UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549


Form 10-QFORM 10‑Q

 
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
Or
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: 333-161943File Number: 333‑161943

 
Better Choice Company Inc.
(Exact name of registrant as specified in its charter)


Delaware83-4284557
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4025 Tampa Road, Suite 1117
Oldsmar, Florida
34677
(Address of principal executive offices)(Zip Code)

(646) 846-4280164 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 classEach Class
Trading Symbol(s)
Name of each exchangeEach Exchange on which registeredRegistered
N/AN/AN/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 ⌧
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-212b‑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.June 18, 2020.

BETTER CHOICE COMPANY INC.Better Choice Company Inc.
TABLE OF CONTENTS


Page No.
PART I. FINANCIAL INFORMATION
4
Item 1. Financial Statements:
4
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018
4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)
5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2019 and 2018 (unaudited)
6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)
7
Notes to the Unaudited Condensed Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
34
Item 4. Controls and Procedures
35
PART II. OTHER INFORMATION
36
Item 1. Legal Proceedings
36
Item 1A. Risk Factors
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
36
Item 3. Defaults Upon Senior Securities
36
Item 4. Mine Safety Disclosures
36
Item 5. Other Information
36
Item 6. Exhibits
36
Signatures
39
Item
 
Page
 PART I – FINANCIAL INFORMATION 
1.4
 4
 5
 6
 7
 8
 10
2.26
3.32
4.32
   
 PART II – OTHER INFORMATION 
1.33
1A
Risk Factors
33
2.33
3.33
4.33
5.33
6.33
 38

EXPLANATORY NOTE

As previously disclosed in the Current Report on Form 8-K filed by the Company with the SEC on May 14, 2020, the filing of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 was delayed due to circumstances related to the COVID-19 pandemic. The Company relied on the SEC’s order pursuant to Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies, as amended (Release No. 34-88465), dated March 25, 2020, to delay the filing of this Form 10-Q.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
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.
 
 Concurrently with the filing of this Quarterly Report, the Company is filing an amendment on Form 8-K/A to its Current Report on Form 8-K relating to the completion of the acquisitions which includes unaudited financial statements of TruPet and Bona Vida as of and for the three months ended March 31, 2019 and certain pro forma financial information. This Quarterly Report should be read in conjunction with the information in the Form 8-K/A.

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 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” or “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.

3
Table of Contents
PART I. FINANCIAL INFORMATIONI
 
ITEM 1.
FINANCIAL STATEMENTS

Better Choice Company Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2019March 31, 2020 and December 31, 20182019
(Dollars in thousands)thousands, except share and per share amounts)

 
March 31, 2020
(unaudited)
  
December 31, 2019
 

 
6/30/2019
(Unaudited)
 12/31/2018       
Assets           
Current Assets           
Cash and cash equivalents $5,019  $3,946  $1,842  $2,361 
Restricted cash  6,243   -  25  173 
Accounts receivable, net  333   276  6,121  5,824 
Inventories, net  1,707   1,557  4,762  6,580 
Prepaid expenses and other current assets  1,134   269   3,064   2,641 
Total Current Assets  14,436   6,048  15,814  17,579 
Property and equipment, net  59   71  349  417 
Right of use asset, operating lease, net of accumulated amortization  840   - 
Right-of-use assets, operating lease 888  951 
Intangible assets, net  961   -  14,259  14,641 
Goodwill 18,614  18,614 
Other assets  182   28   1,027  1,330 
Total Assets $16,478  $6,147  $50,951  $53,532 
      
Liabilities & Stockholders’ Deficit  
   
       
Current Liabilities  
   
       
Line of credit $-  $4,600 
Short term loan, net $17,023  $16,061 
Line of credit, net 5,366  4,819 
Other liabilities  -   1,899  209  500 
Long-term debt, current portion  6,200   1,600 
Accounts payable  2,413   765  4,226  4,049 
Due to related parties  134   - 
Accrued liabilities  2,198   244  4,570  4,721 
Deferred revenue  318   66  330  311 
Operating lease liability, current portion  262   -  352  345 
Warrant derivative liability  2,304   -   841   2,220 
Total Current Liabilities  13,829   9,174   32,917   33,026 
Noncurrent Liabilities      
Notes payable, net 17,559  16,370 
Operating lease liability  590   -   566   641 
Deferred rent  15   15 
Total Noncurrent Liabilities  18,125   17,011 
Total Liabilities  14,434   9,189   51,042   50,037 
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   - 
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 at March 31, 2020 and December 31, 2019 10,566  10,566 
      
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 
Common stock, $0.001 par value, 88,000,000 shares authorized, 48,939,708 & 47,977,390 shares issued and outstanding at March 31, 2020 and December 31, 2019 49  48
 
Additional paid-in capital  170,017   13,642  200,051  194,150 
Accumulated deficit  (181,023)  (16,698)  (210,757)  (201,269)
Total Stockholders’ Deficit  (10,963)
  (3,042)
Total Stockholders’ Deficit  (10,657)  (7,071)
Total Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit $16,478  $6,147  $
50,951
  $53,532 

TheSee accompanying notes are an integral part of theseto the unaudited condensed consolidated financial statements.

4
Table of Contents
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Six Months Ended June 30, 2019 and 2018(unaudited)
(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)
  Three Months Ended March 31, 
  2020  2019 
       
Net sales $12,226  $3,551 
Cost of goods sold  8,069   1,661 
Gross profit  4,157   1,890 
Operating expenses:        
General and administrative  8,056   1,959 
Share-based compensation  2,484   206 
Sales and marketing  1,959   2,185 
Customer service and warehousing  190   254 
Total operating expenses  12,689   4,604 
Loss from operations  (8,532)  (2,714)
Other expense/(other income):        
Interest expense, net  2,301   62 
Change in fair value of warrant derivative liability  (1,379)  - 
Total other expense/(other income)  922   62 
         
Net and comprehensive loss  (9,454)  (2,776)
Preferred dividends  34   - 
Net and comprehensive loss available to common stockholders  (9,488)  (2,776)
Weighted average number of shares outstanding, basic and diluted  48,526,396   11,674,127 
Loss per share, basic and diluted $(0.20) $(0.24)

TheSee accompanying notes are an integral part of theseto the unaudited condensed consolidated financial statements.

5
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit

  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)

6
Better Choice Company Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three Months Ended March 31, 2020
(unaudited)
(Dollars in thousands except shares)

  Common Stock           
Redeemable Series E
Convertible Preferred Stock
 
  Number  Amount  
Additional
Paid-In
Capital
  
Accumulated
Deficit
  
Total
Stockholders’
Deficit
  Number  Amount 
Balance at 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 at March 31, 2020  48,939,708  $49  $200,051  $(210,757) $(10,657)  1,387,378  $10,566 

See accompanying notes to the unaudited condensed consolidated financial statements.

Better Choice Company Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three Months Ended March 31, 2019
(unaudited)
(Dollars in thousands except shares)

  
Common Stock
  
Convertible Series A
Preferred Stock
          
  
Number
  
Amount
  Number  Amount  
Additional
paid-in
capital
  
Accumulated
deficit
  
Total
Stockholders’
Deficit
 
Balance at 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 at March 31, 2019  11,680,449  $12   2,460,518  $2  $13,998  $(19,474) $(5,462)

See accompanying notes to the unaudited condensed consolidated financial statements.

Better Choice Company Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018
(Dollars in thousands)

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 
  Three Months Ended March 31, 
  2020  2019 
Cash Flow from Operating Activities:      
Net and comprehensive loss available to common stockholders $(9,488) $(2,776)
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  2,792   - 
Depreciation and amortization  457   4 
Amortization of debt issuance costs and discounts  1,090   - 
Share-based compensation  2,484   206 
Lease expenses  (4)  8 
Change in fair value of warrant derivative liability  (1,379)  - 
Payment in kind (PIK) interest expense on notes payable  459   - 
Contract termination costs  649   - 
Changes in operating assets and liabilities, net of effects of business acquisition:        
Accounts receivable, net  (297)  63 
Inventories, net  1,818   233 
Prepaid expenses and other current assets  (423)  148 
Other assets  428   (26)
Accounts payable  177   445 
Accrued liabilities  (151)
  233 
Deferred revenue  19   118 
Other  210   (24)
Cash Used in Operating Activities $(1,159) $(1,368)
         
Cash Flow from Investing Activities        
Acquisition of property and equipment, net $(8) $- 
Cash Used in Investing Activities $(8) $- 
         
Cash Flow from Financing Activities        
Proceeds from shares issued pursuant to private placement, net $-  $150 
Proceeds from revolving line of credit  500   - 
Payment of cash advance, net
  -   (906)
Cash Provided by (Used in) Financing Activities $500  $(756)
         
Net Decrease in Cash and cash equivalents and Restricted cash $(667) $(2,124)
Total Cash and cash equivalents, Beginning of Period  2,534   3,946 
Total Cash and cash equivalents and Restricted cash, End of Period $1,867  $1,822 

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:

Dollars in thousands
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)
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)

The Company paid no income taxes during the sixthree months ended June 30, 2019 or 2018.March 31, 2020 and 2019.

CashThe Company paid interest paid amounted to $123of $0.7 million and $66$0.3 million during the sixthree months ended June 30,March 31, 2020 and 2019, respectively.

On January 13, 2020 and 2018, respectively.January 20, 2020, respectively, the Company issued 72,720 shares of common stock and 61,224 common stock warrants to a third party in connection with a contract termination.

On March 5, 2020, 125,000 shares of common stock were issued to an affiliate of iHeartMedia Entertainment, Inc. (''iHeart") for future advertising to be incurred through August 2021.

On March 17, 2020, 1,003,232 warrants were issued to holders of warrants acquired on May 6, 2019 due to dilutive impact of subsequent issuances.

See accompanying notes to the unaudited condensed consolidated financial statements.

Notes to the Unaudited Condensed Consolidated Financial Statements
(dollars in thousands except share and per share amounts)
(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.  We sell the majority of our 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 December 19, 2019 through December 31, 2019.

Basis of Presentation

The majority of our products are sold online directly to consumers with additional sales through online retailers and pet specialty stores. We have a limited selection of CBD infused canine products available on our Bona Vida website.  The information contained in, or accessible through, these websites does not constitute a part of this Quarterly Report.

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”).

We present our tables in U.S. dollars (thousands) and percentage as rounded up or down. In the notes, we represent 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.

Basis of Measurement

The unaudited condensed consolidated financial statements of the Company are presented on a going concernconsolidated basis under the historical cost convention except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goodssubsequent to acquisitions and services. The Company’s functional and presentation currency is United States dollars (“USD”).

Consolidation

The consolidated financial statements and related notes include the accounts of the Company and its wholly-ownedwholly owned subsidiaries.  All intercompany balancestransactions and transactionsbalances have been eliminated in consolidation.

Cash and Cash EquivalentsGoing Concern Considerations

CashThe 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 sale of its products, the successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government regulations. In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. Uncertainties regarding the economic impact of COVID-19, the disease caused by the novel coronavirus, are likely to result in sustained market turmoil which could also negatively impact our business, financial condition, and cash equivalents include demand deposits held with banksflows. The Company has continually incurred losses and highly liquidhas an accumulated deficit. The Company continues to rely on current investors and the public markets to finance these losses through debt and/or equity issuances. These operating losses and the outstanding debt create substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date these interim condensed consolidated financial statements are issued. The Company is implementing plans to achieve cost savings and other strategic objectives to address these conditions. The Company expects cost savings from consolidation of third-party manufacturers, optimizing shipping and warehousing as well as overhead cost reductions. The business is focused on growing the most profitable channels while reducing investments with remaining maturities of ninety days or less at acquisition date. For purposes of reporting cash flows, the Company considers all cash accountsin areas that are not subjectexpected to withdrawal restrictionshave long-term benefits. The accompanying interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and payments of liabilities in the ordinary course of business. Accordingly, the interim condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or penaltiesthe amount of and classification of liabilities that may result should the Company be unable to be cash and cash equivalents.continue as a going concern.

Restricted Cashcash

As part of the revolving credit agreement with Franklin Synergy Bank, theThe Company is required to maintain a restricted cash balance of $6.2less than $0.1 million in its account.  Any withdrawals from the account require an equal reduction to the funds available under the revolvingand $0.2 million as of March 31, 2020 and December 31, 2019 associated with a business credit agreement.card and credit card clearance operations.

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 

8
Accounts ReceivableAllowance for doubtful accounts

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 difficultiesprimarily consist 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.at March 31, 2020 and December 31, 2019.

InventoriesGoodwill

Inventories are recorded atGoodwill of $18.6 million was recognized as of December 31, 2019 in connection with the lowerHalo Acquisition (see “Note 2 – Acquisitions”). No impairment was recognized as of costMarch 31, 2020 and net realizable value. The net realizable value represents the estimated selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale.December 31, 2019.

Cost is determined on a standard cost basis and includes the purchase price and other costs, such as transportation costs. Inventory average cost is determined on a first‑in, first‑out (“FIFO”) basis and trade discounts are deducted from the purchase price.

Property and Equipment

Property and equipment are carried at cost and includes expenditures for new additions and other additions, which substantially increase the useful lives of existing assets. Depreciation is computed at various rates by use of the straight-line method. Depreciable lives are generally as follows:

Furniture and Fixtures
5 to 7 years
Equipment
7 years

Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of property or equipment retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts in the year of disposal with the resulting gain or loss reflected in earnings.Intangible assets

The Company assesses potential impairmentsacquired an intangible asset related to the Houndog license with the acquisition of its propertyBona Vida an 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 with the acquisition of Halo on December 19, 2019. There were no indicators of impairment of intangible assets as of March 31, 2020.

Leases

The Company’s leases relate to our corporate 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 sheet. 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

No provision has been madeThe Company was incorporated on May 6, 2019. Prior to this date, the Company operated as a flow through entity for state and United States federal tax purposes. The Company files a U.S. federal and state income taxes prior to the datetax return including its wholly owned subsidiaries.  As of the acquisitions since the proportionate share of TruPet’s income or loss was included in the personal tax returns of its members because TruPet was a limited liability company.  Subsequent to the acquisitions,March 31, 2020 and December 31, 2019, the Company as a corporation, is required to provide fordoes not have any uncertain income taxes.tax positions.

The Company utilizes Accounting Standards Codification (“ASC 740”), “Accounting for Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The effective tax rate for each of the three months and the six months ended June 30, 2019 is 0%.  The effective tax rate differs from the U.S. Federal statutory rate of 21% primarily because our previously reported losses have been offset by a valuation allowance due to uncertainty as to the realization of those losses.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, the Company would report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company elects to recognize any interest and penalties, if any, related to unrecognized tax benefits in tax expense.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. As of the completion of these unaudited condensed financial statements, we have made a reasonable estimate of the effects of the Tax Act. This estimate incorporates assumptions made based upon the Company’s current interpretation of the Tax Act and may change as the Company may receive additional clarification and implementation guidance and as the interpretation of the Tax Act evolves. In accordance with SEC Staff Accounting Bulletin No. 118, the Company will finalize the accounting for the effects of the Tax Act no later than the end of the fourth quarter of fiscal year 2019. Future adjustments made to the provisional effects will be reported as a component of income tax expense in the reporting period in which any such adjustments are determined. Based on the new tax law that lowers corporate tax rates, the Company revalued its deferred tax assets. Future tax benefits are expected to be lower, with the corresponding one-time charge being recorded as a component of income tax expense.

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”.

In order to recognize revenue, the Company applies the following five (5) steps:
Identify a customer along with a corresponding contract;
Identify the performance obligation(s) in the contract to transfer goods to a customer;
Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods to a customer;
Allocate the transaction price to the performance obligation(s) in the contract; and
Recognize revenue when or as the Company satisfies the performance obligation(s).

A descriptionFair value of the Company’s revenue generating activities is listed below:

Direct-to-consumer (“DTC”) – Our products are offered through our online stores where customers place orders online or through our customer service number. Revenue is recorded, net of discounts, at the time the order is received by the customer. Revenue is deferred for orders that have been placed, and paid for, but have not yet been received by the customer during the reporting period. As our customers have a 60-day guarantee on the product purchased, the Company records a liability for two months of estimated returns based on historical experience.

Loyalty Program - The Company offers a loyalty program to all of its direct-to-consumer customers.  There are two tiers to the program.
Tier 1: the customer will earn 6 points for every $1 spent
Tier 2: the customer can earn points at a much faster rate and will also have opportunities to earn bonus points for different events, such as a birthday.  This tier is known as the TruDog Love Club, and the customer accumulates twelve points for every $1 spent.financial instruments

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.

Wholesale Sales – This channel includes the sale of our products to wholesale customers for resale.  The Company’s policy is to recognize revenue at the time the product is shipped to the wholesale customer, net of estimated returns and allowances.

Consignment – The Company partners with an Amazon channel partner to market and sell TruDog products.  Revenue is recognized, net of returns, when our partner ships the product to the end customer. The commission, selling, marketing and storage fees are recognized at the time the services are rendered by the channel partner and are recorded by the Company, as follows:
Commission, selling and marketing fees as sales and marketing expenses
Storage fees as cost of goods sold.

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of product obtained from the contract manufacturing plants, packaging materials and CBD oils directly sourced by the Company, and freight for shipping product from our contract manufacturing plants to our warehouse. We review inventory on hand periodically to identify damages, slow moving inventory, and/or aged inventory. Based on the analysis, we record inventories on the lower of cost and net realizable value, with any reduction in value expensed as cost of goods sold.

Advertising

The Company charges advertising costs to expense as incurred and such charges are included in sales and marketing expenses.

Advertising costs, consisting primarily of Facebook advertising, search costs and email advertising, were $2.3 million and $1.2 million for the three-month periods ended June 30, 2019 and 2018, respectively.  For the six-month periods ended June 30, 2019 and 2018, advertising costs were $3.5 million and $2.2 million, respectively.

Research and Development

Research is a planned search or a critical investigation aimed at discovering new knowledge and information with the hope that such knowledge will be useful in developing a new product or service (referred to as a “product”) or a new process or technique (referred to as a “process”) or bringing about a significant improvement to an existing product or process.  Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design and testing of product alternatives, construction of prototypes and operation of pilot plants.  No research and development costs were incurred during the three or six month period ended June 30, 2019 and June 30, 2018.
Shipping and Handling / Freight Out

The Company recognizes shipping and handling costs as a fulfillment cost, included in other operating expenses as they are incurred prior to the customer obtaining control of the products. Shipping and handling costs primarily consist of costs associated with moving finished products to customers through third-party carriers.

Shipping and handling costs were $0.6 million and $0.7 million for the three-month periods ended June 30, 2019 and 2018, respectively.  For the six-month periods ended June 30, 2019 and 2018, shipping and handling costs were $1.2 million and $1.3 million, respectively.

Additionally, for direct to consumer customers, the Company may recover such costs by passing them onto the customer. In these instances, the Company includes the freight charges billed to customers in total revenue.

The amount included in revenue related to such recoveries was $0.2 million and $0.3 million for the three-month periods ended June 30, 2019 and 2018, respectively.  For the six-month periods ended June 30, 2019 and 2018, the amounts included in revenue related to such recoveries was $0.4 million and $0.6 million, respectively.

Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that both:

Imposes on one entity a contractual obligation either:

o
To deliver cash or another financial instrument to a second entity; or

o
To exchange other financial instruments on potentially unfavorable terms with the second entity.
Conveys to that second entity a contractual right either:

o
To receive cash or another financial instrument from the first entity; or

o
To exchange other financial instruments on potentially favorable terms with the first entity.

The Company’s financial instruments recognized in the balance sheet consist of cash and cash equivalents, restricted cash accounts, accounts receivable, deposits, accounts payable, line of credit, due to related party, accrued and other liabilities, warrant derivative liability and long-term debt. Warrant derivative liability is measuredremeasured at fair value each reporting period. The fair values of the remaining financial instruments approximate their carrying values.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements.  The fair value of the warrant derivative liability is consideredperiod and represents a Level 3 financial instrument.

All financial instruments recognized at fair value in the balance sheet are classified into one of three levels in the fair value hierarchy as follows:
Level 1 – valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Cash is measured based on Level 1 inputs.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means.
Level 3 – valuation techniques with significant unobservable market inputs.

Derivative Financial Instruments

Financial Accounting Standards Board (“FASB”) ASC Topic 815, “Derivatives and Hedging”, generally provides three criteria that, if met, require companies to bifurcate conversion options from its host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

The pricing model we use for determining fair value of our derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (see Note 8).

Basic and Diluted Loss Per Share

Basic and diluted loss per share has been determined by dividing the net loss available to stockholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. Common Stock equivalents and incentive shares are excluded from the computation of diluted loss per share when their effect is anti-dilutive.

Stock-Based Compensation

The Company recognizes a compensation expense for all equity–based payments in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”. The Company accounts for share–based payments granted to non–employees in accordance with FASB ASC Topic 505–50, “Equity Based Payments to Non–Employees.” The Company follows the fair value method of accounting for stock awards granted to employees, directors, officers and consultants. Stock-based awards to employees are measured at the fair value of the related stock-based awards. Stock-based payments to others are valued based on the related services rendered or goods received or if this cannot be reliably measured, on the fair value of the instruments issued. Issuances of such awards are valued using the fair value of the awards at the time of grant. The Company recognizes stock-based payment expenses over the vesting period based on the number of awards expected to vest over that period on a straight-line basis.  Forfeitures are accounted for as they occur.

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the analysis of other public companies within the pet wellness sector. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.

Use of Estimates

The preparation of these financial statements in conformity withRecently issued accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of expenses during the reporting periods.

The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America. The Company’s chief operating decision-maker does not review operating results on a disaggregated basis; rather, the chief operating decision-maker reviews operating results on an aggregate basis.

License Intangibles

License intangibles are recorded at fair value at the date of acquisition and are amortized ratably over the life of the license agreement.

Commitments and Contingencies

We may be involved in legal proceedings, claims, and regulatory, tax, or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability.

We do not accrue for contingent losses that are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed.

We have entered into debt, royalty and lease agreements for which we are committed to pay certain amounts over a period of time.  See Notes 5, 6 and 7.

Reclassification of Prior Period Presentation
Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results. 

Recently Issued Accounting Pronouncementspronouncements

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.

New Standards and Interpretations:Recently adopted:

Adoption of FASB ASC Topic 842 “Leases”

The amendments in this update establish a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, an update which provides another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new standard on January 1, 2019 using the prospective transition method.

The Company has identified all leases to determine the impact of ASC 842 on its consolidated financial statements. The Company has elected to apply the practical expedient to certain classes of leases, whereby the separation of components of leases into lease and non-lease components is not required, and all of the practical expedients to all leases, (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any existing leases. The adoption of the new standard resulted in the recording on the consolidated balance sheet as of January 1, 2019 a right-of-use asset of $0.5 million, a lease liability of $0.5 million and a corresponding cumulative adjustment to accumulated deficit of an immaterial amount in accordance with ASC 842.

Adoption of FASB ASU No. 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting”

On January 1, 2019, the Company adopted ASU No. 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expanded the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The requirements of ASC 718 are applied to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606, “Revenue from Contracts with Customers.”

The Company is treating the inclusion of share-based payments to non-employees as a change in accounting principle prospectively beginning in the period ending June 30, 2019.  As the Company did not make any share-based payments to non-employees in prior periods, there was no impact on the results of operations in prior periods.

Adoption of ASU 2018-13 “Fair Value Measurement”

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.

14
New and Revised StandardsIssued but not Yet Adopted:

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.

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.

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 2019.2020.

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, the Better 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.

Based upon the guidance described in ASC 805-10-25-4 and 5, TruPet LLC has been determined to be the accounting acquirer.  As such, the historical financial statements are those of TruPet, and TruPet’s equity has been re-cast to reflect shares of Common Stock received in theas asset acquisitions.

At the closing of the TruPet transaction, the Company issued 15,027,533 shares of Common Stock in exchangeThe purchase price for the remaining 93% of the outstanding interests in TruPet.  BCC had acquired the initial 7% of TruPet in December 2018.  Immediately after the consummation of the acquisitions, the TruPet members, in the aggregate, owned 38% of the combined company.  The Company retired 914,919 TruPet Member Units (equivalent to 1,011,748 Common Shares) owned by Better Choice Company as part of the acquisition.

Bona Vida did not meet the definition of a businesswas $37.9 million and therefore asset acquisition accounting was applied.  At the closing of the Bona Vida transaction, the Company issued 18,003,274 shares of Common Stock in exchange for 100% of the outstanding shares of Bona Vida.  Immediately after the consummation of the acquisitions, the Bona Vida stockholders, in the aggregate, owned 46% of the combined company.

Better Choice Company did not meet the definition of a business and therefore asset acquisition accounting was applied.  The fair value of Better Choice Company’s net liabilities and redeemable preferred stock acquired by TruPet is estimated to be $19.5 million.  The estimated purchase price has been allocated based on a preliminaryan estimate of the fair value of Better Choice CompanyCompany’s assets acquired and liabilities assumed and redeemable preferred stock assumed with the remainder recorded as an expense.  The loss on acquisition of Better Choice Company assets was $38.2Company’s net liabilities is $39.6 million.

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 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)

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 our 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 75% and 9% of consolidated revenue for the three months ended March 31, 2020 and 2019, respectively.

Shipping costs associated with moving finished products to customers through third party carriers were acquired:less than $0.1 million for the three months ended March 31, 2020 and 2019. 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 25% and 91% of consolidated revenue of the Company for the three months ended March 31, 2020 and 2019, respectively.

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 less than $0.2 million and less than $0.1 million for the three months ended March 31, 2020 and 2019, respectively

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 

1514
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 March 31, 2020 and December 31, 2019, customers held unredeemed loyalty program awards of $0.2 million. The Company recognized revenue of less than $0.2 million and $0.1 million from the loyalty program for the three months ended March 31, 2020 and 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 months ended March 31, 2020 and 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  March 31, 2020  December 31, 2019 
Food, treats and supplements $
1,682
  
$
1,301
  $4,654  $6,425 
Inventory packaging and supplies 589  504 
Other products and accessories 
87
  
191
   29   73 
Inventory packaging and supplies  
168
   
133
 
 
1,937
  
1,625
  5,272  7,002 
Inventory reserve  
(230
)
  
(68
)
  (510)  (422)
 
$
1,707
  
$
1,557
  $4,762  $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. Prepaid advertising was $3.0 million as of March 31, 2020 and $2.8 million as of December 31, 2019, respectively, with no expense incurred during the three months ended March 31, 2020.  Of this amount, $2.2 million and $1.7 million is recorded in prepaid expenses and other current assets and $0.8 million and $1.1 million in other noncurrent assets as of March 31, 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  March 31, 2020  December 31, 2019 
Warehouse equipment 
$
49
  
$
49
 
Equipment $226  $222 
Furniture and fixtures 163  138 
Computer software 115  115 
Computer equipment 
14
  
14
   5   4 
Furniture and fixtures 
76
  
46
 
Total property and equipment
  
139

  
109
   509   479 
Accumulated depreciation  
(80
)
  
(38
)
  (160)  (62)
 
$
59
  
$
71
 
Net property and equipment $349  $417 

Depreciation expense was immaterialless than $0.1 million for the three months ended March 31, 2020 and six-month periods ended June 30, 2019, and 2018, respectively. 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 March 31, 2020  December 31, 2019 
Accrued professional fees $2,118  $2,018 
Accrued sales tax  1,056   1,233 
Accrued payroll and benefits  686   671 
Accrued trade promotions  166   357 
Accrued dividends  290   256 
Accrued interest  249   109 
Other  5   77 
Total accrued liabilities $4,570  $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 March 31, 2020 and December 31, 2019, respectively, and remain unpaid.

Note 58 – Operating Leases

The Company adopted Topic 842 “Leases” effective January 1, 2019.   A modified retrospective transition approach was followed by applying the new standard to all leases existing at the date of initial application. We chose to use January 1, 2019 as our date of initial application of the standard.  Since we adopted the new standard on January 1, 2019 and use the effective date as our date of initial application, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

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 months ended March 31, 2020 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.2019:

Dollars in thousands March 31, 2020  March 31, 2019 
Operating lease costs $109   44 
Variable lease costs  8   8 
Total operating lease costs $117   52 
The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset
As of March 31, 2020, the weighted-average remaining operating lease term was 2.3 years and the incremental borrowing rate was 12.5% for operating leases recognized on our condensed consolidated balance sheets. Short term lease liability on the balance sheet for allcosts, excluding expenses relating to leases with a term longer than 12 months.  Operating lease right-of-use assets and liabilities were recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date was used in determining the present value. The Company will use the implicit rate when readily determinable.

This standard did not have a material effect on our financial statements. The adoption of Topic 842 resulted in an immaterial cumulative effect adjustment to accumulated deficit and the Company recognized operating lease right-of-use assets of $0.5 million and operating lease liabilities of $0.5 million on January 1, 2019.  The most significant future effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (2) providing significant new disclosures about our leasing activities.

The Company leases its office and warehouse facilities under operating leases which originally expired in November 2018. These agreements were modified in October 2017 for additional space leased. With this modification, the rent term was also revised and extended until October 2022, at a base prices of $13.02 per square foot for the existing lease and $15.50 per square foot for the additional space leased, with a 3.5% annual escalation clause and a one-time option to renew the leases for an additional 5-year term. In addition to base monthly rent, the agreement requires the Company to pay its proportionate share of real estate taxes, insurance, and common area maintenance expenses.

In February and May 2019, the Company entered into two additional operating leases for office and warehouse facilities under three- year lease agreements at base monthly rental rates of $8,856 and $4,492, respectively.  The monthly rent shall increase each year which will be based on the Consumer Price Index promulgated by the United States Bureau of Labor Statistics.  The rent adjustment will not be less than two percent or exceed five percent per year.

The Company determines if an arrangement contains a lease at inception based on the ability to control a physically distinct asset. Operating and finance lease right-of-use assets are recorded in the consolidated balance sheets based on the initial measurement of the lease liability as adjusted to include prepaid rent and initial direct costs less any lease incentives received. Lease liabilities are measured at the commencement date based on the present value of the lease payments over the lease term. Lease payments are generally fixed but may include provisions for future rent increases. The Company separately accounts for variable components within lease agreements including common area maintenance, insurance and real estate taxes. The Company uses its incremental borrowing rate to present value the lease liability as key inputs to determine the interest rate implicit in the lease are not shared by lessors.

Operating lease expense is recorded on a straight-line basis over the lease term. Right-of-use assets and lease liabilities for short-term leases are not recognized in the consolidated balance sheets. Payments for leases with a term of one month or less, are recognized in the consolidated statements of operations as incurred.  We have no leases that are considered short term (one year or less).

Rent expenses related to our real estate leases for which a right of use asset has been recognized totaled $0.1 million andwere less than $0.1 million for the three and six months ended June 30,March 31, 2020 and 2019, respectively. Estimated expenses for variable lease costs are immaterial for the three and six months period ended June 30, 2019.

Rent expense for operating leases in effect and recorded prior to the adoptioneach of ASC 842.  Leases amount to an immaterial amount and $0.1 million for the three months ended March 31, 2020 and six-month periods ended June 30, 2018, respectively.2019 was $0.1 million.

Undiscounted cash flows
The table below presentsreconciles the undiscounted cash flows for each of the first four years and total of the remaining years to the operating lease-related assets andlease liabilities recorded on the condensed consolidated balance sheets:sheets.

Dollars in thousands
Leases
Balance Sheet Classification June 30, 2019 
Assets    
Non-current assetsOperating lease right-of-use assets, net of accumulated amortization $840 
Total operating lease assets  $840 
      
Liabilities     
Current     
OperatingOperating lease liabilities  
(262
)
Non-current     
OperatingOperating lease liabilities  (590)
Total operating lease liabilities  $(852)
Operating Leases 
Remainder of 2020 $344 
2021  459 
2022  240 
2023  5 
Total minimum lease payments $1,048 
Less: amount of lease payments representing interest  130 
Present value of future minimum lease payments $918 
Less: current obligations under leases  352 
Long-term lease obligations $566 

The table below presents the maturity of lease liabilities as of June 30, 2019:

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 

Note 69 – License IntangiblesIntangible assets, royalties and Royaltiesgoodwill

OnIntangible assets and royalties

The Company’s intangible assets as of March 31, 2020 and December 31, 2019 consist of customer relationships and trade name acquired in the Halo Acquisition. The customer relationships and trade name are amortized over their estimated useful lives of 7 and 15 years respectively, using the straight-line method.

In May 6, 2019, the Company entered intoacquired a licensing agreement with Elvis Presley Enterprises, LLC which is fairly valued at $1 million and related to an April 2019 agreement between Better Choice Company, Authentic Brands and Elvis Presley Enterprises focused on the development of(“ABG”) whereby Better Choice was to sell newly developed hemp-derived CBD products that will be marketed under the Elvis Presley Hound DogHoundog name.  Product development is expectedThe 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 be completeuse the license in late 2019.

the future and therefore terminated the agreement on January 13, 2020. The initial termCompany recognized an impairment charge for the net book value of the licensing agreement ends onas of and for the year ended December 31, 2025. The license agreement is amortized on a straight-line basis over the life2019.

As part of the agreement.  Duringtermination, the periodCompany: (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 May 6, 2019July 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, 2019,2023.  The ABG Warrants are exercisable for 24 months from the date of the consummation of an immaterial amountIPO (as defined in amortization was expensed relatedthe ABG Warrants) at an exercise price equal to the Hound Dog license.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.

Royalties are required to be paid quarterly at a rate of 5% of net retail sales and 10% of net wholesale sales.  The contract includes Guaranteed Minimum Royalty Payments for eachtotal cost of the contract years as per the table below:termination noted above is measured at fair value of $1.1 million and is included in general and administrative expense.

Dollars in thousands
Contract Year
  
Guaranteed Minimum Royalty
 
2019-2020  $1,500 
2021  
$
1,000
 
2022  $1,125 
2023  
$
1,250
 
2024  $1,500 
2025  
$
1,750
 
The Company’s intangible assets are as follows:

Dollars in thousands
    March 31, 2020      
  
Weighted-Average
Remaining Useful
Lives (in years)
 
Gross
Carrying
Amount
  
Accumulated
Amortization
 
Net Carrying
Amount
 
Customer relationships 7  $7,500  $(306) $7,194 
Trade name 15   7,190   (125)  7,065 
Total intangible assets     $14,690  $(431) $14,259 

    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 months ended March 31, 2019.
The estimated future amortization of intangible assets over the weighted average remaining useful life of 10 years is as follows:
Dollars in thousands
Years ended December 31,   
Remainder of 2020 $1,169 
2021  1,551 
2022  1,551 
2023  1,551 
2024  1,551 
Thereafter  6,886 
  $14,259 

Note 10 - Line of credit, short term loan and notes payable

The components of the Company’s debt consist of the following:
  March 31, 2020 December 31, 2019 
  Amount  Rate 
Maturity
Date
 Amount  Rate  
Maturity
Date
 
Short term loan, net $17,023   (1)12/19/2020 $16,061   (1) 12/19/2020 
Line of credit, net  5,366   (1)12/19/2020  4,819   (1) 12/19/2020 
                     
November 2019 notes payable, net (November 2019 Notes)  2,839   10%11/4/2021  2,769   10% 11/4/2021 
December 2019 senior notes payable, net (Seller Notes)  9,494   10%6/30/2023  9,191   10% 6/30/2023 
December 2019 junior notes payable, net (Seller Notes)  4,565   10%6/30/2023  4,410   10% 6/30/2023 
ABG Notes  661   10%6/30/2023  -   -   - 
Total debt $39,948        $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,March 31, 2020 and December 31, 2019, the Company had paid $0.6term loan outstanding was $20.5 million net of debt issuance costs and discounts of $3.5 million and $4.4 million, respectively, and the line of credit outstanding was $5.5 million and $5.0 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 2019-2020 Guaranteed Minimum Royalty Payments which were recorded as prepaid expenses.  There were no sales relatedCompany (“Shareholder Guarantors”) agreed to Hound Dog products duringenter into a Continuing Guaranty (the “Shareholder Guaranties”) in the threeamount of $20.0 million and six-month periods ended June 30, 2019.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 have a fair value of $4.2 million on the date of issuance.

The Company entered into an agreement for the paymentAs of royalties related to sales of the Orapup brand dental system in November 2015. The agreement called for a 10% royalty to be paid on the first $2.5 million of related sales for a term of three years. Thereafter, commencing on the earlier of the end of the three-year term or having reached $2.5 million in sales, a 2% royalty was to be paid thereafter. Royalty expense was minimal during 2017 and 2018.  In November 2018, the parties reached a settlement whereby the Company paid $0.1 million to fulfill all of its present and future obligations related to this agreement.  Due to the settlement by the parties, the Company no longer has any royalty obligation related to the Orapup brand dental system.

Note 7 - Line of Credit and Debt

In May 2017, the Company along with the majority owners serving as co-borrowers entered into a credit facility providing for up to $2 million of borrowings. Through various amendments, the maximum borrowings under the line increased to $4.6 million with a maturity of May 2019. Borrowings bear interest at LIBOR plus 3%. At June 30, 2019March 31, 2020 and December 31, 2018, outstanding borrowings amounted to $0 and $4.6 million, respectively.

The line of credit was secured by personal assets of the co-borrowers. Covenants under the line of credit required the Company to be within a certain quarterly and annual loss limitation threshold, and certain other restrictions. As of December 31, 2018,2019, the Company was in compliance with its covenants and/or obtained waivers fromdebt covenants.
Notes payable

On November 4, 2019, the lien holders.  AtCompany issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carry a 10% interest and mature on November 4, 2021.  The interest is payable in arrears on March 31, June 30, 2019September 30 and December 31 2018, outstanding borrowings amounted to $0of 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 $1.6 million, respectively.carry a 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 at a future IPO.  The Company issued incremental warrants associated with the November 2019 Notes with a fair value of less than $0.1 million.

AtThe 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 Note remains 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.

As of March 31, 2020 and December 31, 2018, our long-term debt consisted of an unsecured note payable to a director of the Company bearing 26.6% interest with principal and interest due within 30 days after change of control.  No interest was paid during 2019.

On May 6, 2019, Better Choice Company refinanced the $4.6 million line of credit and the $1.6 million note payable to the director with a $6.2 million revolving credit agreement with Franklin Synergy Bank.  All advances relating to this revolving credit agreement bear a fixed rate of interest equal to 3.7% per annum, which may be adjusted from time to time subject to certain conditions. In addition, the Company paid a fee of $10,000 upon closing. The Company is also required to pay a late charge equal to 5% of the aggregate amount of any paymentsNovember 2019 Notes outstanding was $2.8 million, respectively, net of principal and/ordiscounts of less than $0.1 million, respectively. The discounts are amortized over the life of the November 2019 Notes using the effective interest that are paid more than 10 days after the due date.  This note matures on May 6, 2020.  The Franklin Synergy Bank note requires thatmethod.

On December 19, 2019, the Company maintain deposits on account atissued $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 bank in“Seller Notes” to the total amountsellers of $6.2 million.  If withdrawalsHalo.  The Seller Notes are madeexercisable any time from the account,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 amount available under the revolving credit agreement decreases by theaggregate principal amount of the withdrawal.Seller Notes.  The Seller Notes carry a conversion price of the lower of (a) $4.00 per share or (b) the IPO Price.  As of March 31, 2020, the Senior Seller Notes outstanding was $9.5 million, net of discounts of $0.8 million, and the Junior Seller Notes outstanding were  $4.6 million, net of discounts of $0.5 million.  As of December 31, 2019, the Senior Seller Notes outstanding was $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.

TruPet and Bona Vida became guarantors of the Company’s obligations under the Loan Agreement after the closing of the acquisitions. In addition, pursuant to a Security Agreement by and betweenOn January 13, 2020, the Company and Lender datedissued $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 Loan Agreement (the “Security Agreement”),aggregate principal amount of the ABG Notes.  The ABG Notes carry a conversion price of the lower of (a) $4.00 per share or (b) the IPO Price.  As of March 31, 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.

The fair values of the November 2019, Senior Seller Notes and Junior Seller Notes and ABG Notes are based on observable inputs, including quoted market prices (Level 2).  The fair values of the November 2019, Senior Seller Notes and Junior Seller Notes and ABG Notes were approximately $2.8 million, $9.5 million $4.6 million and $0.7 million, respectively, as of March 31, 2020. The remaining borrowings outstanding have a carrying value that approximates fair value due to their short term nature.
As of March 31, 2020 and December 31, 2019, the Company has granted the Lender a security interestwas in compliance with all assets of the Company owned or later acquired. The Loan Agreement also contains certaincovenant requirements and there were no events of default, representations, warrantiesdefault. All notes payable are subordinated to the short term loan and covenantsline of the Company and its subsidiaries. For example, the Loan Agreement contains representations and covenants that, subject to exceptions, restrict the Company’s ability to do the following, among things: incur additional indebtedness, engage in certain asset sales, or undergo a change in ownership.credit.

Interest expense of approximately $0.1$2.3 million was recorded in the condensed consolidated statements of operations and comprehensive loss related to the line of credit, November 2019 and Seller Notes, and other indebtedness for the three months ended March 31, 2020.  Interest expense of less than $0.1 million was recorded in the consolidated statements of operations related to the lines of credit and director note for the three and six months ended June 30, 2019, respectively.

Interest expense of approximately an immaterial amount and approximately $0.1 million was recorded in the statements of operationscomprehensive loss related to the line of credit, and the director noteother indebtedness for the three and six months ended June 30, 2018, respectively.March 31, 2019.

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 the 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 $3.90 per share, 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.

AtDuring January 2020, the Company issued shares below the exercise price of warrants acquired on May 6, 2019. Pursuant to the warrant agreement, the Company issued an additional 1,003,232 warrants on March 17, 2020 to certain of its warrant holders at an exercise price of $1.62 and modified the exercise price of the existing warrants to $1.62.

The warrants are valued based on future assumptions and, as the reset trigger was a known event on December 31, 2019, the derivative liability was recorded at fair value as part ofCompany included the purchase price of Better Choice Company by TruPet.trigger in the valuation performed during the period ended December 31, 2019.

The following schedule shows the change in fair value of the warrant derivative liabilities for the period from May 6, 2019 through June 30, 2019.liability as of March 31, 2020 and December 31, 2019:

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 

  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%
  May 6, 2019  December 31, 2019  March 31, 2020 
Warrant derivative liability         
Stock price $6.00  $2.70  $1.15 
Exercise price $3.90  $1.62  $1.62 
Expected remaining term (in years)  1.60 - 1.68   0.95 - 1.02   0.722 
Volatility  64%  69%  95%
Risk-free interest rate  2.39%  1.60%  0.16%

The valuation of the warrants feature provisionsis subject to resetuncertainty as a result of the exercise price inunobservable inputs.  If the eventvolatility rate or risk-free interest rate were to change, the value of certain fundamental transactions. Such a transaction is considered a likelihood of 50% for December 31, 2019.the warrants would be impacted.

Additionally, the warrants feature provisions to force an early exercise in the eventAs of the Company’s stock trading above a certain threshold for a specified period.  The Company considers the likelihood of meeting these conditions to be zero.

If all shares were redeemed at June 30, 2019,March 31, 2020, the Company would be required to pay $2.3$0.2 million if all warrants were settled in cash as a result of a fundamental transaction or issue 712,8231,716,055 shares if all warrants were settled in shares.

Note 9 - Loyalty Program Provision

The Company offers a loyalty program to all of its direct-to-consumer customers. The loyalty program is designed to increase customer visits and spending.  There are two tiers to the program as outlined below:

Tier 1: the customer earns six points for every $1 spent

Tier 2: the customer earns points at a much faster rate and will also have opportunities to earn bonus points for different events, such as a birthday.  This tier is known as the TruDog Love Club (TLC), and the customer accumulates twelve points for every $1 spent.

The redemption requirements are the same under both levels, 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 liability provision of 45% of all accrued and unredeemed points based on historical redemption rates.  The redemption rate is consistent with the redemption rate used for the period ending December 31, 2018.  We have included the redemption amounts as deferred revenue on the Condensed Consolidated Balance Sheets.  As of June 30, 2019 and December 31, 2018, earned, but not redeemed, loyalty program awards are estimated to be $0.2 million and $0.1 million, respectively, and are recorded as a deferred revenues.

Note 1012 – Other Liabilitiesliabilities

OtherAs of March 31, 2020 and December 31, 2019, other liabilities include outstanding amountsconsisted of $0.2 million related to a reserve for a potential customer dispute settlement and $0.5 million as a prepayment for the issuance of common stock.

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 bank issued revolving credit cards. Interest ratesour consolidated financial condition, results of operations and cash flows.  Management is not aware of any claims or lawsuits that may have a material adverse effect on the issued credit cards was 22% for purchases and 24.24% for cash advances for the three and six months ended June 30, 2019 and 2018.

Under the termsconsolidated financial position or results of a Business Cash Advance Agreement, during 2018, the Company sold $2.0 million of future receivables for proceeds of $1.9 million. Future receivables are defined as all future payments made by cash, check, ACH, direct or pre-authorized debit, wire transfer, credit card, debit card, charge card or other form of payment related to the businessoperations of the Company.  The creditor had the right to decline to 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 repaid 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 $-  $-  $-  $- 

Note 11 – Redeemable Preferred Stock

On October 22, 2018, the BoardThe Company had no purchase obligations as of Directors of Better Choice Company approved a resolution to designate a series of 2,900,000 shares of its Series E Convertible Preferred Stock pursuant to its articles of incorporation. The Series E Convertible Preferred Stock has a stated value of $0.99 per share; is convertible to Common Stock at a price of $0.78 per shareMarch 31, 2020 and accrues dividends at the rate of 10% per annum on the stated value. The Series E Convertible Preferred Stock has voting rights equal to those of the underlying Common Stock. Under certain default conditions, the Series E Convertible Preferred Stock is subject to mandatory redemption in cash equal to 125% of the greater of $0.99 per share ($1.23 per share) or 75% of the market price of the Common Stock. As the redemption is outside the control of the Company, the Series E Convertible Preferred Stock has been recorded as mezzanine equity between liabilities and equity in the balance sheet.

On May 6, 2019, the Series E Convertible Preferred Stock was recorded at its fair value based on the $6.00 per share closing price of Better Choice Company’s common shares as they remained outstanding after the reverse acquisitions discussed in Note 2 above.

On May 10, 2019 and May 13, 2019, holders of the Company’s Series E Convertible Preferred Stock converted 689,394 and 236,364 preferred shares into 875,000 and 300,000 shares of the Company’s Common Stock, respectively.

Pursuant to waiver letters executed by each investor, the holders of the Company’s Series E Convertible Preferred Stock agreed to waive their right to the distribution of dividends until October 22,December 31, 2019.

The below table summarizes changes in the balance of Series E Convertible Preferred Stock for the periods ended June 30, 2019 and December 31, 2018 including its value prior to acquisition by the Company.

  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’ Deficit

On May 6, 2019, Better Choice Company completed the acquisition of TruPet pursuant to a Stock Exchange Agreement dated February 2, 2019 and amended May 6, 2019.  At the closing of the transaction, Better Choice Company issued 15,027,533 shares of its Common Stock in exchange for 93% of the outstanding ownership units of TruPet.  Additionally, on May 6, 2019, Better Choice Company also completed the acquisition of Bona Vida pursuant to an Agreement and Plan of Merger dated February 28, 2019 and amended May 3, 2019.  At the closing of the transaction, Better Choice Company issued 18,003,273 shares of its Common Stock in exchange for all outstanding shares of Bona Vida.  The operations of Better Choice Company subsequent to the acquisitions are those of TruPet and Bona Vida.  For accounting purposes, the transaction is considered a reverse merger whereby TruPet is considered the accounting acquirer of Better Choice Company.deficit

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.

Series A Preferred Unitssummary of equity transactions for the three months ended March 31, 2020 and 2019 is set forth below:

In December 2018,On February 12, 2019, the Company completed a private placement and issued 2,162,53669,115 Series A Preferred Units (no par value) to unrelated parties for $2.40in a private placement at $2.17 per unit.  The proceeds were approximately $4.7 million, net of $0.5 million of share issuance costs.  Additionally, on February 12, 2019, an additional private placement of 62,500 Series A Preferred Units at $2.40 per unit was completed.  The proceeds were approximately $0.2 million, net of share issuance costs.

On May 6, 2019, all Series A Preferred Units were converted to 2,460,517January 2, 2020, the Company issued 308,642 shares of Common Stock.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:

  March 31, 2020  December 31, 2019 
Conversion of Series E  1,760,903   1,760,903 
Exercise of options to purchase common stock  7,891,833   7,791,833 
Warrants to purchase common stock  18,046,310   16,981,854 
Notes payable  4,722,795   4,437,500 
Total  32,421,841   30,972,090 

Series E Preferred StockWarrants

On May 6, 2019, in connection with the May Acquisitions, the Company acquired 2,633,678 shares712,823 warrants to purchase common stock with a weighted average exercise price of Series E Preferred Stock$3.90. The Company also issued by Better Choice Company in the transaction. Series E Preferred Stock is treated5,744,991 warrants with an exercise price of $4.25 on May 6, 2019 as mezzanine equity as it has redemption features that can be exercised by the holder under certain instances outside the controlpart of the Company. 925,758 sharesPIPE. Additionally, in connection with the PIPE transaction, the Company issued 220,539 warrants to brokers with an exercise price of Series E Preferred Stock were converted to Common Stock in$3.00. The warrants are exercisable on the three-date of issuance 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 conversionexpire 24 months from the date of the remaining Series E Preferred Stock would result inconsummation 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 are exercisable as follows: 1,250,000 of the warrants with the $0.10 exercise price are 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 2,167,745 sharesthe warrants with the $0.10 exercise price and the 1,500,000 warrants with the $10.00 exercise price are exercisable on the earlier of Common Stock.
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.

Common Stock

The Company was authorized to issue 580,000,000 shares of Common Stock as of December 31, 2018. On April 22,November 4, 2019, the Company filed a certificate of amendment of certificate of incorporationissued 11,000 warrants in connection with the StateNovember 2019 Notes.  The warrants are exercisable on the date of Delawareissuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”) at an exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which reduced the numbercommon stock of authorized sharesthe Company was sold in the IPO.

On December 19, 2019, the Company issued 937,500 Seller Warrants in connection with the Seller Notes.  The warrants are exercisable on the date of Common Stockissuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”) at an exercise price equal to 88,000,000.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 6,500,000 warrants with an exercise price of $1.82 in conjunction with the short term loan (Guarantor Warrants). The Company has 43,168,161warrants are exercisable on the date of issuance and 11,661,485 sharesexpire 24 months from the date of Common Stock issued and outstanding asthe consummation of June 30, 2019 and December 31, 2018, respectively.a future IPO.

On March 14, 2019, the Company filed a certificate of amendment of Certificate of Incorporation with the Delaware Secretary of State to effect a one-for-26 reverse split of Common Stock effective March 15, 2019. All of the Common Stock amounts and per share amounts in these financial statements and footnotes have been retroactively adjusted to reflect the effect of this reverse split.

On December 12, 2018, Better Choice 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 Stock and (ii) a warrant to purchase one half of a share of 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.  Net proceeds of $2.6 million were received by the Company during the period ended December 31, 2018 for the sale of 1,400,000 common shares, and $0.1 million of the net proceeds were received on January 8, 2019 for the sale of 25,641 common shares. The Warrants are exercisable over a two-year period at the initial exercise price of $3.90 per share. (See Note 8 – Warrant Derivative Liability). A portion of the proceeds from this private placement was used to acquire the initial 7% of TruPet.

In connection with the December Offering, Better Choice Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with each investor in the Offering. Pursuant to the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to file with the Securities and Exchange Commission a registration statement on Form S-1 (or other applicable form) within 60 days following the closing date to register the resale of the shares of Common Stock sold in the Offering and shares of Common Stock issuable upon exercise of the Warrants.

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.

During the period from January 1, 2019 through May 5, 2019, equity awards for the equivalent of 979,716 shares17, 2020, 1,003,232 warrants were issued to employees and consultants and were valued at a weighted average value per shareholders of $2.26, the fair value at the date of award.  The awards vested over three years. 

However,warrants issued on May 6, 2019 all equity incentivedue to dilutive impact of subsequent issuances.

  Warrants  
Weighted Average
Exercise Price
 
Warrants outstanding at December 31, 2019  16,981,854  $3.23 
Issued  1,064,456   1.81 
Exercised  -   - 
Warrants outstanding at March 31, 2020  18,046,310  $3.05 

The intrinsic value of outstanding warrants is $2.6 and $12.2 million as of March 31, 2020 and December 31, 2019, respectively.

Note 15 - Share-based compensation

The Company recognizes compensation cost for stock awards issued prior to May 6, 2019 immediately vested.  Aswith only service conditions that have a resultgraded vesting schedule on a straight-line basis over the service period for each separate vesting portion of the immediate vestingaward as if the award was, in-substance, multiple awards.  During the three months ended March 31, 2020 and 2019, respectively, $2.5 million and $0.2 million of these awards, share-based compensation expense equal to $2.2 million and $2.4 million has been recorded during the three and six-months ended June 30, 2019.  There were no equity awards issued or outstanding during the three and six months ended June 30, 2018.was recognized.

The Company retired 914,919 member units (equivalent to 1,011,748  Common Shares) in TruPet representing the 7% Better Choice Company ownership of TruPet valued at $2.2 million which was recorded as part of loss on acquisition.
The Company also issued 5,744,991 million units for gross proceeds of $3.00 per unit, also closing on May 6, 2019 (the “PIPE Transaction”).    Each unit included one common share of Better Choice Company stock, and a warrant to purchase an additional share.  The funds raised from the PIPE Transaction will be used to fund the operations of the combined company. Net proceeds of $15.7 million were received in the private placement, allocable between shares of Common Stock and warrants.
Pursuant to Damian Dalla-Longa’s (“Mr. Dalla-Longa”) employment agreement with Bona Vida dated October 29, 2018, he was entitled to a $500,000 Change of Control payment.  It was later agreed to and included in Mr. Dalla-Longa’s 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.  The 100,000 common shares were valued at $6.00 per share, which was the market value as of the date of Mr. Dalla-Longa’s employment agreement.

Stock Options

On May 6, 2019, 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:

On May 6, 2019, as part of the merger, the Company acquired options to purchase an aggregate of 3,750,000 shares of the Company’s Common Stock at an exercise price of $5.00 per share. These options had been granted to management of Better Choice Company on May 2, 2019. Subject to the holder’s continued service to the Company, each such option vests with respect to 1/24th of the underlying shares on each monthly anniversary of the grant date such that the option is fully vested on the second anniversary of the grant date.

On May 6, 2019, as part of the merger, the Company acquired options to purchase an aggregate of 1,500,000 shares of the Company’s Common Stock at an exercise price of $5.00 per share. These options had been granted to non-employee directors of Better Choice Company on May 2, 2019. Subject to the holder’s continued service to the Company, each such option vests with respect to 1/24th of the underlying shares on each monthly anniversary of the grant date such that the option is fully vested on the second anniversary of the grant date.

After the acquisition, the following stock option awards were granted under theRestated 2019 Incentive Award Plan subject(the “Amended 2019 Plan”).  Under the Amended 2019 Plan, the number of option awards available for issuance increased from 6,000,000 to stockholder approval of the 2019 Incentive Award Plan:9,000,000 on December 19, 2019.

On May 21, 2019,During the three months ended March 31, 2020, the Company granted to third-party consultants options to purchase an aggregate of 60,000 shares of100,000 stock option awards. There were no stock option awards granted during the Company’s Common Stock at an exercise price of $7.50 per share.  Subject to the holder’s continued service to the Company, each such option vests with respect to 1/36th of the underlying shares on each monthly anniversary of the grant date, such that the option is fully vested on the third anniversary of the grant date.three months ended March 31, 2019.

On May 21, 2019, the Company granted to employees options to purchase an aggregate of 30,000 shares of the Company’s Common Stock at an exercise price of $7.50 per share.  Subject to the holder’s continued service to the Company, each such option vests with respect to 25% of the underlying shares on the first anniversary of the grant date and the remainder vests in 24 equal installments on each monthly anniversary of the grant date following the first anniversary of the grant date, such that the option is fully vested on the third anniversary of the grant date.Note 16 - Employee benefit plans

On June 29, 2019, the Company granted to employees options to purchase an aggregate of 3,000 shares of the Company’s Common Stock options at an exercise price of $7.50 per share.  Subject to the holder’s continued service to the Company, each such option vests with respect to 25% of the underlying shares on the first anniversary of the grant date and the remainder vests in 24 equal installments on each monthly anniversary of the grant date following the first anniversary of the grant date, such that the option is fully vested on the third anniversary of the grant date.

Following the stockholder approval of the 2019 Incentive Award Plan, all vested options described herein will become exercisable and may be exercised through the ten-year anniversary of the grant date (or such earlier date described in the applicable award agreement following a holder’s termination of service).

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 grant5/21/2019  2   60,000  $7.50   9   
2.28
%
  
55.00
%
Nil  10   9.9 
Option grant5/21/2019  3   30,000  $7.50   5   2.28%  55.00%Nil  10   9.9 
Option grant6/29/2019  3   3,000  $7.50   0   
1.84
%
  
56.00
%
Nil  10   10.0 
        93,000      $14                  

Pursuant to ASC 718-10-35-8, the Company recognizes compensation cost for stock and option awards with only service conditions that have a graded vesting schedule on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

The following table summarizes the significant terms of options outstanding at June 30, 2019:

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 

Transactions involving options are summarized below:

  
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 

The intrinsic valueCompany made contributions to its qualified defined contribution 401(k) plan and recognized expense of outstanding options is $34.2less than $0.1 million as of June 30, 2019.
during the three months ended March 31, 2020 and March 31, 2019, respectively.

WarrantsNote 17 - Related party transactions

On May 6, 2019, the Company acquired 913,310 warrants with a weighted average exercise price of $3.70 with the acquisition of Better Choice Company. The Company also issued 5,744,991 warrants with an exercise price of $4.50 on May 6, 2019 as part of the PIPE. No warrants were exercised in the six months ending June 30, 2019.

  
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 

The intrinsic value of outstanding warrants is $13.0 million as of June 30, 2019.

Note 13 - Related Party Transactions and Material Service Agreements

Related Party Transactions

Management ServicesMarketing services

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.

Marketing Services

A related partyboard of directors provides online traffic acquisition marketing services for the Company. The Company paidincurred immaterial amounts for their services during the three and six months ended June 30,March 31, 2020 and 2019, respectively. The Company did not use this related party’s services in 2018.  The service contract has a 30-day termination clause. Outstanding balances were less than $0.1 million and an immaterial amount for the periods ending June 30, 2019as of March 31, 2020 and December 31, 2018, respectively.2019. The outstanding balance is included in accounts payable.

Financial and Accounting Personnel
22
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 December 2019. The agreement requires payments amounting to $21,160 every four weeks through Decembernote remains outstanding as of March 31, 2020.  PaymentsInterest related to this agreement amounted tothe subordinated convertible notes was less than $0.1 million and $0.2 million for the three months ended March 31, 2020.

Halo transaction bonus and six-month period ended June 30, 2019, respectively.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 withDecember 2019.  These convertible notes are outstanding as of March 31, 2020.

Note 18 - Income taxes
For the three months ended March 31, 2020 the Company recorded no current or deferred income tax expense.
The Company’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 previous executive for a termvaluation allowance due to uncertainty of six months.  Payments related to this agreement amounted to $0.1 million and $0.2 millionrealizing the tax benefit of net operating losses (“NOLs”) for the three and six-month periodmonths ended June 30, 2019.

Finder’s FeeMarch 31, 2020 and Other Services

The Company paid a finders’ fee of $0.3 million during the year ended December 31, 20182019.
The Company’s deferred tax assets attributed to an entity owned by onenet 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 continues to examine the impact that the CARES Act may have on its members. Additionally,business but does not expect the Company paid approximately $0.4 millionimpact to this entity for other professional services rendered.  No amounts have been paidbe material.
The ultimate realization of deferred taxes is dependent upon the generation of future taxable income during the periods in 2019.
which those temporary differenced become deductible. On the basis of management’s assessment, a valuation allowance equal to the net deferred tax assets was recorded since it is more likely than not that the deferred tax assets will not be realized.

Material Service Agreements Consummated with Third Parties:

Financial and Accounting Personnel

The Company entered into a new agreement in December 2018 for accounting management services for a fee of $8,370 to be paid every two weeks. Prior to this entering into this agreement, the same company was performing similar services in 2018 for $2,600 every two weeks.

Paymentshas no accrued interest and penalties related to this agreement amounted to $0.1 millionuncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.   As of March 31, 2020 and an immaterial amount forDecember 31, 2019, the three-month period ended June 30, 2019Company does not have any significant uncertain tax positions. If incurred, the Company would classify interest and 2018, respectively.penalties on uncertain tax positions as income tax expense.

Payments related to this agreement amounted to $0.2 million and an immaterial amount for the six-month period ended June 30, 2019 and 2018, respectively.

Marketing Services

The Company’s income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction.
For the three months ended March 31, 2019, the Company entered into multiple agreements with marketing services with independent contractors during 2018was a Limited Liability Company, taxed as a partnership.  Thus, all of the Company’s income and 2019.  Payments relatedlosses flowed through to the marketing agreements amountedowners.  The company converted to $0.2 million and an immaterial amount for the three-month period ended June 30, 2019 and 2018, respectively.

Payments relateda C-Corporation, subject to the marketing agreements amounted to $0.4 million and $0.2 million for the six-month period ended June 30, 2019 and 2018, respectively.

Placement and Selling Agent

In December 2018, the Company executed an agreement with a third party to assist the Company in identifying and negotiating with potential investors, assisting in due diligence, and other capital market functions for a term of six months. The agreement calls for a $0 base fee and a 5% commissionincome tax on cash proceeds obtained in exchange for shares or equity interest in the Company. The commissions can be paid in cash or equity in the Company. This agreement has an initial six-month term and, thereafter, the Company at its option may elect to extend this agreement for one successive twelve-month term upon a sixty-day notice prior to the end of the initial term.

Payments related to this agreement amounted to $0.1 million for the year ended December 31, 2018 and was capitalized to related private placement as costs of issuance.  On May 6, 2019, the Company expenseddate of the issuance costs of $0.1 million.  No other amounts were paid under this agreement in 2019.May Acquisitions.

On May 6, 2019, the Company issued the equivalent of 798,492 shares of its Common Stock to the Placement and Selling Agent. As a cost associated with the merger, this amount is presented as a loss on acquisition of $4.8 million.

Note 1419 - Major Supplierssuppliers

The Company purchasedsourced approximately 83% and 72%48% of its inventoriesinventory purchases from two vendors for the three months ended March 31, 2020. The Company sourced approximately 69% of its inventory purchases from one vendor for the sixthree 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.March 31, 2019.

Note 1520 - Concentration of Credit Riskcredit risk and off-balance sheet risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cashCash and cash equivalents and accounts receivables.receivable potentially subject the Company to concentrations of credit risk. At March 31, 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 June 30, 2019 andcredit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements.  Accounts receivable from two customers represented 79% of accounts receivable as of March 31, 2020. Accounts receivable from one customer represented 44% of accounts receivable at December 31, 2018 the Company had deposits in excess2019.

Four customers represented 70% of gross sales at March 31, 2020. None of the FDIC insured limitsCompany’s customers represented over 10% of $10.3 million and $3.4 million, respectively.gross sales for the three months ended March 31, 2019.

The Company routinely assesses the financial strength of its customers and, consequently, believes that its accounts receivable credit risk exposure is limited.

Note 1621 - Net Lossloss per Shareshare

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 sixthree months ended June 30,March 31 2020 and 2019, and 2018, 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, 2019March 31, 2020 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)
Dollars in thousands except per share amounts  
 Three Months Ended March 31, 
  2020 
2019 
Common stockholders        
Numerator:        
Net and comprehensive loss $(9,454) $(2,776)
Less: Preferred stock dividends  34   - 
Net and comprehensive loss available to common stockholders $(9,488) $(2,776)
Denominator:        
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted  48,526,396   11,674,127 
Net loss per share attributable to common stockholders, basic and diluted $(0.20) $(0.24)

Note 17 - Going Concern

The Company has incurred significant losses over the last three years and has a significant accumulated deficit. These operating losses create an uncertainty about the Company’s ability to continue as a going concern for a period of twelve months from the date these unaudited condensed consolidated financial statements are issued. Management has evaluated whether the unaudited condensed consolidated financial statements should be presented as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The unaudited condensed consolidated financial statements have been prepared on a going concern basis. In making this assessment, management conducted a comprehensive review of the Company’s affairs including, but not limited to:

The Company’s financial position at June 30, 2019 which includes $0.6 million of working capital;
Significant events and transactions the Company has entered into, including and through the date the unaudited condensed consolidated financial statements were available to be issued;
The loss from operations includes $4.2 million related to non-cash stock compensation;
Sales and profitability forecasts for the Company for the next financial year;
The continued support of the Company’s members and lenders.
The repayment of the line of credit with proceeds from a new $6.2 million loan. To address the future additional funding requirements members have undertaken the following initiatives:

o
To continue to monitor the Company’s ongoing working capital requirements and minimum expenditure commitments;

o
Continue their focus on maintaining an appropriate level of corporate overhead in line with the Company’s available cash resources.

Management is confident that it will be able to meet its minimum expenditure commitments and support its planned level of overhead expenditures. There can be no assurance however that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 1822 - Subsequent Eventsevents

Management has evaluated subsequent events through the date on which the unaudited condensed consolidated financial statements were issued.COVID-19 and PPP Loan

On June 28, 2019,The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the Company granted 500,000 optionsduration, spread and intensity of the outbreak, all of which are uncertain and difficult to Andreas Schulmeyer,predict considering the Company’s Chief Financial Officer, subjectrapidly evolving landscape. As a result, it is not currently possible to commencementascertain the overall impact of employmentCOVID-19 on July 29, 2019.  The optionsour business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have an exercisea material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of $6.35our common stock. Uncertainties regarding the economic impact of COVID-19 is likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and vest overcash flows.
On April 10, 2020, TruPet, LLC, a two-year period beginning with commencementwholly owned subsidiary of employment.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 loan, matures on April 6, 2022, and bears interest at a rate of 0.98% per annum, payable monthly commencing on November 6, 2020.
On May 7, 2020, Halo, Purely for Pets, Inc., 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 PPP. The loan matures on May 6, 2022, and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 7, 2020.
The Company intends to use the entire loan amounts for qualifying expenses. 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.
Contract Termination

On July 23, 2019, the Audit Committee 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.

On July 29, 2019, Mr. Schulmeyer received a grant of 6,042 common shares as a consulting fee pursuant to his employment agreement dated June 28, 2019.

On August 14, 2019, the Company granted 30,000 options to an employee of the Company.  The options have an exercise price of $4.00 and vest over a three-year period.

On August 28, 2019,1, 2020, the Company entered into a radio advertisingtermination agreement (the “Termination Agreement”) with iHeartMedia + Entertainment, Inc. The Company issued 1,000,000 common shares which shall be entirely paid for by iHeartMedia in the form of a commitment from iHeartMedia to provide to Company advertising media inventory having an aggregate value of $5,000,000. Company has committed to using $2,500,000 of the media inventory by August 28, 2020 with the remainder of the inventory available through August 28, 2021

On August 30, 2019,independent contractor who had previously been advising the Company granted 100,000in a consultant capacity. The termination agreement provided for the following, (i) the share purchase warrants dated September 17, 2019 entitling the former advisor to purchase 1,250,000 shares of common stock options to Mr. Schulmeyer. These options have an exercise price of $3.90 and vest over a two-year period.

On September 6, 2019, the Audit Committee notified RBSM LLP of the Audit Committee’s approval to dismiss RBSM as the Company’s independent registered public accounting firm upon filing of this Quarterly Report.

On September 9, 2019, the Company granted 30,000 options to an employee of the Company.  The options have an exercise price of $3.70 and vest over a three-year period.

On September 13, 2019, Lori R. Taylor notified the Company of her decision to resign as Co-Chief Executive Officer of the Company, effective asat a price of $0.10 per share (the “Tranche 1 Warrants”) was amended to reduce the number of shares of common stock purchasable thereunder to 1,041,666 shares; (ii) the second share purchase warrants dated September 13, 2019. 17, 2019 entitling the former advisor to purchase 1,250,000 shares of common stock at a price of $0.10 per share were terminated and (iii) the share purchase warrants dated September 17, 2019 entitling the former advisor to purchase 1,500,000 shares of common stock at a price of $10.00 per share were terminated.
The Company also entered into a separation agreement with Ms. Taylor, in connection with her resignation as an officer ofTranche 1 Warrants (as amended pursuant to the Company, effectiveTermination Agreement) are fully vested as of the date thereof. Pursuant to the separation agreement all outstanding stock option awards will become fully vested on November 12, 2019, subject to Ms. Taylor’s continued cooperation with the Company through such date and subject to the effectiveness and irrevocability of the release of claims.  Ms. Taylor will continue to serve as a membertermination of the board of directors of the Company.

On September 17, 2019, the Company entered into a 5-year consulting agreement with Bruce Linton. As compensation for the services rendered, the Company has issued 2,500,000 share purchase warrants to acquire one share each of Company Common Stock with an exercise price of $0.10. An additional 1,500,000 share purchase warrants to acquire one share each of Company Common Stock with an exercise price of $10.00.

The Warrantsand will vest as follows: (i) 50% (or 1,250,000) of the Warrants (the “Tranche 1 Warrants”), will vest and beremain exercisable upon the earlier of (Y) September 17, 2020 or (Z) immediately prior to a Change in Control (as such term is defined under the Company’s 2019 Incentive Award Plan) (a “Change in Control”) and (ii) the remaining 50% (or 1,250,000) of the Warrants (the “Tranche 2 Warrants”) will vest and be exercisable upon the earlier of (Y) March 17, 2021 or (Z) immediately prior to a Change in Control, in each case, subject to Mr. Linton’s continued service to the Company through the applicable vesting date or Change in Control. The Warrants have a term expiring onuntil September 17, 2029 and may be exercised pursuant to the cashless exercise provisions thereof.
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.
Convertible notes
On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “Expiry Date”“June 2020 Notes”).  The June 2020 Notes are convertible into the Company’s common stock at the election of the holders thereof at any time from the date of issuance.  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 June 2020 Notes are convertible at conversion price of $0.75 per share. The June 2020 Notes carry a 10% PIK interest rate which 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 June 2020 Notes.  The June 2020 Notes mature on June 30, 2023.  The proceeds of the June 2020 Notes will be subjectused for general working capital needs.  The June 2020 Notes will rank on par with the Seller Notes and the ABG Notes.
In connection with the issuance of the June 2020 Notes, the Company also issued common stock purchase warrants (the “June 2020 Warrants”) to such other termspurchase up to 2,000,000 shares of the Company’s common stock at a price equal to $1.25 per share.  The June 2020 Warrants are exercisable on the date of issuance and conditions as may be determined by the Board.

The Additional Warrants will be exercisableexpire on the earlier of (Y) March 17, 2021(i) 84 months from the date of the consummation of an underwritten public offering or (Z) immediately priorother uplist transaction or (ii) June 30, 2030.
In addition, on June 24, 2020, in connection with the issuance of the June 2020 Notes, (i) the November 2019 Notes, the Seller Notes and the ABG Notes were amended to a Change in Control, in each case, subject to Mr. Linton’s continued servicelower the maximum conversion price applicable to the Company throughconversion of these notes from $4.00 per share to $3.75 per share, (ii) the applicable date. The Additional Warrants have a term expiring on the Expiry Date and will be subject to such other terms and conditions as may be determined by the Board.

If Mr. Linton should cease to be engaged by the Company for any reason, other than as a result of a termination by reason of Just Cause (as such term is defined in the Independent Contractor Agreement) or as a result of Mr. Linton’s resignation as an independent contractormaturity date of the Company,November 2019 Notes was extended from November 4, 2021 to June 30, 2023, and (iii) the Incentive Warrants which have not then vested will immediately priorcommon stock purchase warrants to purchase 1,009,724 shares of the date Mr. Linton ceases to be engagedCompany’s common stock that were issued in connection with the Company be deemedNovember 2019 Notes, the Seller Notes and the ABG Notes were amended to become vested and such Incentive Warrants will remain exercisable untillower the Expiry Date.
maximum exercise price applicable to these warrants from $5.00 per share to $4.25 per share.
During the month of September 2019 several warrant holders converted 1,144,999 warrants to 1,259,498 Common Stock shares. The Company received $4.0 million in return for the common shares issued.

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. 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. The Company undertakes 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.

On February 2, 2019 and February 29, 2019, respectively, Better Choice Company entered into definitive agreements to acquire through stock exchange agreements, approximately 93% of the outstanding limited liability company interest of TruPet LLC and all of the outstanding shares of Bona Vida, Inc., an emerging hemp-based CBD platform focused on developing a portfolio of brand and product verticals within therapidly growing animal health and wellness space. On May 6, 2019, Better Choice Company consummatedcompany committed to leading the stock exchange transactions whereby TruPet LLCindustry shift toward pet products and Bona Vida, Inc. became wholly owned subsidiariesservices that help dogs and cats live heathier, happier and longer lives. We take an alternative, nutrition-based approach to animal health relative to conventional dog and cat food offerings, and position our portfolio of Better Choice Company. For accountingbrands to benefit from the mainstream trends of growing pet humanization and financial reporting purposes, the transaction has been treated asconsumer focus on health and wellness. We have a reverse acquisition whereby TruPet is considered the acquiror of Better Choice Company. Thus, the historical financial information of the registrant is that of TruPet even though the legal registrant remains Better Choice Company.

TruPet was founded in 2013 and has ademonstrated, multi-decade track record of increasing itssuccess selling trusted animal health and wellness products, and leverage our established digital footprint to provide pet parents with the knowledge to make informed decision about their pet’s health. We sell the majority of our dog food, cat food and treats under the Halo and TruDog brands, which are focused, respectively, on providing sustainably sourced kibble and canned food derived from real whole meat, and minimally processed raw-diet dog food and treats.
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.

In order to obtainreach customers, we investcan gather valuable market and consumer behavior data that will allow our brands to be more competitive in advertisingthe Retail channel. Conversely, we believe Halo’s long-established relationships with key Retail customers will enable us to more effectively launch additional brands in the rapidly evolving retail environment. In addition, Halo has successfully launched into high growth markets in Asia. We intend to build on that success by expanding our products consumer reach through online marketplaces in these markets based on the DTC team experience.
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.

During 2018, we experienced two separate recallsdirectly targeting and educating consumers of our products, we partner with a number of online retailers such as Amazon, Chewy, PetSmart and Petco to develop joint sales and marketing initiatives to increase sales and acquire new customers.
Our established supply and distribution infrastructure allows 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 May 2020, we have not seen a material drop 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 shippingCOVID-19 pandemic on the Company’s sourcing, manufacture and customer service expensesdistribution of its products or to alleviateeconomic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and avoid additional backlogs in product shipments caused bywill depend on future developments, and such effects could exist for an extended period of time even after 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 strain on our customer service function, we also expanded the number and hours of our customer service representatives to help guide our customers through the recall process, resulting in an increase to our customer service costs.pandemic might end.

Fiscal Year End

On May 21, 2019, the BoardCompany’s 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. Following its acquisition by the Company, Halo has adopted the same fiscal year end.

Management’s Discussion and Analysis

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.

Net sales include revenue derived from the sale of ourOrapup brand names across multiple forms and classes, including foods, treats, toppers, dental products, chews, tinctures, grooming products and related shipping fees offset by promotional discounts, refunds and loyalty points earned.  We offer a variety of promotions and incentives to our customers including daily discounts, multi-bag purchase discounts and coupon codes for initial purchases.  Historically, our net sales have been driven by our distribution of our products through our direct to consumer channel.  However, sales through the retail channel have become a more important component of our growth in net sales and gross profit.supplements.

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 expects to be entitled in exchange for those goods. Revenue is recognized upon receiptThe Company has 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 the Company’s revenue is derived from the DTC customers andchannel which represents 25% of consolidated revenue; the Retail channel represents 75% of consolidated revenue for the three months ended March 31, 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 the Company’s 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.  The Company has 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, andinventory freight for shipping product from ourthird-party contract manufacturing plants to our warehouse.the Company’s 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.

General and administrative expenses include management and office personnel compensation and bonuses, stock compensation, corporate level information technology related costs, rent, travel, professional service fees, insurance, product development costs and general corporate expenses. We expect general and administrative expenses to continue to increase in absolute dollars as we expand our commercial infrastructure to both drive and support our planned growth in revenue and support the additional costs associated with being a public company.

Research and Development

We do not invest in non-CBD pet food research, but we do continually review sales of our existing products as well as those of non-CBD competitors to identify possible product extensions. We acquired two CBD related research agreements as part of the acquisition of Bona Vida Inc. We will invest resources into the effectiveness of CBD infused canine pet food to determine if specific strains of CBD are more effective than others in addressing canine health issues.  We are also conducting trials with existing products to determine optimal product formulations. During the periods ended June 30, 2019 and June 30, 2018, we did not record research and development expenses. We expect to incur research and development expenses during the remainder of 2019 and in future periods.

Interest Expense

Interest expense originates fromOn November 4, 2019 and December 19, 2019, we issued $2.8 million and $15.0 million, respectively, in aggregate principal amount of subordinated convertible notes. These notes accrue interest payable in kind until maturity or conversion to equity.
On December 19, 2019, the Company entered into a loan facilities agreement with a private debt incurred underlender (the “Facilities Agreement”) that provided for a undershort term loan facility of $20.5 million and a revolving credit agreement entered into in May 2019, and under our note payable to a prior TruPet LLC member, corporate credit cards, and our line of credit agreementnot to exceed $7.5 million. The Company borrowed $20.5 million on the short term loan and other debt in place prior$5.0 million on the revolving line of credit on December 19, 2019. The Company borrowed an additional $0.5 million on the revolving line of credit during the three months ended March 31, 2020. The short term loan and revolving line of credit are scheduled to mature on December 19, 2020 or such earlier date on which a demand is made by the acquisitions.agent or any lender.

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. The Company did not record income tax expense becausefor the three months ended March 31, 2020 due to the continued losses incurred by the Company.  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

Three and Six Months Ended June 30, 2019 Compared toMarch 31, 2020 versus Three and Six Months Ended June 30, 2018March 31, 2019

  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%
  2020  2019  Change  % 
$ in thousands            
Net sales 
$
12,226
  
$
3,551
  
$
8,675
   
244
%
Cost of goods sold  
8,069
   
1,661
   
6,408
   
386
%
Gross profit  
4,157
   
1,890
   
2,267
   
120
%
Operating expenses:                
General and administrative expense  
8,056
   
1,959
   6,097   
311
%
Share-based compensation  2,484   
206
   
2,278
   
*
 
Sales and marketing  1,959   
2,185
   
(226
)
  
10
%
Customer service and warehousing  
190
   
254
   
(64
)
  
(25
%)
Total operating expenses  
12,689
   
4,604
   
8,085
   
176
%
Loss from operations 
$
(8,532
)
 
$
(2,714
)
 
$
(5,818
)
  
214
%
* Not meaningful

Net Sales

Net sales increased $0.6$8.7 million, or 8%244%, to $7.6 million for the six months ended June 30, 2019 compared to $7.1 million for the six months ended June 30, 2018.

Net sales increased $0.3 million, or 7%, to $4.1$12.2 million for the three months ended June 30, 2019March 31, 2020 compared to $3.8$3.6 million for the three months ended June 30, 2018.

March 31, 2019. Net sales increased ininclude $9.0 million from Halo for the sixthree months ended June 30, 2019March 31, 2020 following the closing of the Halo Acquisition in December 2019.  This was partially offset by a $0.4 million decrease for the three months ended March 31, 2020 in net sales related to TruPet as compared to the six months ended June 30, 2018 as a result of increased media and acquisition spend and a shift to higher unit priced products. Our TruDog brand shifted away from dental products during theprior year first half of 2019 towards consumable food and topper sales. Dental products were effective for initial customer acquisition but return and retention rates were relatively low. Although food and topper products are not as effective in initial customer conversion as the dental products, topper products yield a better lifetime value as retention and repeat rates are higher. In the three months ended June 30, 2019, we saw a further increase in our acquisition and conversion rates as a result of increased media spend on Facebook and Google. A decline in sales through our online retailers Amazon and Chewy.com was the result of lower Amazon promotion spends and Chewy.com’s customers buying directly from us. We expect to see sales to these online retailers to grow in the second half of 2019 as we rebalance our sales efforts between DTC and online retail partners.

The increase in net sales in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 as a result of higher media spend on acquiring new customers as well as a higher retention rates of customers we previously acquired. We continue to see high retention rates of returning customers either through our subscription offers or from repeat purchases. We expect the share of returning sales to continue to grow as we focus our acquisition spend on high value, repeat buyers. Online retail partners sales dropped slightly as we continued to focus on driving traffic to our own sites.quarter.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased $0.8$6.4 million, or 23%386%, to $4.1$8.1 million for the sixthree months ended June 30, 2019March 31, 2020 compared to $3.3$1.7 million for the sixthree months ended June 30, 2018.March 31, 2019. As a percentage of revenue, cost of goods sold increased to 53%66% during the sixthree months ended June 30, 2019March 31, 2020 compared to 47% for the three months ended March 31, 2019. Cost of goods sold includes $5.9 million of Halo product sold for the three months ended March 31, 2020 following the closing of the Halo Acquisition in December 2019.  In addition, cost of goods sold during the six months ended June 30, 2018.  The increasefirst quarter 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 due 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 scale 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.

Cost of goods sold increased $1.0 million, or 75%, to $2.4 million for the three months ended June 30, 2019 compared to $1.4 million for the three months ended June 30, 2018.  As a percentage of revenue, cost of goods sold increased to 59% during the three months ended June 30, 2019 compared to 36% during the three months ended June 30, 2018. During the three-months ended on June 30, 2019, we continued to discount discontinued items to clear out the inventory to focus on our top selling products. The inventory review at the end of the three-month period ended on June 30, 2019 led to an inventory reserve charge of $0.2 million for the three months ended June 30, 2019 as compared to a reserve of $0.1 million for the three months ended June 30, 2018.

During the six months ended June 30, 2019, gross profit decreased $0.2 million, or 5%, to $3.6 million compared to $3.7 million during the six months ended June 30, 2018.  Gross profit margin decreased to 47% from 53% for the six months ended June 30, 2019 comparedrelated to the six months ended June 30, 2018. The ongoing shift into food and topper products from the dental products solddecrease in 2018 and discounting of discontinued products also reduced the gross margin for the six month period ended June 30, 2019.

During the three months ended June 30, 2019, gross profit decreased $0.8 million, or 32%, to $1.7 million compared to $2.4 million for the three months ended June 30, 2018.  Gross profit margin decreased to 41% from 64% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.  The decrease was primarily due to the inventory reserve taken during the reporting period. The ongoing shift into food and topper products from the dental products and discounting of discontinued products also reduced the gross margin for the three months ended June 30, 2019.

Operating Expenses

During the six months ended June 30, 2019, general and administrative expenses increased approximately $4.7 million, or 345% to $6.0 million compared to $1.4 million in the six months ended June 30, 2018. TruPet sales.

During the three months ended June 30, 2019,March 31, 2020, gross profit increased $2.3 million, or 120%, to $4.2 million compared to $1.9 million during the three months ended March 31, 2019. Gross profit margin decreased to 34% from 53% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Gross profit includes $2.4 million from Halo for the three months ended March 31, 2020, following the closing of the Halo Acquisition.  The Halo line of products for the current period carried a profit margin of 27% compared to TruPet’s margin of 54%.  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 $0.2 million and product obsolescence costs of $0.2 million due to the nature of Halo’s products.

Operating Expenses
During the three months ended March 31, 2020, general and administrative expenses increased approximately $3.9$6.1 million, or 587%,311% to $4.6$8.1 million compared to $0.7$2.0 million infor the three months ended June 30, 2018.  TheMarch 31, 2019. General and administrative expenses include expenses of $2.2 million incurred by Halo for the three months ended March 31, 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 $0.6 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, resulted from the expansion of our corporate staff and the incurrence ofdriven by share-based compensation ($2.5 million), consulting other professional fees post-acquisitions($1.1 million) and salaries and wages and related costs ($0.6 million) as we begancontinued building the infrastructure to support our status as a public company.  The increase resulted fromcompany and the expansion of our corporate staff and the incurrence of professional fees post-acquisition as we began building the infrastructure to support our status as a public company.staff.

During the sixthree months ended June 30, 2019, we incurredMarch 31, 2020, share-based compensation of $4.2increased $2.3 million, to $2.5 million, as compared to share based compensation of an immaterial amount$0.2 million during the sixthree months ended in June 30, 2018. March 31, 2019. The increase was driven by $2.0 million related to awards issues under the Company’s equity incentive plan and $0.5 million related to restricted shares issued to three nonemployee directors.

During the three months ended June 30, 2019, we incurred share-based compensation of $4.0 million, as compared to share based compensation of an immaterial amount during the three months ended in June 30, 2018. The increase in equity-based compensation was driven by awards issued related to the acquisitions on May 6, 2019.  The increase in equity-based compensation was driven by awards issued related to the acquisitions on May 6, 2019.

During the six months ended June 30, 2019,March 31, 2020, sales and marketing expenses, including paid media, increased approximately $2.8decreased $0.2 million, or 99%10%, to $5.6$2.0 million from $2.8$2.2 million during the sixthree months ended March 31, 2019. Marketing expenses include $0.9 million incurred by Halo for the three months ended March 31, 2020, following the closing of the Halo Acquisition in June 30, 2018 as a result of increased new customer acquisition efforts. TruPet traditionally invested in Facebook advertisementDecember 2019.  TruPet’s sales and marketing expenses decreased from $2.2 million for the three months ended March 31, 2019 to drive traffic to$1.0 million for the site. We increased spending on Facebook and Google, and began to invest additional spend in other media outlets to build brand awareness.three months ended March 31, 2020.

During the three months ended June 30, 2019, salesMarch 31, 2020, customer service and marketing expenses, including paid media, increased approximately $1.9warehousing decreased $0.1 million, or 126%, to $3.4$0.2 million, from $1.5as compared to $0.3 million during the three months ended in June 30, 2018 primarilyMarch 31, 2019 due to a shiftreduction in media spending towards Facebookstaff and Google advertisements as well as retargeting lapsed customers.related operating costs.

During the six months ended June 30, 2019, other operating costs including customer service and warehousing costs decreased $0.2 million, or 9%, to $1.7 million compared to $1.9 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 during 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.Interest Expense, Net

During the three months ended June 30, 2019, other operating costs including customer service and warehousing costs decreased by an immaterial amount, or 2%,March 31, 2020, interest expense increased $2.2 million to $0.1$2.3 million compared tofrom less than $0.1 million for the three months ended June 30, 2018. We rationalized the operations in our warehouse at the endMarch 31, 2019. Interest expense relates primarily to existing and prior indebtedness related to a short term loan, lines of 2018, reducing staffcredit and operating costs. In addition, we continue to reduce our unit shipping costs as we gain scale and shipping efficiency. During the three 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.subordinated convertible notes.

Research and Development

During the six months ended June 30, 2019 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.

Interest Expense, Net

During the six months ended June 30, 2019, interest expense remained fairly constant at approximately  $0.1 million compared to the six months ended June 30, 2018.  Interest expense increased primarily due to increased debt incurred under a note payable to a director, offset by the refinancing of the Company’s line 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.

During the three months ended June 30, 2019, interest expense changed immaterially compared to the six months ended June 30, 2018.

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, as a corporation is 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.

Loss from Acquisition

Note 2 in Notes to the Unaudited Condensed Consolidated Financial Statements details the impact of the transaction on May 6, 2019.

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. At June 30,loans. On March 31, 2020 and December 31, 2019, we had cash and cash equivalents of $11.2$1.9 million (including restricted cash of $6.2 million)and $2.5 million, respectively, which represented an increasea decrease of $7.3 million from December 31, 2018.$0.7 million.

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 sale of its products, the successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government regulations. In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced in China and spread globally. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil, which could negatively impact our business, financial condition, and cash flows.

The Company has incurred significant losses over the last three years and has a significantan accumulated deficit. TheseWe expect to continue to generate operating losses create an uncertaintyand consume significant cash resources for the foreseeable future. Without additional financing, these conditions raise substantial doubt about the Company’sour ability to continue as a going concern, meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. The Company is implementing plans to achieve cost savings and other strategic objectives to address these conditions. We expect cost savings from consolidation of third-party manufacturers, optimizing shipping and warehousing as well as overhead cost reductions. The business is focused on growing the most profitable channels while reducing investments in areas that are expected to have lower long-term benefits.

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.

Management conducted a comprehensive review of the Company’s affairs including, but not limited to:

The Company’s financial position at June 30, 2019 which includes $0.6 million of working capital;
Significant events and transactions the Company has entered into, including and through the date the financial statements were available to be issued;
The loss from operations which includes $4.2 million related to non-cash stock compensation;
Sales and profitability forecasts for the Company for the next fiscal year;
The continued support of the Company’s major stockholders and lenders; and
The repayment of the line of credit with proceeds from a new $6.2 million loan.

To address the future additional funding requirements management has undertaken the following initiatives:
To continue to monitor the Company’s ongoing working capital requirements and minimum expenditure commitments;
Continue their focus on maintaining an appropriate level of corporate overhead in line with the Company’s available cash resources.

Management is confident that it will be able to meet its minimum expenditure commitments and support its planned level of overhead expenditures. There can be no assurance however thathave been prepared assuming the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all.  The accompanying unauditedcontinue as a going concern, which contemplates the realization of assets and payments of liabilities in the ordinary course of business. Accordingly, the interim condensed consolidated financial statements do not include any adjustments relatedrelating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that might be necessarymay result should the Company be unable to continue as a going concern.

The following table presents aA summary of our cash flow for the six-month periods ended:flows is as follows:

Dollars in thousands 
June 30,
2019
  
June 30,
2018
 
Cash flows provided by (used in):      
March 31, 
$ in thousands
2020 
 2019 
Cash flows (used in) provided by:    
      
Operating activities $(8,481) $(2,026) 
$
(1,159
)
 $(1,368)
Investing activities 1,870
 (31) 
(8
)
 - 
Financing activities  13,927   (2,031)  
500
   (756)
Net increase (decrease) in cash, cash equivalents and restricted cash $7,316  $(44)
Net decrease in cash and cash equivalents and restricted cash 
$
(667
)
 $(2,124)

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 $0.2 million, or 319%15%, during the sixthree months ended June 30, 2019March 31, 2020 compared to the sixthree months ended June 30, 2018.March 31, 2019. Cash used in operating activities was $8.5$1.2 million for the sixthree months ended June 30, 2019,March 31, 2020, which consisted of the net loss from operations of $164.3$9.5 million offset by $150.0 million from the loss from the acquisitions, $4.2due to $2.8 million in stock-basedshares issued for services, $2.5 million of share-based compensation, expense$1.1 million for amortization of debt issuance costs and discounts, $0.5 million in depreciation and amortization, $1.4 million in the change in fair value warrant derivative liability, $0.5 million of payments in kind interest, $0.6 million of contract termination costs, and a combined $1.4$1.8 million of net cash generated viafrom changes in operating assets and current liabilities.   Cash used in operating activities was $2.0 million for the six months ended June 30, 2018, which consisted of net loss of $2.4 million, offset by a combined $0.4 million net cash generated via changes in operating assets and current liabilities.

The decrease in working capital (deficit) during the six months ended June 30, 2019 was primarily due to an increase of accrued liabilities of $1.6 million offset by an increase in prepaid expenses of $0.5 million.

The decrease in working capital (deficit) during the six months ended June 30, 2018 was primarily due to an increase in accounts payable of $0.5 million offset by an increase in inventories of $0.3 million

Cash flows from Investing Activities

Cash fromused in investing activities increased by $1.9was less than $0.1 million during the sixthree months ended June 30, 2019 by an immaterial amount during the six months ended June 30, 2018. The change in cash from investing activities is the result of $2.0 million cash acquired in the acquisitions offset by an increase in security deposits paid.March 31, 2020 and 2019.

Cash flows from Financing Activities

Cash provided by financing activities $0.5 for the three months ended March 31, 2020 compared to cash used of $0.8 million during the three months ended March 31, 2019. The cash flow from financing activities increased by $11.9 million, to $13.9 million, duringfor the sixthree months ended June 30, 2019 from $2.0 million during the six months ended June 30, 2018. The primary drivers of the overall cash from financing activitiesMarch 31, 2020 were proceeds from the revolving line of credit of $0.5 million. Cash used during the three months ended March 31, 2019 was related to a private placementrepayment of $15.7 million offset by payments to eliminatea cash advance. For details about the balance due under the Business Cash Advance Agreement of $1.9 million. The Company refinanced debt acquiredterms, covenants and restrictions contained in the mergerFacilities Agreement and the subordinated convertible notes, see “Note 10 - Line of $6.2 million with the proceeds from the issuancecredit, short term loan and notes payable” to our interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted
The Company has identified significant accounting principles applied onpolicies that, as a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dateresult of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial statementscondition or results of operations under different conditions or using different assumptions.  The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, share-based compensation,  and the reported amounts of revenuesaccounting for convertible notes, warrants and expenses duringbusiness combinations.  Details regarding the reporting periods. We regularly evaluate the accounting policies and estimates that weCompany's use to prepare our financial statements. A complete summary of these policies is includedand the related estimates are described in the notes to our financial statements. In general, management’s estimates are basedCompany's Annual Report on historical experience,Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Significant Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to basis of presentation, use of estimates, cash and cash equivalents, inventory, revenue recognition, income taxes, fair value of financial instruments, fair value measurements, derivative financial instruments, basic and diluted loss per share, related parties, discontinued operations, and investments (see NoteMay 1, to the Company’s unaudited condensed consolidated financial statements). We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the significant accounting policies and assumptions as detailed in Note 1 to the financial statements contained herein may involve a higher degree of judgment and complexity than others.2020,


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

ITEM 4.
CONTROLS AND PROCEDURES

Management previously disclosed material weaknesses in its internal control over financial reporting in its This Transition Report on Form 10-KT for the transition period from September 1, 2018 to December 31, 2018.  These material weaknesses related to (1) our development and effective communicated to our employees and consultants our accounting policies and procedures that resulted in inconsistent practices and (2) the small size of the Company’s accounting staff, which resulted in a lack of segregation of duties and insufficient review procedures. We have begun to build our in-house finance team by hiring a Chief Financial Officer. Under the new leadership, we will review, revise and amend the internal processes to develop effective controls.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) underManagement evaluated its internal control over financial reporting for the Exchange Act are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.quarter ended March 31, 2020. Based upon that evaluation, our principal executive officerthe Company’s Chief Executive Officer and principal financial officerPrincipal Financial and Accounting Officer concluded that as of June 30, 2019, our disclosure controls and procedures were not effective. The conclusion that ourthe Company’s disclosure controls and procedures were not effective was due to the presenceas of material weaknesses in internal control over financial reporting described above.March 31, 2020.  Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses described in the Company’s Annual Report on Form 10-K are remediated.

Changes in Internal Control Over Financial Reporting

Except as described above, thereAs part of our acquisition of Halo, the existing Halo finance team will support the process of bringing current outsourced processes in house. Additionally, the Company hired the Principal Financial and Accounting Officer of the Company, effective May 12, 2020 to help improve internal control over financial reporting.  There were no other changes in our internal control over financial reporting during the period covered by this reportfiscal quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3532
PART II
PART II. OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

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.

ITEM 1A.
RISK FACTORS

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 risks described in our Annual Report are not the only risks facing our Company. In addition to risks and uncertainties inherent in forward-looking statements contained in this Report on Form 10-Q, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
The Company qualifies as a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and is not required to provide information under this Item.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have previously disclosed all sales of securities without registration under the Securities Act of 1933, as amended.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.
OTHER INFORMATION

None.

ITEM 6.
EXHIBITS
The following exhibits are filed herewith.

Listed and indexed below are all Exhibits filed as part
33
EXHIBIT INDEX
ExhibitExhibit DescriptionFormFile No.ExhibitFiling 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-K333-1619432.105/10/2019 
       
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-K333-1619432.205/10/2019 
       
Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC
8-K333-1619432.305/10/2019 
       
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-K333-1619432.405/10/2019 
       
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-K333-1619432.112/26/2019 
       
Certificate of Incorporation, dated January 1, 2019
10-Q333-1619433.104/15/2019 
       
Certificate of Amendment to Certificate of Incorporation, dated February 1, 2019
10-Q333-1619433.204/15/2019 
       
Certificate of Amendment to Certificate of Incorporation, dated March 13, 2019
8-K333-1619433.103/20/2019 
       
Certificate of Amendment to Certificate of Incorporation, dated April 18, 2019
10-KT333-1619433.507/25/2019 
       
Certificate of Merger of Sport Endurance, Inc. with and into the Company
10-Q333-1619433.404/15/2019 
       
Bylaws
10-Q333-1619433.504/15/2019 
       
Amended and Restated Certificate of Designation for Series E Convertible Preferred Stock
8-K333-1619433.105/23/2019 
       
Form of Common Stock Purchase Warrant in connection with the May 2019 private placement
8-K333-1619434.104/30/2019 
       
Form of Tranche 1 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Registrant and Bruce Linton
8-K333-1619434.109/23/2019 
       
Form of Tranche 2 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton
8-K333-1619434.209/23/2019 

Exhibit
Number
 DescriptionFormFile No.ExhibitFiling Date
Filed/Furnished
Herewith
2.1
 
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-K333-1619432.15/10/2019 
        
2.2
 
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-K333-1619432.15/10/2019 
        
2.3
 
Securities Exchange Agreement, dated February 2, 2019, by and among Better Choice Company Inc., TruPet LLC and the members of TruPet LLC.
8-K333-1619432.35/10/2019 
        
2.4
 
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-K333-1619432.45/10/2019 
ExhibitExhibit DescriptionFormFile No.ExhibitFiling date
Filed /
Furnished
Herewith
Form of Additional Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton
8-K333-1619434.309/23/2019 
       
Form of Subordinated Convertible Promissory Note in connection with the November 2019 private placement
8-K333-1619434.111/15/2019 
       
Form of Common Stock Purchase Warrant in connection with the November 2019 private placement
8-K333-1619434.211/15/2019 
       
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-Q333-1619434.701/31/2020 
       
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers
10-Q333-1619434.801/31/2020 
       
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors
10-Q333-1619434.1001/31/2020 
       
Form of Common Stock Purchase Warrant Agreement in connection with the December 2018 private placement
8-K333-1619434.112/13/2018 
       
Form of Common Stock Purchase Warrant in connection with the June 2020 private placement.
    *
       
4.12
Form of Subordinated Convertible Promissory Note in connection with the June 2020 private placement.
    *
       
4.13
Form of Subscription Agreement in connection with the June 2020 private placement.
    *
       
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.
    *
       
Loan Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank
8-K333-16194310.105/10/2019 
       
Security Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank
8-K333-16194310.205/10/2019 
       
Guaranty Agreement, dated April 8, 2019, by TruPet LLC in favor of Franklin Synergy Bank
S-1333-23434910.1710/28/2019 
       
Form of Revolving Line of Credit Promissory Note dated 2019
8-K333-16194310.305/10/2019 
       
Guaranty Agreement, dated April 8, 2019, by Bona Vida, Inc. in favor of Franklin Synergy Bank
S-1333-23434910.1610/28/2019 
       
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-Q333-16194310.101/31/2020 
       
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-Q333-16194310.201/31/2020 
       
Continuing Guaranty of Halo, Purely for Pets, Inc., Bona Vida Inc., TruPet LLC, dated December 19, 2019
10-Q333-16194310.301/31/2020 
       
Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers
10-Q333-16194310.601/31/2020 

ExhibitExhibit DescriptionFormFile No.ExhibitFiling date
Filed /
Furnished
Herewith
Continuing Personal Guaranty of John Word, Lori Taylor and Michael Young, dated December 19, 2019
10-Q333-16194310.401/31/2020 
       
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-1333-23434910.210/28/2019 
       
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-1333-23434910.310/28/2019 
       
Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement
8-K333-16194310.104/30/2019 
       
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-K333-1619434.105/10/2019 
       
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-K333-1619434.205/10/2019 
       
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-K333-1619434.311/15/2019 
       
Form of Subscription Agreement in connection with the November 2019 private placement
8-K333-16194310.111/15/2019 
       
10.19†
Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan
    *
       
Form of 2019 Incentive Aware Plan Stock Option AgreementS-1333-23434910.710/28/2019 
       
Form of Indemnification Agreement by and among the Company and its officers and directorsS-1333-23434910.810/28/2019 
       
Independent Contractor Agreement, dated September 17, 2019, by and between the Company and Bruce Linton
8-K333-16194310.109/23/2019 
       
Employment Agreement, dated February 1, 2019, for David Lelong
8-K333-16194310.102/07/2019 
       
Employment Agreement, dated as of May 6, 2019, by and between the Company and Damian Dalla-Longa
10-Q333-16194310.610/09/2019 
       
Resignation Letter from Damian Dalla-Longa, dated February 5, 2020
8-K333-16194310.302/11/2020 

Exhibit
Number
 Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
3.1
 
Certificate of Incorporation.
10-Q333-1619433.14/15/2019 
        
3.2
 
Bylaws.
10-Q
333-1619433.5
4/15/2019
 
        
3.3
 
Certificate of Amendment to Certificate of Incorporation.
10-Q
333-1619433.27/14/2017 
        
3.4
 
Certificate of Amendment to Certificate of Incorporation.
8-K333-1619433.23/22/2018 
        
3.5
 
Certificate of Amendment to Certificate of Incorporation.
10-KT333-1619433.57/24/2019 
        
4.1
 
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-K333-1619434.15/10/2019 
        
4.2
 
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-K333-1619434.25/10/2019 
        
4.3
 
Form of First Amendment to Registration Rights Agreement, dated June 10, 2019, by and among the Company and the stockholders party thereto
8-K333-16194310.16/13/2019 
        
4.4
 
Tranche 1 Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton
8-K333-1619434.19/23/2019 
        
4.5
 
Tranche 2 Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton
8-K333-1619434.29/23/2019 
        
4.6
 
Additional Warrant, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton
8-K333-1619434.39/23/2019 
        
10.1
 
Form of Subscription Agreements dated April 25, 2019, between Better Choice Company Inc. and the purchaser named in the signature pages thereto.
8-K333-16194310.14/30/2019 
        
10.2
 
Loan Agreement dated May 6, 2019, between Better Choice Company Inc. and Franklin Synergy Bank.
8-K333-16194310.15/10/2019 
        
10.3
 
Security Agreement dated May 6, 2019, between Better Choice Company Inc. and Franklin Synergy Bank.
8-K333-16194310.25/10/2019 
        
10.4
 
Form of Revolving Line of Credit Promissory Note.
8-K333-16194310.35/10/2019 
        
10.5
 
Independent Contractor Agreement, dated September 17, 2019, by and between Better Choice Company Inc. and Bruce Linton
8-K333-16194310.19/23/2019 

Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Filing Date
date
Filed/Filed /
Furnished
Herewith
Amendment to Employment Agreement, dated February 10, 2020, by and between Damian Dalla-Longa and the Company
8-K333-16194310.402/11/2020
Employment Agreement, dated as of May 6, 2019, by and between Better Choicethe Company Inc. and Damian Dalla-Longa.Lori Taylor
10-Q333-16194310.710/09/2019
10.28†
Separation Agreement, dated as of September 13, 2019, by and between the Company and Lori Taylor
    *
       
Employment Agreement, dated as of May 6, 2019, by and among the Company and Anthony Santarsiero
S-1333-23434910.1110/28/2019
Employment Agreement, dated June 29, 2019, by and among the Company and Andreas Schulmeyer
S-1333-23434910.1210/28/2019
Employment Agreement, dated December 19, 2019, by and between Better Choicethe Company, Inc.Werner von Pein, and Lori Taylor.Halo
8-K333-16194310.102/11/2020
Amendment to Employment Agreement, dated February 10, 2020, by and between Werner von Pein and the Company
8-K333-16194310.202/11/2020
21.1
Subsidiaries of the Company
    *
       
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-OxleySarbanes‑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-OxleySarbanes‑Oxley Act of 2002.
    *
       
CertificationCertifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
32.2
Certification ofand Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-OxleySarbanes‑Oxley Act of 2002.2002
    **
       
101.INS
XBRL Instance Document
    *
       
101.SCH
XBRL Taxonomy Extension Schema Document
    *
       
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
    *
       
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
    *
       
101.LAB
XBRL Taxonomy Extension LabelLabels Linkbase DocumentDocument.
    *
       
101.PRE
XBRL Taxonomy Extension Presentation Linkbase DocumentLink Document.
    *

SIGNATURES
ExhibitExhibit DescriptionFormFile No.ExhibitFiling date
Filed /
Furnished
Herewith
Document.

†
Indicates a management contract or any compensatory plan, contract or arrangement.
Pursuant
#
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.
SIGNATURE

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: October 9, 2019June 25, 2020
By:
/s/ Damian Dalla-Longa
Damian Dalla-Longa
Chief Executive OfficerWerner von Pein
   
Date: October 9, 2019
By:Werner von Pein
/s/ Andreas Schulmeyer
  
Andreas Schulmeyer
Chief FinancialExecutive Officer
(Principal Executive Officer)

Date: June 25, 2020
By:
/s/ SHARLA COOK
Sharla Cook
Principal Financial and Accounting Officer


3938