The Company entered into an agreement for the payment 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, 2019 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, the Company was in compliance with its covenants and/or obtained waivers from the lien holders. At June 30, 2019 and December 31, 2018, outstanding borrowings amounted to $0 and $1.6 million, respectively.
At 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 payments of principal and/or 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 that the Company maintain deposits on account at the bank in the total amount of $6.2 million. If withdrawals are made from the account, the amount available under the revolving credit agreement decreases by the amount of the withdrawal.
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 between the Company and Lender dated the date of the Loan Agreement (the “Security Agreement”), the Company has granted the Lender a security interest in all assets of the Company owned or later acquired. The Loan Agreement also contains certain events of default, representations, warranties and covenants 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.
Interest expense of approximately $0.1 million and $0.1 million was recorded in the 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 operations related to the line of credit and the director note for the three and six months ended June 30, 2018, respectively.
Note 8 – Warrant Derivative 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 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. $2.6 million of the net proceeds 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. The warrant holders have an option to settle in cash in the event of a change of control of the Company. The Company considers these warrants a derivative liability and calculated the fair value of this liability utilizing a Lattice Model that values the warrant based upon a probability weighted discounted cash flow model.
At May 6, 2019, the derivative liability was recorded at fair value as part of the purchase price of Better Choice Company by TruPet.
The following schedule shows the change in fair value of the derivative liabilities for the period from May 6, 2019 through June 30, 2019.
| | Warrant Liability | |
| Assumption of warrants pursuant to May 6, 2019 acquisition of Better Choice Company | | $ | 2,110 | |
Change in fair value of derivative liability
| | | 193 | |
| Balance as of June 30, 2019 | | $ | 2,304 | |
| | | 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 | % |
The warrants feature provisions to reset the exercise price in the event of certain fundamental transactions. Such a transaction is considered a likelihood of 50% for December 31, 2019.
Additionally, the warrants feature provisions to force an early exercise in the event 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, the Company would be required to pay $2.3 million if all warrants were settled in cash as a result of a fundamental transaction or issue 712,823 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 10 – Other Liabilities
Other liabilities include outstanding amounts on bank issued revolving credit cards. Interest rates 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 terms 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 business 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.
| | 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 Board 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 share 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 – Going Concernabove.
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, 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
| |
| |
| | |
| |
| 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 12 - 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.
As showna result of the transaction the historical TruPet members’ equity (units and incentive units) has been recast to reflect the equivalent Better Choice Common Stock for all periods presented after the transaction. Prior to the transaction, TruPet was a Limited Liability Company and as such, the concept of authorized shares was not relevant.
Series A Preferred Units
In December 2018, the Company completed a private placement and issued 2,162,536 Series A Preferred Units (no par value) to unrelated parties for $2.40 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 2,460,517 shares of Common Stock.
Series E Preferred Stock
On May 6, 2019, the Company acquired 2,633,678 shares of Series E Preferred Stock issued by Better Choice Company in the accompanyingtransaction. Series E Preferred Stock is treated as mezzanine equity as it has redemption features that can be exercised by the holder under certain instances outside the control of the Company. 925,758 shares of Series E Preferred Stock were converted to Common Stock in the three- and six-month period ended June 30, 2019. As of June 30, 2019, 1,707,920 shares of Series E Preferred Stock remain outstanding. Full conversion of the remaining Series E Preferred Stock would result in the issuance of 2,167,745 shares of Common Stock.
Common Stock
The Company was authorized to issue 580,000,000 shares of Common Stock as of December 31, 2018. On April 22, 2019, the Company filed a certificate of amendment of certificate of incorporation with the State of Delaware which reduced the number of authorized shares of Common Stock to 88,000,000. The Company has 43,168,161 and 11,661,485 shares of Common Stock issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.
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 shares were issued to employees and consultants and were valued at a weighted average value per share of $2.26, the fair value at the date of award. The awards vested over three years.
However, on May 6, 2019, all equity incentive awards issued prior to May 6, 2019 immediately vested. As a result of the immediate vesting 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.
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 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 of the Company 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 the 2019 Incentive Award Plan, subject to stockholder approval of the 2019 Incentive Award Plan:
On May 21, 2019, the Company granted to third-party consultants options to purchase an aggregate of 60,000 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 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.
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.
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 grant | 5/21/2019 | | | 2 | | | | 60,000 | | | $ | 7.50 | | | | 9 | | | | 2.28 | % | | | 55.00 | % | Nil | | | 10 | | | | 9.9 | |
| Option grant | 5/21/2019 | | | 3 | | | | 30,000 | | | $ | 7.50 | | | | 5 | | | | 2.28 | % | | | 55.00 | % | Nil | | | 10 | | | | 9.9 | |
| Option grant | 6/29/2019 | | | 3 | | | | 3,000 | | | $ | 7.50 | | | | 0 | | | | 1.84 | % | | | 56.00 | % | Nil | | | 10 | | | | 10.0 | |
| | | | | | | | | 93,000 | | | | | | | $ | 14 | | | | | | | | | | | | | | | | | | |
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 value of outstanding options is $34.2 million as of June 30, 2019.
Warrants
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 | |
| | | - | | | | - | |
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 Services
A related party provided management services during 2018. Payments related to this arrangement were immaterial for 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 party provides online traffic acquisition marketing services for the Company. The Company paid immaterial amounts for their services during the three and six months ended June 30, 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 $0.1 million and an immaterial amount for the periods ending June 30, 2019 and December 31, 2018, respectively.
Financial and Accounting Personnel
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 with a 60-day notice with an affiliate of the managing member. The agreement requires payments amounting to $21,160 every four weeks through December 2020. Payments related to this agreement amounted to $0.1 million and $0.2 million for the three and six-month period ended June 30, 2019, respectively.
The Company entered into an employment agreement in February 2019 with a previous executive for a term of six months. Payments related to this agreement amounted to $0.1 million and $0.2 million for the three and six-month period ended June 30, 2019.
Finder’s Fee and Other Services
The Company paid a finders’ fee of $0.3 million during the year ended December 31, 2018 to an entity owned by one of its members. Additionally, the Company paid approximately $0.4 million to this entity for other professional services rendered. No amounts have been paid in 2019.
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.
Payments related to this agreement amounted to $0.1 million and an immaterial amount for the three-month period ended June 30, 2019 and 2018, respectively.
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 entered into multiple agreements with marketing services with independent contractors during 2018 and 2019. Payments related to the marketing agreements amounted to $0.2 million and an immaterial amount for the three-month period ended June 30, 2019 and 2018, respectively.
Payments related 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% commission 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 expensed the issuance costs of $0.1 million. No other amounts were paid under this agreement in 2019.
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 14 - Major Suppliers
The Company purchased approximately 83% and 72% of its inventories from one vendor for the six months ended June 30, 2019 and 2018, respectively. Additionally, the Company primarily utilized one vendor for outsourced manufacturing of meals for the six-month periods ended June 30, 2019 and the year ended June 30, 2018.
Note 15 - Concentration of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. The Company places its cash and cash equivalents with primarily one financial institution. At times, such amounts may be in excess of the FDIC insured limit. The Company has never experienced any losses related to these balances. As of June 30, 2019 and December 31, 2018 the Company had deposits in excess of the FDIC insured limits of $10.3 million and $3.4 million, respectively.
The Company routinely assesses the financial strength of its customers and, consequently, believes that its accounts receivable credit risk exposure is limited.
Note 16 - Net Loss per Share
Basic and diluted net loss per share attributable to Common 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 recognized are collectively assumed to be used to repurchase shares.
Basic and diluted net loss per share is calculated by dividing net loss attributable to Common Stockholders by the weighted-average shares outstanding during the period. For the six months ended June 30, 2019 and 2018, the Company’s basic and diluted net loss per share attributable to Common Stockholders are the same, because the Company has generated a net loss to Common Stockholders and Common 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 Stockholders for the three and six months ended June 30, 2019 and 2018:
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 | ) |
Note 17 - Going Concern
The Company has incurred recurring netsignificant losses from operations resulting inover the last three years and has a significant accumulated deficit. These operating losses create an accumulated deficit of $3,219,172 and a working capital deficit of $1,215,127 as of November 30, 2017. These factors raise substantial doubtuncertainty about the Company’s ability to continue as a going concern. 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 actively pursuing new venturesconfident that it will be able to increase revenues. In addition, the Company is currently seeking additional sourcesmeet its minimum expenditure commitments and support its planned level of capital to fund short term operations and repay indebtedness. The Company,overhead expenditures. There can be no assurance however is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Companyable to continue as a going concern.
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 that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relatingrelated to the recoverability and classification of recorded asset amounts or amounts and classificationsthe classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Note Receivable
On September 15, 2016 the Company and a third party entered into a stock purchase agreement where the Company sold 100% of the outstanding shares of its shell company, Be Tru Organics, Inc., a Nevada corporation in exchange for a $5,000 promissory note, bearing interest at 10% per month and due November 15, 2016. During the three months ended November 2016, the Company received $5,000 from the repayment of the note receivable.
Note 4 – Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
| | | November 30, 2017 | | | August 31, 2017 | |
| Trade accounts payable | | | 58,349 | | | | 106,726 | |
| Payroll and related | | | 11,015 | | | | 9,179 | |
| Accrued interest | | | 9,874 | | | | 16,661 | |
| Total | | | 79,238 | | | | 132,566 | |
Note 5 – Related Party Transactions
During the three months ended November 30, 2017 and 2016, the Company accrued salary in the amount of $24,000 to its President and CEO, David Lelong. At November 30, 2017 and August 31, 2017, the Company had accrued salary payable in the amount of $144,000 and $120,000, respectively, due to Mr. Lelong.
Note 6 – Derivative Liability
The Company entered into convertible note agreements containing beneficial conversion features. One of the features is a ratchet reset provision which allows the note holders to reduce the conversion price should the Company issue equity with an effective price per share that is lower than the stated conversion price in the note agreement (see note 10). The Company accounts for the fair value of the conversion feature in accordance with ASC 815, Accounting for Derivatives and Hedging and EITF 07-05, the embedded derivatives should be bundled and valued as a single, compound embedded derivative, bifurcate treated as a derivative liability. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component in its results of operations.
The Company recognized that the conversion feature embedded within its convertible debts is a financial derivative. The Generally Accepted Accounting Principles (GAAP) required that the Company’s embedded conversion option be accounted for at fair value. The following schedule shows the change in fair value of the derivative liabilities for the period ended November 30, 2017:
| | | Derivative | |
| | | Liability | |
| Liabilities Measured at Fair Value | | | |
| | | | |
| Balance as of August 31, 2017 | | $ | 312,878 | |
| | | | | |
| Issuances | | | 126,557 | |
| | | | | |
| Conversions / redemptions | | | (23,447 | ) |
| | | | | |
| Revaluation | | | (111,281 | ) |
| | | | | |
| Balance as of November 30, 2017 | | $ | 304,707 | |
The derivative liabilities incurred valued based upon the following assumptions and key inputs at November 30, 2017 and August 31, 2017:
| | | November 30, | | | August 31, | |
| Assumption | | 2017 | | | 2017 | |
| Expected dividends: | | | 0 | % | | | 0 | % |
| Expected volatility: | | | 135.9 – 246.8 | % | | | 37.8 – 276.9 | % |
| Expected term (years): | | 0.07 – 0.50 | years | | 0.04 – 0.50 | years |
| Risk free interest rate: | | | 0.86 – 1.06 | % | | | 0.26 – 0.98 | % |
| Stock price | | $ | 0.35 – 0.50 | | | $ | 0.51 – 1.97 | |
Note 7 – Convertible Notes Payable
3.5% OID Convertible Notes
On May 11, 2016, the Company entered into Securities Purchase Agreements with certain purchasers (“the Holders”). The Company issued 3.5% original issue discount (“OID”) senior secured convertible promissory notes having an aggregate face amount of $440,000 (the “3.5% OID Convertible Notes”). These notes bear interest at a rate of 10% per annum and mature in six months. The Company received cash proceeds of $424,600 net of the 3.5% original issue discount of $15,400. At the Holders option, the principal and accrued interest under the Notes are convertible into common stock at a rate of $0.50 per share and have a full reset feature. The Notes are secured by all assets of the Company. The Company at any time may prepay in whole or in part the outstanding principal and accrued interest at 125% during the first 90 days and 130% for the period from the 91st day through maturity. During November 2016 Company entered into forbearance agreements with the investors extending its time to pay the Notes until December 16, 2016.
January and February 2017 Convertible Notes
In December 2016, the Company entered into restructuring agreements with the Holders under the following terms: new notes (the “January and February 2017 Convertible Notes”) would be issued for the amounts due under the May Notes; penalties, fees, and accrued interest in the aggregate amount of $212,702 were added to the principal amount due under the January and February 2017 Convertible Notes; 35,000 shares of common stock were issued as a commitment fee; the January and February 2017 Convertible Notes were be issued at a discount of 3.5%, bear interest at the rate of 10% per annum, are convertible at a rate of $0.50 per share, and contain a variable conversion rate whereby, should the Company subsequently sell common stock at a price less than the conversion price, the conversion price of the January and February 2017 Convertible Notes will be reduced to match the lower conversion price. In addition, the proceeds from one of the January and February 2017 Convertible Notes were used to fully redeem one of the May Notes. The aggregate original amount of principal due under the January and February 2017 Convertible Notes was $614,258. Two of the January and February 2017 Convertible Notes in the aggregate amount of $494,340 were due March 31, 2017, and one of the January and February 2017 Convertible Notes in the amount of $119,918 was due August 17, 2017. In April 2017, the Company received forbearance letters from the Holders of the January and February 2017 Convertible Notes that were due March 31, 2017 to extend the due date to April 17, 2017 in exchange for principal payments in the aggregate amount of $75,000; on April 18, 2017, the Company received forbearance letters to further extend the due date to May 1, 2017 in exchange for principal payments in the aggregate amount of $45,000; and on May 1 and 2, 2017, the company entered into forbearance agreements with the holders of the January and February 2017 Convertible Notes to extend the due date to June 2, 2017. On June 5 and June13, 2017, the Company entered into forbearance agreements with the holders of two of the three January and February 2017 Convertible Notes to extend the due dates to December 27, 2017 in exchange for increase in principal in the aggregate amount of $78,907. On August 17, 2017, the Company entered into a forbearance agreement with the holders of the third January and February Convertible Note to extend the due date to December 27, 2017 in exchange for $10. At August 31, 2017, three of the January and February 2017 Convertible Notes were outstanding in the aggregate amount of $553,976; these notes are due December 27, 2017. During the three months ended November 30, 2017, the holders of the January and February 2017 Convertible Notes converted an aggregate of $33,865 in principal and $21,248 in accrued interest into 458,333 shares of common stock. As of November 30, 2017, there was an aggregate amount of $520,111 outstanding under the January and February 2017 Convertible Notes.
November 2017 Convertible Note
On November 17, 2017, the Company entered into a Securities Purchase Agreement with an investor. The Company issued a 3.5% original issue discount (“OID”) senior secured convertible promissory note having an aggregate face amount of $250,000 (the “November Convertible Note”). This note bears interest at a rate of 10% per annum and matures in six months. The Company received cash proceeds of $241,250 net of the 3.5% original issue discount of $8,750. At the Holders option, the principal and accrued interest under the note are convertible into common stock at a rate of $0.50 per share and have a full reset feature. The note is secured by all assets of the Company. The Company at any time may prepay in whole or in part the outstanding principal and accrued interest at 120% during the first 90 days and 130% for the period from the 91st day through maturity. In addition, the Company granted the investor the Option to lend the Company $48,250 on or before January 15, 2018. If the Option is exercised, the Company would issue the investor a $50,000 3.5% original issue discount senior secured convertible promissory note. As of November 30, 2017, there was an aggregate amount of $250,000 outstanding under the November 2017 Convertible Note.
Note 8 – Related Party Notes Payable
In January and February 2017, the Company’s President and CEO loaned the Company the aggregate amount of $70,000 represented by three notes payable. In April and May 2017, the Company’s President and CEO loaned the Company an additional $134,000 represented by three notes payable; in June and August, 2017, the Company’s President and CEO loaned the Company an additional $27,000 represented by two notes payable. During the three months ended November 30, 2017, the Company’s President and CEO loaned the Company an additional $35,500 represented by four notes payable, and the Company repaid one of the notes in the amount of $75,000. The Company accrued interest expense in the amount of $1,191 and paid accrued interest in the amount of $950 under these notes payable during the three months ended November 30, 2017. At November 30, 2017, the Company has a principal balance in the amount of $191,500 and accrued interest in the amount of $2,253 due to its President and CEO pursuant to these notes payable.
Note 9 – Stockholders’ Equity
Preferred stock
The Company is authorized to issue 20,000,000 shares of $0.001 par value preferred stock as of November 30, 2017 and August 31, 2017. The Company has 1,000 shares of preferred stock issued and outstanding as of November 30, 2017 and August 31, 2017.
Common stock
The Company is authorized to issue 580,000,000 shares of $0.001 par value common stock as of November 30, 2017 and August 31, 2017. The Company has 78,685,302 and 78,226,969 shares of common stock issued and outstanding as of November 30, 2017 and August 31, 2017.
Three Months Ended November 30, 2017 and 2016
There were no shares issued during the three months ended November 30, 2016.
On September 28, 2017, the Company issued 208,333 shares of common stock, for the conversion of $16,347 of principal and $8,653 of accrued interest of convertible notes payable.
On November 16, 2017, the Company issued 250,000 shares of common stock, for the conversion of $17,518 of principal and $12,482 of accrued interest of convertible notes payable.
Note 10 – Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.
The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following summarized the Company’s financial liabilities that are recorded at fair value on a recurring basis at November 30, 2017 and August 31, 2017.
| | | November 30, 2017 | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Liabilities | | | | | | | | | | | | |
| Derivative liabilities | | $ | - | | | $ | - | | | $ | 304,707 | | | $ | 304,707 | |
| | | August 31, 2017 | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Liabilities | | | | | | | | | | | | |
| Derivative liabilities | | $ | - | | | $ | - | | | $ | 312,878 | | | $ | 312,878 | |
Note 11 –18 - Subsequent Events
On January 17, 2018, one of our lenders (the “Lender”) purchased the convertible notes that were due on December 27, 2017, and we entered into an agreement with the Lender to extend the debt for one year and reducing the conversion price to $0.03 per share. Accordingly, we issued the Lender a new secured 10% convertible note with the principal sum of $542,343. The LenderManagement has expressed interest in converting the note to a new series of preferred stock once we obtain shareholder approval to clarify that our Board of Directors has the power to issue preferred stock without further shareholder approval. We expect to have that approval in mid to late February 2018. Because we have no binding agreement with the Lender, the conversion to preferred stock may not occur.
We evaluated subsequent events after the balance sheet date through the date on which the unaudited condensed consolidated financial statements were issued. We did not identify any additional material events
On June 28, 2019, the Company granted 500,000 options to Andreas Schulmeyer, the Company’s Chief Financial Officer, subject to commencement of employment on July 29, 2019. The options have an exercise price of $6.35 and vest over a two-year period beginning with commencement of employment.
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 transactions occurring during this subsequent event reporting period that required further recognition or disclosureafter 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, the Company entered into a radio advertising agreement with iHeartMedia + Entertainment, Inc. The Company issued 1,000,000 common shares which shall be entirely paid for by iHeartMedia in these financial statements.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, the Company granted 100,000 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 as of September 13, 2019. The Company also entered into a separation agreement with Ms. Taylor, in connection with her resignation as an officer of the Company, effective 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 member 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 Warrants will vest as follows: (i) 50% (or 1,250,000) of the Warrants (the “Tranche 1 Warrants”), will vest and be 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 on September 17, 2029 (the “Expiry Date”) and will be subject to such other terms and conditions as may be determined by the Board.
The Additional Warrants will be exercisable on 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 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 contractor of the Company, the Incentive Warrants which have not then vested will immediately prior to the date Mr. Linton ceases to be engaged with the Company be deemed to become vested and such Incentive Warrants will remain exercisable until the Expiry Date.
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 |
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 the animal health and wellness space. On May 6, 2019, Better Choice Company consummated the stock exchange transactions whereby TruPet LLC and Bona Vida, Inc. became wholly owned subsidiaries of Better Choice Company. For accounting and financial reporting purposes, the transaction has been treated as 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 a track record of increasing its sales and customer base since that time. TruPet has contributed to and has benefited from the positive trend toward feeding pets a healthy, natural diet. We pride ourselves on our customer service and ability 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 obtain customers, we invest in advertising on social media sites and offer products to first time buyers at significant discounts. Our goal is 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 recalls of our products as a result of the detection of salmonella. Since that time, we and our third-party manufacturing partners have increased testing of each product batch to avoid any additional recalls. While we do not believe we lost customers because of the recalls, we did incur additional shipping and customer service expenses to alleviate and avoid additional backlogs in product shipments caused by the recalls. We allowed products to be shipped from the manufacturing plants to the warehouse using truckloads not at full capacity, or LTL, which is more expensive than limiting our shipments to full-capacity truckloads. We also shipped customer orders in several shipments, rather than waiting to fulfill entire orders as certain products were backlogged due to the recall. To address the additional 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.
Fiscal Year End
On May 21, 2019, the Board of Directors of the Company approved a change fiscal year from August 31 to December 31 to align with TruPet’s fiscal year end. The fiscal year change for the Company is effective with our 2019 fiscal year, which begins January 1, 2019 and ends December 31, 2019.
Management’s Discussion and Analysis
Components of Financial Condition andOur Results of Operations.Operations
OVERVIEW AND OUTLOOK
Sport Endurance, Inc. (“Sport Endurance”) is a Nevada corporation that currently develops, markets, and distributes quality dietary supplements throughout the United States.
For the three months ended November 30, 2017, we had a net loss of $110,700 compared to a net loss of $200,563 for the three months ended November 30, 2016. Our accumulated deficit as of November 30, 2017 was $3,219,151. These conditions raise substantial doubt about our ability to continue as a going concern over the next twelve months.
Results of Operations for the Three Months Ended November 30, 2017 and 2016Net Sales
RevenuesWe sell non-CBD and CBD infused product for pets, 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 our online portal directly to our consumers and through online retailers and pet specialty retail stores. Our products are sold under the TruDog, RawGo, TruCat, OraPup and Bona Vida brands.
The
Net sales include revenue derived from the sale of our 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.
Key factors that affect our future sales growth include: our new product introduction in both the non-CBD and CBD markets, our expansion into retail and other specialty channels, entry into the market of competitors in the CBD industry and international expansion. We recognize revenue to depict the transfer of promised goods to the customer in an amount that reflects the consideration to which the Company had salesexpects to be entitled in exchange for those goods. Revenue is recognized upon receipt of $214 duringproduct by our DTC customers and at the three months ended November 30, 2017 comparedtime of shipment for our retail and consignment customers. We record a revenue reserve based on past return rates to $230account for customer returns.
Cost of Goods Sold and Gross Profit
Our products are manufactured to our specifications by contracted manufacturing plants. We design our packaging in-house for manufacture by third parties. Packaging is shipped directly to contracted manufacturing plants. We directly source the three months ended November 30, 2016. Thehemp 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 the contract manufacturing plants, packaging materials and CBD oils directly sourced by the Company, hadand 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 related to sales in the amount of $27 for net revenue of $187 during the three months ended November 30, 2017 compared to cost of goods sold related to sales in the amount of $34 for net revenue of $196 during the three months ended November 30, 2016.
General and administrative expenses
General and administrative expenses were $43,718 for the three months ended November 30, 2017 compared to $66,153 for the three months ended November 30, 2016, a decrease of $22,435. The decrease in general and administrative expense for the three months ended November 30, 2017 compared to the three months ended November 30, 2016 was due primarily due to a decrease in insurance expense. We expect general and administrative expense to increase in future periods.
Professional fees
Professional fees were $41,525 for the three months ended November 30, 2017 compared to $17,973 for the three months ended November 30, 2016, an increase of $23,552. Professional fees consist primarily of legal and accounting fees. We expect professional fees to increase in future periods.
Interest expense
Net interest expense for the three months ended November 30, 2017 was $136,925 compared to $183,705 for the three months ended November 30, 2016, a decrease of $46,780. The increase in net interest expenses for the three months ended November 30, 2017 compared to 2016 was primarily to the decrease in the amortization of the discount on our convertible notes payable.
Change in Fair Value of Derivative Liability
The Company had a non cash gain of $111,281 on revaluation of derivative liabilities during the three months ended November 30, 2017 compared to $67,072 in the three months ended November 30, 2016. The increase was due primarily to the restructuring of our debt during the current period.
Net loss
For the reasons above, our net loss for the three months ended November 30, 2017 was $110,700 compared to $200,563 for the three months ended November 30, 2016, a decrease in our net loss of $89,863..
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at November 30, 2017 compared to August 31, 2017.
| | | November 30, 2017 | | | August 31, 2017 | |
| | | | | | | |
| Current Assets | | $ | 107,027, | | | $ | 16,324 | |
| | | | | | | | | |
| Current Liabilities | | $ | 1,322,154 | | | $ | 1,199,198 | |
| | | | | | | | | |
| Working Capital (Deficit) | | $ | (1,215,127 | ) | | $ | (1,182,874 | ) |
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, volumes sold, discounts offered to our 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 CBD and the price we pay for our manufactured products and variations in our freight costs.
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. 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 from debt incurred under a under 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 agreement and other debt in place prior to the acquisitions.
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 allowable credits, deductions and uncertain tax positions. During the periods ended June 30, 2019 and June 30, 2018, we did not record income tax expense because 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 to Three and Six Months Ended June 30, 2018
| | | Six Months Ended | | | Three Months Ended | |
| | 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 | % |
Net Sales
Net sales increased $0.6 million, or 8%, 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 million for the three months ended June 30, 2019 compared to $3.8 million for the three months ended June 30, 2018.
Net sales increased in the six months ended June 30, 2019 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 the 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.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased $0.8 million, or 23%, to $4.1 million for the six months ended June 30, 2019 compared to $3.3 million for the six months ended June 30, 2018. As a percentage of revenue, cost of goods sold increased to 53% during the six months ended June 30, 2019 compared to 47% during the six months ended June 30, 2018. The increase 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 compared to the six months ended June 30, 2018. The ongoing shift into food and topper products from the dental products sold 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.
During the three months ended June 30, 2019, general and administrative expenses increased approximately $3.9 million, or 587%, to $4.6 million compared to $0.7 million in the three months ended June 30, 2018. The increase resulted from the expansion of our corporate staff and the incurrence of professional fees post-acquisitions as we began building the infrastructure to support our status as a public company. The increase resulted from 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.
During the six months ended June 30, 2019, we incurred share-based compensation of $4.2 million, as compared to share based compensation of an immaterial amount during the six months ended in June 30, 2018.
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, sales and marketing expenses, including paid media, increased approximately $2.8 million, or 99%, to $5.6 million from $2.8 million during the six months ended in June 30, 2018 as a result of increased new customer acquisition efforts. TruPet traditionally invested in Facebook advertisement to drive traffic to the site. We increased spending on Facebook and Google, and began to invest additional spend in other media outlets to build brand awareness.
During the three months ended June 30, 2019, sales and marketing expenses, including paid media, increased approximately $1.9 million, or 126%, to $3.4 million from $1.5 million during the three months ended in June 30, 2018 primarily due to a shift in media spending towards Facebook and Google advertisements as well as retargeting lapsed customers.
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.
During the three months ended June 30, 2019, other operating costs including customer service and warehousing costs decreased by an immaterial amount, or 2%, to $0.1 million compared to $0.1 million for the three months ended June 30, 2018. We rationalized the operations in our warehouse at the end of 2018, reducing staff 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.
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 NovemberJune 30, 2017,2019, 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 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, the Company, had cash used in operating activities of $111,020. This primarily consisted of Company’s net loss of $110,700, decreased by change in fair value of derivative liabilities of $111,281 and the amortization of discount on convertible debt in the amount of $118,886. The Company’s cash position also decreased $7,925 as a result of changes in components of current assets and current liabilities.corporation is required to provide for income taxes.
DuringThe effective tax rate subsequent to the three months ended November 30, 2017acquisitions 0%. The effective tax rate differs from the Company’s President and CEO, David Lelong, loaned the Company $35,500 represented by four notes payable in September and October 2017. In addition the Company repaid Mr. Lelong $75,950 which includes $75,000 principal in addition to $950 in accrued interest during the three months ended November 30, 2017.
On November 17, 2017 the Company entered into Securities Purchase Agreement with an investor. The Company issued a 3.5% original issue discount senior secured convertible promissory note having an aggregate face amount of $250,000 (the “November Convertible Note”). This note bears interest at aU.S. Federal statutory rate of 10% per annum and mature21% primarily because our previously reported losses have been offset by a valuation allowance due to uncertainty as to the realization of those losses.
Loss from Acquisition
Note 2 in six months. The Company received cash proceeds of $241,250 netNotes to the Unaudited Condensed Consolidated Financial Statements details the impact of the 3.5% original issue discounttransaction on May 6, 2019.
Liquidity and Capital Resources
Since our founding, we have financed our operations primarily through sales of member units as a limited liability company, sales of shares of Common Stock and warrants, as a corporation, preferred stock and cash flows generated by operations. At the Holders option the principal and accrued interest under the note are convertible into common stock at a rate of $0.50 per share and have a full reset feature. The note is secured by all assets of the Company. The Company at any time may prepay in whole or in part the outstanding principal and accrued interest at 120% during the first 90 days and 130% for the period from the 91st day through maturity. As of NovemberJune 30, 2017 there was an aggregate amount of $250,000 outstanding under the November 2017 Convertible Note. We also owed $520,111 under the convertible notes we issued in January and February 2017. After the holder of the November 2017 Convertible Notes purchased these notes, we have refinanced the notes and issued the holder of the November 2017 Convertible Note a new note in the principal sum of $542,343 which is due on January 16, 2019, and is convertible into common stock at $0.03 per share.
As of January 4, 2018, we had cash and cash equivalents of $75,552. We do$11.2 million (including restricted cash of $6.2 million) which represented an increase of $7.3 million from December 31, 2018.
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 of our unaudited condensed consolidated financial statements.
Management conducted a comprehensive review of the Company’s affairs including, but not have sufficientlimited to:
The Company’s financial position at June 30, 2019 which includes $0.6 million of working capitalcapital;
Significant events and transactions the Company has entered into, including and through the date the financial statements were available to pay our indebtednessbe issued;
The loss from operations which is due in January 2019 orincludes $4.2 million related to pay our expensesnon-cash stock compensation;
Sales and profitability forecasts for the Company for the next 12 months. We also owe our Chief Executive Officer $193,752 for demand notes we issued himfiscal year;
The continued support of the Company’s major stockholders and $160,000 in back salary. Our plan for satisfying our cashlenders; 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 pay our debt, including convertible debt and to remain operational formonitor the next 12 months is through sales of shares of our capital stock or convertible debt. We also expect to convert our convertible debt to preferred stock although we do not have a formal agreement to do so. We anticipate revenue during that same period of time, but do not anticipate generating sufficient amounts of revenues to meet ourCompany’s ongoing working capital requirements. However,requirements and minimum expenditure commitments;
Continue their focus on maintaining an appropriate level of corporate overhead in line with the revenueCompany’s available cash resources.
Management is not expected to be material. Forconfident that reason, we are exploring another possible business opportunity. We cannot assure you weit will be successful in meeting our working capital needs or that we can develop or acquire another business opportunity.
Should we not be able to continue to secure additional financing when needed, we may be required to slow down or suspend our business activities or reduce the scopemeet its minimum expenditure commitments and support its planned level of our current operations, either of which would have a material adverse effect on our business.
Our future capital requirements will depend on many factors, including the development of our business; the cost and availability of third-party financing for development; the condition of the capital markets in general and for speculative microcap companies; and administrative and legal expenses.
We anticipate that we will incur operating losses in the next 12 months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of revenue sources; and the management of growth. To address these risks, we must, among other things, expand our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel.overhead expenditures. There can be no assurance however that wethe Company will be successful in addressing such risks,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 failureclassification of liabilities that might be necessary should the Company be unable to do so could havecontinue as a material adverse effect on our business prospects, financial condition and results of operations.
Cautionary Note Regarding Forward Looking Statementsgoing concern.
This Report contains forward-looking statements including statements regarding our generation of revenues, our increasing expenses, the availability of future financing, changing the directionThe following table presents a summary of our businesscash flow for the six-month periods ended:
| Dollars in thousands | | | | | | |
| Cash flows provided by (used in): | | | | | | |
| Operating activities | | $ | (8,481 | ) | | $ | (2,026 | ) |
| Investing activities | | | 1,870 |
| | | (31 | ) |
| Financing activities | | | 13,927 | | | | (2,031 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 7,316 | | | $ | (44 | ) |
Cash flows from Operating Activities
Cash provided by (used in) operating activities consisted of net loss adjusted for non-cash items, including the loss on acquisition, stock-based compensation expense, change fair value of in derivative liability, depreciation and our liquidity. All statementsamortization, changes in working capital and other than statementsactivities
Cash used in operating activities increased $6.5 million, or 319%, during the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Cash used in operating activities was $8.5 million for the six months ended June 30, 2019, which consisted of
historical facts containedthe net loss of $164.3 million, offset by $150.0 million from the loss from the acquisitions, $4.2 million in
this report, including statements regarding our future financial position, liquidity, business strategystock-based compensation expense and
plansa combined $1.4 million of net cash generated via changes in operating assets and
objectivescurrent liabilities. Cash used in operating activities was $2.0 million for the six months ended June 30, 2018, which consisted of
management for future operations, are forward-looking statements. 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 words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relatedecrease in working capital (deficit) during the six months ended June 30, 2019 was primarily due to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, resultsan increase of operations, business strategy and financial needs.accrued liabilities of $1.6 million offset by an increase in prepaid expenses of $0.5 million.