $ | (2,026 | ) | $ | (2,168 | ) | $ | (8,481 | ) | ||||
| Investing activities | 1,870 | (31 | ) | (6 | ) | 1,870 | ||||||||||
| Financing activities | 13,927 | (2,031 | ) | 3,127 | 13,927 | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 7,316 | $ | (44 | ) | |||||||||||
| Net increase in cash and cash equivalents and restricted cash | $ | 953 | $ | 7,316 | ||||||||||||
Cash flows from Operating Activities
Cash provided by (used in)used in operating activities consisted of net loss adjusted for non-cash items including the loss on acquisition, stock-basedsuch as share-based compensation expense change fair value of in derivative liability,and depreciation and amortization as well as changes in working capital and other activitiesactivities.
Cash used in operating activities increased $6.5decreased $6.3 million, or 319%74%, during the six months ended June 30, 20192020 compared to the six months ended June 30, 2018.2019. Cash used in operating activities was $8.5$2.2 million for the six months ended June 30, 2019,2020, which consisted of the net loss from operations of $164.3$27.9 million, partially offset by $150.0 million from the loss from the acquisitions, $4.2$10.2 million in stock-basedshares issued for services, $5.5 million of share-based compensation, expense$2.4 million for amortization of debt issuance costs and discounts, $0.9 million in depreciation and amortization, $2.1 million in the change in fair value warrant derivative liability, $0.9 million of payments in kind interest, $0.6 million of contract termination costs, less than $0.1 million in the increase in fair value of warrants in connection with modification to exercise price, and a combined $1.4$3.1 million of net cash generated viafrom changes in operating assets and current liabilities.
Cash flows from Investing Activities
Cash used in investing activities was less than $0.1 million during the six months ended June 30, 2020. Cash provided by operating activities was $2.0$1.8 million during the six months ended June 30, 2019.The cash used in investing activities for the six months ended June 30, 2018, which consisted2020 is related to the purchase of net loss of $2.4 million,property and equipment. The cash flow from investing activities for the six months ended June 30, 2019 is primarily due to cash acquired in the merger, partially offset by a combined $0.4 million net cash generated via changes in operating assetsused to pay security deposits and current liabilities.purchase property and equipment.
Cash flows from Financing Activities
Cash provided by financing activities was $3.1 million for the six months ended June 30, 2020 compared to cash provided of $13.9 million during the six months ended June 30, 2019. The decrease in working capital (deficit)cash flow from financing activities for the six months ended June 30, 2020 was provided by proceeds from the revolving line of credit of $0.8 million, proceeds from the PPP loans of $0.8 million and proceeds of $1.5 million from the June 2020 Notes. Net cash provided during the six months ended June 30, 2019 was primarily duerelated to an increase of accrued liabilities of $1.6 million offset by an increase in prepaid expenses of $0.5 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.resources.
Critical Accounting Policies
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.
Evaluation of Disclosure Controls and Procedures
Changes in Internal Control Over Financial Reporting
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
There have been no material changes from the risk factors disclosed in Item 1A. of Part 1 of our Form 10-K for the Fiscal Year Ended December 31, 2019. While we believe there have been no material changes from the risk factors previously disclosed in such Form 10-K, you should carefully consider, in addition to the other information set forth in this report, the risk factors discussed in our Annual Report that could materially affect our business, financial condition or future results. The Company qualifies as a “smaller reporting company” as defined by Rule 12b-2 ofrisks described in our Annual Report are not the Exchange Actonly risks facing our Company. In addition to risks and isuncertainties inherent in forward-looking statements contained in this Report on Form 10-Q, additional risks and uncertainties not requiredcurrently known to provide information under this Item.us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
We have previously disclosed all sales of securities without registration under the Securities Act of 1933, as amended.
None.
Not applicable.
None.
| ITEM 6. | EXHIBITS |
The following exhibits are filed herewith.
Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | |
Agreement and Plan of Merger, dated February 28, 2019, by and among the Better Choice Company Inc., BBC Merger Sub, Inc. and Bona Vida, Inc. | 8-K | 333-161943 | 2.1 | 5/10/2019 | |||
First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Better Choice Company Inc., BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019. | 8-K | 333-161943 | 2.1 | 5/10/2019 | |||
Securities Exchange Agreement, dated February 2, 2019, by and among Better Choice Company Inc., TruPet LLC and the members of TruPet LLC. | 8-K | 333-161943 | 2.3 | 5/10/2019 | |||
First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among Better Choice Company Inc., TruPet LLC and the members of TruPet LLC, dated May 6, 2019. | 8-K | 333-161943 | 2.4 | 5/10/2019 |
Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | |
Certificate of Incorporation. | 10-Q | 333-161943 | 3.1 | 4/15/2019 | |||
Bylaws. | 10-Q | 333-161943 | 3.5 | 4/15/2019 | |||
Certificate of Amendment to Certificate of Incorporation. | 10-Q | 333-161943 | 3.2 | 7/14/2017 | |||
Certificate of Amendment to Certificate of Incorporation. | 8-K | 333-161943 | 3.2 | 3/22/2018 | |||
Certificate of Amendment to Certificate of Incorporation. | 10-KT | 333-161943 | 3.5 | 7/24/2019 | |||
Form of Registration Rights Agreement dated May 6, 2019, by and among Better Choice Company Inc. and the former stockholders of Bona Vida listed on the signature pages thereto. | 8-K | 333-161943 | 4.1 | 5/10/2019 | |||
Form of Registration Rights Agreement dated May 6, 2019, by and among Better Choice Company Inc. and the former member of TruPet listed on the signature pages thereto. | 8-K | 333-161943 | 4.2 | 5/10/2019 | |||
Form of First Amendment to Registration Rights Agreement, dated June 10, 2019, by and among the Company and the stockholders party thereto | 8-K | 333-161943 | 10.1 | 6/13/2019 | |||
Tranche 1 Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton | 8-K | 333-161943 | 4.1 | 9/23/2019 | |||
Tranche 2 Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton | 8-K | 333-161943 | 4.2 | 9/23/2019 | |||
Additional Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton | 8-K | 333-161943 | 4.3 | 9/23/2019 | |||
Form of Subscription Agreements dated April 25, 2019, between Better Choice Company Inc. and the purchaser named in the signature pages thereto. | 8-K | 333-161943 | 10.1 | 4/30/2019 | |||
Loan Agreement dated May 6, 2019, between Better Choice Company Inc. and Franklin Synergy Bank. | 8-K | 333-161943 | 10.1 | 5/10/2019 | |||
Security Agreement dated May 6, 2019, between Better Choice Company Inc. and Franklin Synergy Bank. | 8-K | 333-161943 | 10.2 | 5/10/2019 | |||
Form of Revolving Line of Credit Promissory Note. | 8-K | 333-161943 | 10.3 | 5/10/2019 | |||
Independent Contractor Agreement, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton | 8-K | 333-161943 | 10.1 | 9/23/2019 |
EXHIBIT INDEX
| Exhibit | Exhibit Description | Form | File No. | Exhibit | Filing date | Filed / Furnished Herewith |
Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc. and Bona Vida, Inc. | 8-K | 333-161943 | 2.1 | 05/10/2019 | ||
First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019 | 8-K | 333-161943 | 2.2 | 05/10/2019 | ||
Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC | 8-K | 333-161943 | 2.3 | 05/10/2019 | ||
First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC, dated May 6, 2019 | 8-K | 333-161943 | 2.4 | 05/10/2019 | ||
Amended and Restated Stock Purchase Agreement, dated December 18, 2019, by and among the Company, Halo, Purely For Pets, Inc., Thriving Paws, LLC and HH-Halo LP | 8-K | 333-161943 | 2.1 | 12/26/2019 | ||
Certificate of Incorporation, dated January 1, 2019 | 10-Q | 333-161943 | 3.1 | 04/15/2019 | ||
Certificate of Amendment to Certificate of Incorporation, dated February 1, 2019 | 10-Q | 333-161943 | 3.2 | 04/15/2019 | ||
Certificate of Amendment to Certificate of Incorporation, dated March 13, 2019 | 8-K | 333-161943 | 3.1 | 03/20/2019 | ||
Certificate of Amendment to Certificate of Incorporation, dated April 18, 2019 | 10-KT | 333-161943 | 3.5 | 07/25/2019 | ||
| 3.5 | Certificate of Amendment to Certificate of Incorporation, dated July 30, 2020 | 8-K | 333-161943 | 99.1 | 07/30/2020 | |
Certificate of Merger of Sport Endurance, Inc. with and into the Company | 10-Q | 333-161943 | 3.4 | 04/15/2019 | ||
Bylaws | 10-Q | 333-161943 | 3.5 | 04/15/2019 | ||
Amended and Restated Certificate of Designation for Series E Convertible Preferred Stock | 8-K | 333-161943 | 3.1 | 05/23/2019 | ||
Form of Common Stock Purchase Warrant in connection with the May 2019 private placement | 8-K | 333-161943 | 4.1 | 04/30/2019 | ||
Form of Tranche 1 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Registrant and Bruce Linton | 8-K | 333-161943 | 4.1 | 09/23/2019 | ||
Form of Tranche 2 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | 8-K | 333-161943 | 4.2 | 09/23/2019 |
| Exhibit | Exhibit Description | Form | File No. | Exhibit | Filing date | Filed / Furnished Herewith |
Form of Additional Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | 8-K | 333-161943 | 4.3 | 09/23/2019 | ||
Form of Subordinated Convertible Promissory Note in connection with the November 2019 private placement | 8-K | 333-161943 | 4.1 | 11/15/2019 | ||
Form of Common Stock Purchase Warrant in connection with the November 2019 private placement | 8-K | 333-161943 | 4.2 | 11/15/2019 | ||
Form of Subordinated Convertible Promissory Note, dated December 19, 2019, by and among the Company and the Halo Sellers listed on the signature pages thereto | 10-Q | 333-161943 | 4.7 | 01/31/2020 | ||
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers | 10-Q | 333-161943 | 4.8 | 01/31/2020 | ||
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors | 10-Q | 333-161943 | 4.10 | 01/31/2020 | ||
Form of Common Stock Purchase Warrant Agreement in connection with the December 2018 private placement | 8-K | 333-161943 | 4.1 | 12/13/2018 | ||
Form of Common Stock Purchase Warrant in connection with the June 2020 private placement. | 10-Q | 333-161943 | 4.11 | 06/25/2020 | ||
| 4.12 | Form of Subordinated Convertible Promissory Note in connection with the June 2020 private placement. | 10-Q | 333-161943 | 4.12 | 06/25/2020 | |
| 4.13 | Form of Subscription Agreement in connection with the June 2020 private placement. | 10-Q | 333-161943 | 4.13 | 06/25/2020 | |
| 4.14 | Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the June 2020 private placement. | 10-Q | 333-161943 | 4.14 | 06/25/2020 | |
| 4.15 | Form of Amendment to November 2019 Notes, Seller Notes and ABG Notes | * | ||||
| 4.16 | Form of July 2020 Common Stock Purchase Warrants | 8-K | 333-161943 | 10.5 | 07/21/2020 | |
Loan Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank | 8-K | 333-161943 | 10.1 | 05/10/2019 | ||
Security Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank | 8-K | 333-161943 | 10.2 | 05/10/2019 | ||
Guaranty Agreement, dated April 8, 2019, by TruPet LLC in favor of Franklin Synergy Bank | S-1 | 333-234349 | 10.17 | 10/28/2019 | ||
Form of Revolving Line of Credit Promissory Note dated 2019 | 8-K | 333-161943 | 10.3 | 05/10/2019 | ||
Guaranty Agreement, dated April 8, 2019, by Bona Vida, Inc. in favor of Franklin Synergy Bank | S-1 | 333-234349 | 10.16 | 10/28/2019 | ||
Loan Facilities Credit Letter Agreement, dated December 19, 2019, by and among the Better Choice Company Inc., Halo, Purely for Pets, Inc., Bona Vida Inc., TruPet LLC and Bridging Finance Inc., as agent. | 10-Q | 333-161943 | 10.1 | 01/31/2020 | ||
Pledge and Security Agreement, dated December 19, 2019, by and among the Company, Halo, Purely or Pets, Inc., Bona Vida, Inc., TruPet LLC and Bridging Finance Inc., as Administrative Agent | 10-Q | 333-161943 | 10.2 | 01/31/2020 | ||
Continuing Guaranty of Halo, Purely for Pets, Inc., Bona Vida Inc., TruPet LLC, dated December 19, 2019 | 10-Q | 333-161943 | 10.3 | 01/31/2020 | ||
Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers | 10-Q | 333-161943 | 10.6 | 01/31/2020 |
| Exhibit | Exhibit Description | Form | File No. | Exhibit | Filing date | Filed / Furnished Herewith |
Continuing Personal Guaranty of John Word, Lori Taylor and Michael Young, dated December 19, 2019 | 10-Q | 333-161943 | 10.4 | 01/31/2020 | ||
Registration Rights Agreement, dated May 6, 2019, by and among the Company and the persons listed on the signature pages thereto in connection with the May 2019 private placement | S-1 | 333-234349 | 10.2 | 10/28/2019 | ||
First Amendment, dated June 10, 2019, to Registration Rights Agreement, dated May 6, 2019, by and among the Company and the stockholders party thereto | S-1 | 333-234349 | 10.3 | 10/28/2019 | ||
Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement | 8-K | 333-161943 | 10.1 | 04/30/2019 | ||
Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former stockholders of Bona Vida listed on the signature pages thereto | 8-K | 333-161943 | 4.1 | 05/10/2019 | ||
Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former member of TruPet listed on the signature pages thereto | 8-K | 333-161943 | 4.2 | 05/10/2019 | ||
Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the November 2019 private placement | 8-K | 333-161943 | 4.3 | 11/15/2019 | ||
Form of Subscription Agreement in connection with the November 2019 private placement | 8-K | 333-161943 | 10.1 | 11/15/2019 | ||
| 10.18 | Business Loan Agreement, dated as of July 16, 2020, by and among the Company, Halo, TruPet, Bona Vida (the “Credit Parties”), and Citizens Bank | 8-K | 333-161943 | 10.1 | 07/21/2020 | |
| 10.19 | Promissory Note, dated as of July 16, 2020, issued by the Credit Parties in favor of Citizens Bank | 8-K | 333-161943 | 10.2 | 07/21/2020 | |
| 10.20 | Commercial Security Agreement, dated as of July 16, 2020, by and among the Credit Parties and Citizens Bank | 8-K | 333-161943 | 10.3 | 07/21/2020 | |
| 10.21 | Commercial Guaranty, dated as of July 16, 2020, by and between Citizens Bank and John M. Word, III | 8-K | 333-161943 | 10.4 | 07/21/2020 | |
Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan | 10-K | 333-161943 | 10.19 | 5/4/2020 | ||
| Form of 2019 Incentive Aware Plan Stock Option Agreement | S-1 | 333-234349 | 10.7 | 10/28/2019 | ||
| Form of Indemnification Agreement by and among the Company and its officers and directors | S-1 | 333-234349 | 10.8 | 10/28/2019 | ||
Independent Contractor Agreement, dated September 17, 2019, by and between the Company and Bruce Linton | 8-K | 333-161943 | 10.1 | 09/23/2019 | ||
Employment Agreement, dated February 1, 2019, for David Lelong | 8-K | 333-161943 | 10.1 | 02/07/2019 | ||
Employment Agreement, dated as of May 6, 2019, by and between the Company and Damian Dalla-Longa | 10-Q | 333-161943 | 10.6 | 10/09/2019 | ||
Resignation Letter from Damian Dalla-Longa, dated February 5, 2020 | 8-K | 333-161943 | 10.3 | 02/11/2020 |
| Exhibit | Exhibit Description | Form | File No. | Exhibit | Filing date | Filed / Furnished Herewith |
Amendment to Employment Agreement, dated February 10, 2020, by and between Damian Dalla-Longa and the Company | 8-K | 333-161943 | 10.4 | 02/11/2020 | ||
Employment Agreement, dated as of May 6, 2019, by and between the Company and Lori Taylor | 10-Q | 333-161943 | 10.7 | 10/09/2019 | ||
Separation Agreement, dated as of September 13, 2019, by and between the Company and Lori Taylor | 10-K | 333-161943 | 10.28 | 5/4/2020 | ||
Employment Agreement, dated May 6, 2019, by and among the Company and Anthony Santarsiero | S-1 | 333-234349 | 10.11 | 10/28/2019 | ||
Employment Agreement, dated June 29, 2019, by and among the Company and Andreas Schulmeyer | S-1 | 333-234349 | 10.12 | 10/28/2019 | ||
Employment Agreement, dated December 19, 2019, by and between the Company, Werner von Pein, and Halo | 8-K | 333-161943 | 10.1 | 02/11/2020 | ||
Amendment to Employment Agreement, dated February 10, 2020, by and between Werner von Pein and the Company | 8-K | 333-161943 | 10.2 | 02/11/2020 | ||
Subsidiaries of the Company | 10-K | 333-161943 | 21.1 | 5/4/2020 | ||
Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. | * | |||||
Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. | * | |||||
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 | * | |||||
101.INS | XBRL Instance Document | * | ||||
101.SCH | XBRL Taxonomy Extension Schema Document | * | ||||
101.CAL | XBRL Taxonomy Extension Calculation Document | * | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | * | ||||
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document. | * | ||||
101.PRE | XBRL Taxonomy Extension Presentation Link Document. | * |
Exhibit | Exhibit Description | Form | File No. | Exhibit | date | Filed / Furnished Herewith | ||
| † | Indicates a management contract or any compensatory plan, contract or arrangement. |
| # | Certain schedules and similar attachments to this agreement have been omitted in accordance with Item 601(b)(5) of Regulation S-K. The Company will furnish copies of any schedules or similar attachments to the SEC upon request. |
| *** | Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and would likely cause competitive harm to the registrant if publicly disclosed. |
In accordance with the requirements of the Securities Exchange Act, of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BETTER CHOICE COMPANY INC. | ||
Date: | By: | /s/ |
Chief (Principal Executive Officer) | ||
Date: August 14, 2020 | By: | /s/ SHARLA COOK |
| Sharla Cook | ||
| Principal Financial and Accounting Officer | ||