UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, ~~2021~~2022


☐			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: 001-40477

Better Choice Company Inc.

(Exact name of registrant as specified in its charter)


Delaware			83-4284557
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

12400 Race Track Road

Tampa, Florida 33626

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): (212) 896-1254

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, $0.001 par value share	BTTR	NYSE American

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

The number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date was: ~~29,241,317~~29,405,529 shares of $0.001 par value common stock outstanding as of November 8, ~~2021.~~2022.

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Better Choice Company Inc.

Table of Contents


Item	Item		Page	Item		Page
		PART I – FINANCIAL INFORMATION			PART I – FINANCIAL INFORMATION
1.	1.	Financial Statements	4	1.	Financial Statements	4
2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
3.	3.	Quantitative and Qualitative Disclosures About Market Risk	30	3.	Quantitative and Qualitative Disclosures About Market Risk	26
4.	4.	Controls and Procedures	30	4.	Controls and Procedures	26
		PART II – OTHER INFORMATION			PART II – OTHER INFORMATION
1.	1.	Legal Proceedings	30	1.	Legal Proceedings	27
1A.	1A.	Risk Factors	30	1A.	Risk Factors	27
2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	31	2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
3.	3.	Defaults Upon Senior Securities	31	3.	Defaults Upon Senior Securities	27
4.	4.	Mine Safety Disclosures	31	4.	Mine Safety Disclosures	27
5.	5.	Other Information	31	5.	Other Information	27
6.	6.	Exhibits	31	6.	Exhibits	28
		Signatures	35		Signatures	31

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 on Form 10-Q ("Quarterly Report") are “forward-looking statements” for purposes of federal and state securities laws, including statements regarding our expectations and projections regarding future developments, operations and financial conditions, and the anticipated impact of COVID-19 and our acquisitions, business strategy and strategic priorities.laws. 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. Forward-looking statements contained herein include, among others, statements concerning management's expectations about future events, operating plans and performance, the continued effects of the COVID-19 ~~outbreak,~~pandemic and geopolitical actions and the threat of cyber-attacks, including levels of consumer, business and economic confidence generally, the regulatory environment, litigation, sales and the expected benefits of ~~acquisitions,~~our business strategy and strategic priorities, and such statements are based on the current beliefs and expectations of management, as applicable. 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 contain inherent risks and uncertainties. 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. We qualify all of our ~~forward looking~~forward-looking statements by these cautionary statements. You should, however, consult further disclosures we make in future filings and public disclosures, including without limitation, our Annual Report on Form 10-K ("Annual Report"), Quarterly Reports on Forms 10-Q, and Current Reports on Forms 8-K.

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Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

•the impact of damage to or interruption of our information technology systems due to cyber-attacks or other circumstances beyond our control

•the impact of the actual or perceived effects of the COVID-19 pandemic, including as a result of any additional variants of the virus or the efficacy and distribution of vaccines, on the ~~U.S.~~global pet health and ~~global economies,~~wellness industry, our employees, suppliers, customers and end consumers, which could adversely and materially impact our business, financial condition and results of ~~operations~~operations;

•business interruptions resulting from geopolitical actions, including war and terrorism;

•our ability to successfully implement our growth strategy;

•failure to achieve growth or manage anticipated growth;

•our ability to achieve or maintain profitability;

•the loss of key members of our senior management team;

•our ability to generate sufficient cash flow or raise capital on acceptable terms to run our operations, service our debt and make necessary capital expenditures;

•our ability to ~~maintain effective internal control over financial reporting;~~

•~~our ability to~~ successfully integrate Halo’s and TruPet’s ~~businesses and realize anticipated benefits with these acquisitions and with other acquisitions or investments we may make;~~brands;

•our dependence on our subsidiaries for payments, advances and transfers of funds due to our holding company status;

•our ability to successfully develop additional products and services or successfully market and commercialize such products and services;

•competition in our market;

•our ability to attract new and retain existing customers, suppliers, distributors or retail partners;

•allegations that our products cause injury or illness or fail to comply with government regulations;

•our ability to manage our supply chain effectively;

•our or our ~~third-party contract manufacturers’~~co-manufacturers’ and suppliers’ ability to comply with legal and regulatory requirements;

•the effect of potential price increases and shortages on the inputs, commodities and ingredients that we ~~require;~~require, whether as a result of the actual or perceived effects of the COVID-19 pandemic or broader geopolitical and macroeconomic conditions, including the military conflict between Russia and Ukraine;

•our ability to develop and maintain our brand and brand reputation;

•compliance with data privacy rules;

•our compliance with applicable regulations issued by the U.S. Food and Drug Administration (“FDA”), the U.S. Federal Trade Commission (“FTC”), the U.S. Department of Agriculture (“USDA”), and other federal, state and local regulatory authorities, including those regarding marketing pet food, products and supplements;

•risk of our products being recalled for a variety of reasons, including product defects, packaging safety and inadequate or inaccurate labeling disclosure;

•risk of shifting customer demand in relation to raw pet foods, premium kibble and canned pet food products, and failure to respond to such changes in customer taste quickly and effectively; and

•the other risks identified in this Quarterly Report including, without limitation, Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A “Risk Factors” as such factors may updated from time to time in our other public filings.

NOTE REGARDING TRADEMARKS

We own or have rights to use the trademarks and trade names that we use in conjunction with the operation of our business. Each trademark or trade name of any other company appearing in this Quarterly Report on Form 10-Q is, to our knowledge, owned by such other company. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

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PART I

ITEM 1. FINANCIAL STATEMENTS

Better Choice Company Inc.

Unaudited Condensed Consolidated Statements of Operations

(Dollars in thousands, except share and per share amounts)


		Nine Months Ended September 30,				Three Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net sales	Net sales	$	35,019	$	33,302	$	13,200	$	11,135	Net sales	$	11,865	$	13,200	$	45,394	$	35,019
Cost of goods sold	Cost of goods sold	22,407		20,563		8,762		6,678		Cost of goods sold	7,700		8,762		31,795		22,407
Gross profit	Gross profit	12,612		12,739		4,438		4,457		Gross profit	4,165		4,438		13,599		12,612
Operating expenses:	Operating expenses:									Operating expenses:
General and administrative		11,778		23,158		3,727		3,545
Sales and marketing		9,619		6,847		4,018		2,650
Selling, general and administrative										Selling, general and administrative	10,007		7,745		25,771		21,397
Share-based compensation	Share-based compensation	3,517		7,047		660		1,543		Share-based compensation	562		660		2,454		3,517
Total operating expenses	Total operating expenses	24,914		37,052		8,405		7,738		Total operating expenses	10,569		8,405		28,225		24,914
Loss from operations	Loss from operations	(12,302)		(24,313)		(3,967)		(3,281)		Loss from operations	(6,404)		(3,967)		(14,626)		(12,302)
Other expense (income):
Other (expense) income:										Other (expense) income:
Interest expense, net	Interest expense, net	3,148		7,268		79		2,537		Interest expense, net	(142)		(79)		(324)		(3,148)
(Gain) Loss on extinguishment of debt, net		(457)		88		—		88
Gain on extinguishment of debt, net										Gain on extinguishment of debt, net	—		—		—		457
Change in fair value of warrant liabilities										Change in fair value of warrant liabilities	—		590		—		23,463
Total other (expense) income, net										Total other (expense) income, net	(142)		511		(324)		20,772
Net (loss) income before income taxes										Net (loss) income before income taxes	(6,546)		(3,456)		(14,950)		8,470
Income tax expense										Income tax expense	1		—		4		—

Change in fair value of warrant liabilities		(23,463)		(2,118)		(590)		(4,213)
Total other (income) expense, net		(20,772)		5,238		(511)		(1,588)
Net income (loss)		8,470		(29,551)		(3,456)		(1,693)
Preferred dividends		—		103		—		35
Net income (loss) available to common stockholders		$	8,470	$	(29,654)	$	(3,456)	$	(1,728)
Net (loss) income available to common stockholders										Net (loss) income available to common stockholders	$	(6,547)	$	(3,456)	$	(14,954)	$	8,470

Weighted average number of shares outstanding, basic	Weighted average number of shares outstanding, basic	16,799,796		8,134,957		29,466,520		8,160,242		Weighted average number of shares outstanding, basic	29,364,712		29,466,520		29,339,918		16,799,796
Weighted average number of shares outstanding, diluted	Weighted average number of shares outstanding, diluted	23,685,351		8,134,957		29,466,520		8,160,242		Weighted average number of shares outstanding, diluted	29,364,712		29,466,520		29,339,918		23,685,351
Earnings (loss) per share, basic		$	0.48	$	(3.65)	$	(0.12)	$	(0.21)
Earnings (loss) per share, diluted		$	0.34	$	(3.65)	$	(0.12)	$	(0.21)
Net (loss) income per share available to common stockholders, basic										Net (loss) income per share available to common stockholders, basic	$	(0.22)	$	(0.12)	$	(0.51)	$	0.48
Net (loss) income per share available to common stockholders, diluted										Net (loss) income per share available to common stockholders, diluted	$	(0.22)	$	(0.12)	$	(0.51)	$	0.34

See accompanying notes to the unaudited condensed consolidated financial statements.

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Better Choice Company Inc.

Unaudited Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share amounts)


		September 30, 2021		December 31, 2020
		Unaudited		Audited			September 30, 2022		December 31, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	26,048	$	3,926	Cash and cash equivalents	$	5,652	$	21,729
Restricted cash	Restricted cash	7,213		63		Restricted cash	6,963		7,213
Accounts receivable, net	Accounts receivable, net	7,524		4,631		Accounts receivable, net	9,594		6,792
Inventories, net	Inventories, net	3,424		4,869		Inventories, net	11,611		5,245

Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,726		4,074		Prepaid expenses and other current assets	1,108		2,940
Total Current Assets	Total Current Assets	47,935		17,563		Total Current Assets	34,928		43,919
Property and equipment, net		168		252
Right-of-use assets, operating leases		68		345
Fixed assets, net						Fixed assets, net	421		369
Right-of-use assets, operating lease						Right-of-use assets, operating lease	186		56
Intangible assets, net	Intangible assets, net	11,968		13,115		Intangible assets, net	10,441		11,586
Goodwill	Goodwill	18,614		18,614		Goodwill	18,614		18,614
Other assets	Other assets	114		1,364		Other assets	110		116
Total Assets	Total Assets	$	78,867	$	51,253	Total Assets	$	64,700	$	74,660
Liabilities & Stockholders’ Equity (Deficit)
Liabilities & Stockholders’ Equity						Liabilities & Stockholders’ Equity
Current Liabilities	Current Liabilities					Current Liabilities
Term loans, net		$	780	$	7,826

PPP loans		—		190
Accounts payable						Accounts payable	$	3,852	$	4,553
Accrued and other liabilities	Accrued and other liabilities	1,607		3,400		Accrued and other liabilities	3,109		1,879
Accounts payable		4,047		3,137

Line of credit						Line of credit	640		—
Term loan, net						Term loan, net	1,282		855
Operating lease liability	Operating lease liability	52		173		Operating lease liability	51		54
Warrant liability		—		39,850
Total Current Liabilities	Total Current Liabilities	6,486		54,576		Total Current Liabilities	8,934		7,341
Non-current Liabilities	Non-current Liabilities					Non-current Liabilities
Notes payable, net		—		18,910
Term loans, net		4,779		—
Lines of credit, net		4,846		5,023
PPP loans		—		662
Line of credit, net						Line of credit, net	6,735		4,856
Term loan, net						Term loan, net	3,495		4,559
Deferred tax liability						Deferred tax liability	24		24
Operating lease liability	Operating lease liability	19		184		Operating lease liability	137		5
Total Non-current Liabilities	Total Non-current Liabilities	9,644		24,779		Total Non-current Liabilities	10,391		9,444
Total Liabilities	Total Liabilities	16,130		79,355		Total Liabilities	19,325		16,785
Stockholders’ Equity (Deficit)
Common Stock, $0.001 par value, 200,000,000 shares authorized, 29,241,317 and 8,651,400 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		29		9
Series F Preferred Stock, $0.001 par value, 30,000 shares authorized, — shares and 21,754 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Stockholders’ Equity						Stockholders’ Equity
Common Stock, $0.001 par value, 200,000,000 shares authorized, 29,364,712 and 29,146,367 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively						Common Stock, $0.001 par value, 200,000,000 shares authorized, 29,364,712 and 29,146,367 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	29		29
Additional paid-in capital	Additional paid-in capital	316,554		232,530		Additional paid-in capital	319,556		317,102
Accumulated deficit	Accumulated deficit	(253,846)		(260,641)		Accumulated deficit	(274,210)		(259,256)
Total Stockholders’ Equity (Deficit)		62,737		(28,102)
Total Liabilities and Stockholders’ Equity (Deficit)		$	78,867	$	51,253
Total Stockholders’ Equity						Total Stockholders’ Equity	45,375		57,875
Total Liabilities and Stockholders’ Equity						Total Liabilities and Stockholders’ Equity	$	64,700	$	74,660

See accompanying notes to the unaudited condensed consolidated financial statements.

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Better Choice Company Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~

(Dollars in thousands except shares)

Common Stock Series F Convertible Preferred Stock
Shares Amount Shares Amount Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’ (Deficit) Equity
Balance as of December 31, 2020 8,651,400 $ 9 21,754 $ — $ 232,530 $ (260,641) $ (28,102)
Shares and warrants issued pursuant to private placement 546,733 1 — — 4,071 — 4,072
Share-based compensation 17,537 — — — 2,544 — 2,544
Warrant exercises 297,383 — — — 1,310 — 1,310
Shares issued to third-party for services 5,000 — — — 46 — 46
Warrant modifications — — — 402 (402) —
Conversion of Series F shares to common stock 1,482,672 1 (4,448) — (1) — —
Net loss available to common stockholders — — — — — (12,850) (12,850)
Balance as of March 31, 2021 11,000,725 $ 11 17,306 $ — $ 240,902 $ (273,893) $ (32,980)
Warrant exercise 83,333 — — — 375 — 375
Conversion of Series F shares to common stock 4,000 — (12) — — — —
Conversion of convertible notes to common stock 4,732,420 5 — — 21,771 — 21,776
Share-based compensation — — — — 313 — 313
Shares issued in lieu of fractional shares due to reverse stock split 1,081 — — — — — —
Net income available to common stockholders — — — — — 24,776 24,776
Balance as of Balance as of June 30, 2021 15,821,559 $ 16 17,294 $ — $ 263,361 $ (249,117) $ 14,260
Shares issued pursuant to IPO 8,000,000 8 — — 36,152 — 36,160
Conversion of Series F shares to common stock 5,764,533 6 (17,294) — (6) — —
Reclassification of warrant liability to equity — — — — 16,387 — 16,387
Share repurchases (344,775) (1) — — — (1,273) (1,274)
Share-based compensation — — — — 660 — 660
Net loss available to common stockholders — — — — — (3,456) (3,456)
Balance as of Balance as of September 30, 2021 29,241,317 $ 29 — $ — $ 316,554 $ (253,846) $ 62,737


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
Balance as of December 31, 2021	29,146,367	$	29	$	317,102	$	(259,256)	$	57,875

Share-based compensation	218,345	—		1,091		—		1,091




Net loss available to common stockholders	—	—		—		(4,040)		(4,040)
Balance as of March 31, 2022	29,364,712	$	29	$	318,193	$	(263,296)	$	54,926



Share-based compensation	—	—		801		—		801

Net loss available to common stockholders	—	—		—		(4,367)		(4,367)
Balance as of Balance as of June 30, 2022	29,364,712	$	29	$	318,994	$	(267,663)	$	51,360




Share-based compensation	—	—		562		—		562
Net loss available to common stockholders	—	—		—		(6,547)		(6,547)
Balance as of Balance as of September 30, 2022	29,364,712	$	29	$	319,556	$	(274,210)	$	45,375

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Common Stock Redeemable Series E
Convertible Preferred Stock
Shares Amount Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’ Deficit Shares Amount
Balance as of December 31, 2019 7,996,232 $ 8 $ 194,190 $ (201,269) $ (7,071) 1,387,378 $ 10,566
Shares issued pursuant to a private placement 51,440 — 500 — 500 — —
Share-based compensation 75,993 1 2,484 — 2,485 — —
Shares and warrants issued to third party for contract termination 12,120 — 198 — 198 — —
Shares issued to third parties for services 20,833 — 125 — 125 — —
Warrants issued to third parties for services — — 2,594 — 2,594 — —
Net loss available to common stockholders — — — (9,488) (9,488) — —
Balance as of March 31, 2020 8,156,618 $ 9 $ 200,091 $ (210,757) $ (10,657) 1,387,378 $ 10,566
Warrants issued to third parties for services — — 7,390 — 7,390 — —
Share-based compensation — — 3,020 — 3,020 — —
Warrants issued in connection with June 2020 Notes — — 337 — 337 — —
Beneficial conversion feature of June 2020 Notes — — 1,163 — 1,163 — —
Modification of conversion feature
for November 2019 Notes, Seller Notes, and ABG Notes — — 528 — 528 — —
Modification of warrants — — 43 — 43 — —
Net loss available to common stockholders — — — (18,438) (18,438) — —
Balance as of June 30, 2020 8,156,618 $ 9 $ 212,572 $ (229,195) $ (16,614) 1,387,378 $ 10,566
Shares issued pursuant to warrant exercise 33,334 — — — — — —
Share-based compensation — — 1,543 — 1,543 — —
Warrants issued in connection with ABL Facility — — 230 — 230 — —
Net loss available to common stockholders — — — (1,728) (1,728) — —
Balance as of September 30, 2020 8,189,952 $ 9 $ 214,345 $ (230,923) $ (16,569) 1,387,378 $ 10,566


	Common Stock			Series F Convertible Preferred Stock
	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ (Deficit) Equity
Balance as of December 31, 2020	8,651,400	$	9	21,754	$	—	$	232,530	$	(260,641)	$	(28,102)
Shares and warrants issued pursuant to private placement	546,733	1		—	—		4,071		—		4,072
Share-based compensation	17,537	—		—	—		2,544		—		2,544
Warrant exercises	297,383	—		—	—		1,310		—		1,310
Shares issued to third-party for services	5,000	—		—	—		46		—		46
Warrant modifications	—	—		—			402		(402)		—
Conversion of Series F shares to common stock	1,482,672	1		(4,448)	—		(1)		—		—
Net loss available to common stockholders	—	—		—	—		—		(12,850)		(12,850)
Balance as of March 31, 2021	11,000,725	$	11	17,306	$	—	$	240,902	$	(273,893)	$	(32,980)
Warrant exercise	83,333	—		—	—		375		—		375
Conversion of Series F shares to common stock	4,000	—		(12)	—		—		—		—
Conversion of convertible notes to common stock	4,732,420	5		—	—		21,771		—		21,776
Share-based compensation	—	—		—	—		313		—		313
Shares issued in lieu of fractional shares due to reverse stock split	1,081	—		—	—		—		—		—
Net income available to common stockholders	—	—		—	—		—		24,776		24,776
Balance as of June 30, 2021	15,821,559	$	16	17,294	$	—	$	263,361	$	(249,117)	$	14,260
Shares issued pursuant to IPO	8,000,000	8		—	—		36,152		—		36,160
Conversion of Series F shares to common stock	5,764,533	6		(17,294)	—		(6)		—		—
Reclassification of warrant liability to equity	—	—		—	—		16,387		—		16,387
Share repurchases	(344,775)	(1)		—	—		—		(1,273)		(1,274)
Share-based compensation	—	—		—	—		660		—		660
Net loss available to common stockholders	—	—		—	—		—		(3,456)		(3,456)
Balance as of September 30, 2021	29,241,317	$	29	—	$	—	$	316,554	$	(253,846)	$	62,737

See accompanying notes to the unaudited condensed consolidated financial statements.

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Better Choice Company Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash Flow from Operating Activities:	Cash Flow from Operating Activities:					Cash Flow from Operating Activities:
Net income (loss) available to common stockholders		$	8,470	$	(29,654)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) income available to common stockholders						Net (loss) income available to common stockholders	$	(14,954)	$	8,470
Adjustments to reconcile net (loss) income to net cash used in operating activities:						Adjustments to reconcile net (loss) income to net cash used in operating activities:
Shares and warrants issued to third parties for services	Shares and warrants issued to third parties for services	46		10,182		Shares and warrants issued to third parties for services	—		46

Depreciation and amortization	Depreciation and amortization	1,255		1,298		Depreciation and amortization	1,265		1,255
Amortization of debt issuance costs and discounts	Amortization of debt issuance costs and discounts	1,785		3,723		Amortization of debt issuance costs and discounts	39		1,785
Share-based compensation	Share-based compensation	3,517		7,047		Share-based compensation	2,454		3,517

Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(23,463)		(2,118)		Change in fair value of warrant liabilities	—		(23,463)
PIK interest expense on notes payable		1,110		1,465
Payable-in-kind interest expense on notes payable						Payable-in-kind interest expense on notes payable	—		1,110

Amortization of prepaid advertising		891		—
Amortization of prepaid assets						Amortization of prepaid assets	2,095		891
Other	Other	(981)		772		Other	638		(981)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(2,893)		195		Accounts receivable, net	(2,901)		(2,893)
Inventories, net	Inventories, net	1,445		1,458		Inventories, net	(6,877)		1,445
Prepaid expenses and other assets	Prepaid expenses and other assets	680		224		Prepaid expenses and other assets	(257)		680

Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(8)		691		Accounts payable and accrued liabilities	466		(8)

Other	Other	(174)		194		Other	60		(174)
Cash Used in Operating Activities	Cash Used in Operating Activities	$	(8,320)	$	(4,523)	Cash Used in Operating Activities	$	(17,972)	$	(8,320)

Cash Flow from Investing Activities
Cash Flow from Investing Activities:						Cash Flow from Investing Activities:

Acquisition of property and equipment		$	(124)	$	(42)
Capital expenditures						Capital expenditures	$	(198)	$	(124)
Cash Used in Investing Activities	Cash Used in Investing Activities	$	(124)	$	(42)	Cash Used in Investing Activities	$	(198)	$	(124)

Cash Flow from Financing Activities
Cash Flow from Financing Activities:						Cash Flow from Financing Activities:
Proceeds from shares and warrants issued pursuant to private placement, net	Proceeds from shares and warrants issued pursuant to private placement, net	$	4,012	$	—	Proceeds from shares and warrants issued pursuant to private placement, net	$	—	$	4,012

Share repurchases	Share repurchases	(1,274)		—		Share repurchases	—		(1,274)
Proceeds from issuance of debt		—		2,352

Proceeds from revolving lines of credit	Proceeds from revolving lines of credit	5,535		6,624		Proceeds from revolving lines of credit	7,500		5,535
Payments on revolving lines of credit	Payments on revolving lines of credit	(5,883)		(6,297)		Payments on revolving lines of credit	(5,000)		(5,883)
Proceeds from term loan	Proceeds from term loan	6,000		—		Proceeds from term loan	—		6,000
Payments on term loans	Payments on term loans	(8,379)		—		Payments on term loans	(650)		(8,379)

Proceeds from investor prepayment		—		1,518

Cash received for warrant exercises	Cash received for warrant exercises	1,685		—		Cash received for warrant exercises	—		1,685
IPO proceeds, net	IPO proceeds, net	36,160		—		IPO proceeds, net	—		36,160
Debt issuance costs	Debt issuance costs	(140)		(85)		Debt issuance costs	(7)		(140)
Cash Provided by Financing Activities	Cash Provided by Financing Activities	$	37,716	$	4,112	Cash Provided by Financing Activities	$	1,843	$	37,716

Net (decrease) increase in cash and cash equivalents and restricted cash	Net (decrease) increase in cash and cash equivalents and restricted cash	$	29,272	$	(453)	Net (decrease) increase in cash and cash equivalents and restricted cash	$	(16,327)	$	29,272
Total cash and cash equivalents and restricted cash, beginning of period	Total cash and cash equivalents and restricted cash, beginning of period	3,989		2,534		Total cash and cash equivalents and restricted cash, beginning of period	28,942		3,989
Total cash and cash equivalents and restricted cash, end of period	Total cash and cash equivalents and restricted cash, end of period	$	33,261	$	2,081	Total cash and cash equivalents and restricted cash, end of period	$	12,615	$	33,261

Supplemental cash flow information:
Nine Months Ended September 30,
2021 2020
Cash paid during the period for:
Interest $ 292 $ 1,729
Non-cash financing and investing transactions
Stock issued for services $ — $ 125
ABL guarantor warrants $ — $ 230


	Nine Months Ended September 30,
	2022		2021
Cash paid during the period for:

Interest	$	279	$	292

See accompanying notes to the unaudited condensed consolidated financial statements.

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Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Nature of business and summary of significant accounting policies

Nature of the business

Better Choice Company Inc. (the "Company") is a ~~growing~~ pet health and wellness company focused on providing pet products and services that help dogs and cats live healthier, happier and longer lives. The Company sells its product offerings under the Halo and TruDog brands, which have a long history of providing high quality products to pet parents. The Company believes its portfolio of brands are well-positioned to benefit from the trends of growing pet humanization and an increased consumer focus on health and wellness, and the Company has adopted a laser focused, channel-specific approach to growth that is driven by new product innovation. The Company has a broad portfolio of ~~premium and super-premium~~ pet health and wellness products for dogs and cats sold under its Halo ~~and TruDog brands~~brand across multiple forms, including foods, treats, toppers, dental products, chews ~~grooming products~~ and supplements. The products consist of ~~naturally formulated premium~~ kibble and canned dog and cat food, freeze-dried raw dog food and treats, vegan dog food and treats, oral care products ~~supplements~~ and grooming aids. The core products sold under the Halo brand are sustainably sourced, derived from real whole meat and no rendered meat meal and include non-genetically modified fruits and vegetables. The core products sold under the TruDog brand are made according to the Company's nutritional philosophy of fresh, meat-based nutrition and minimal processing.

~~Reverse stock split~~

On May 28, 2021, stockholders holding a majority of the voting power of the Company approved, by way of a written consent resolution, for the authorization of the Company's board of directors, in its sole and absolute discretion, and without further action of the stockholders, to file an amendment to the Company’s amended and restated certificate of incorporation to affect a reverse stock split of its common stock at a ratio in the range of 1-for-3 to 1-for-10 at any time prior to December 31, 2021. On June 10, 2021 the Company's board of directors set the reverse stock split ratio at 1-for-6 (the "Reverse Stock Split") and approved the Reverse Stock Split to be effectuated by the Company immediately following the effectiveness of the Company's registration statement related to the Company's IPO (as defined below), which became effective on June 28, 2021.

As a result of the Reverse Stock Split, every six shares of the Company’s common stock was combined and converted into one share of the Company’s common stock as of June 28, 2021. In addition, the conversion rates of the Company's outstanding preferred stock and convertible notes and the exercise prices of the Company’s underlying common stock purchase warrants and stock options were proportionately adjusted at the applicable reverse stock split ratio in accordance with the terms of such instruments. Proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split, other than as a result of the rounding up of fractional shares. The Company issued 1,081 shares of common stock in lieu of fractional shares in connection with the Reverse Stock Split.

Accordingly, all share and per share amounts related to the Company's common stock and underlying derivatives for all periods presented in the accompanying unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the Reverse Stock Split. The number of authorized shares and the par values of the common stock and convertible preferred stock were not adjusted as a result of the Reverse Stock Split.

~~Initial public offering~~

On June 28, 2021, the Company’s registration statement on Form S-1 for its underwritten initial public offering (the “IPO”) was declared effective by the SEC, and the Company's common stock commenced trading on the NYSE American ("NYSE") on June 29, 2021. Upon commencement of the trading of the Company's common stock on the NYSE on June 29, 2021, all of the Company's outstanding convertible notes payable automatically converted into 4,732,420 shares of common stock.

In connection with the IPO, which closed on July 1, 2021, the Company issued and sold 8,000,000 shares of its common stock at a price of $5.00 per share. The total net proceeds from the IPO were approximately $36.2 million, after deducting underwriting discounts and commissions of $2.8 million, and offering costs of approximately $1.0 million. The Company plans to use the net proceeds of this IPO for general corporate purposes. The Company may also elect to use proceeds from the IPO to acquire complimentary technologies, products or businesses, although the Company is not a party to any letters of intent or definitive agreements for any such acquisition.

Upon the consummation of the IPO on July 1, 2021, all shares of the Series F convertible preferred stock were converted into 5,764,533 shares of common stock. Additionally, since the anti-dilution provision of the Series F Warrants were no longer effective upon consummation of the Company's IPO, these warrants met the requirements to be considered equity and the outstanding Series F Warrants were reclassified as such.

~~Table of Contents~~

supplements.

Basis of presentation

The Company’s condensed consolidated financial statements are prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reports and accounting principles generally accepted in the United States ("GAAP"). Accordingly, the Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements. Results of operations for interim periods may not be representative of results to be expected for the full year.

~~Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no material effect on the reported results.~~

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the ~~Company’s~~Company's Annual Report for the year ended December 31, ~~2020,~~2021, filed with the SEC.

Consolidation

The condensed financial statements are presented on a consolidated basis ~~subsequent to acquisitions~~ and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates.

In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations for the periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, the financial position as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 and the cash flows for the periods ended September 30, ~~2021~~2022 and ~~2020.~~2021.

Summary of significant accounting policies

For additional information, please refer to the most recently filed Annual Report regarding the Company's summary of significant accounting policies.

~~Cash and cash equivalents~~

Cash and cash equivalents include demand deposits held with banks and highly liquid investments with original maturities of ninety days or less at acquisition date. Cash and cash equivalents are stated at cost, which approximates fair value because of the short-term nature of these instruments. Our cash equivalents are held in government money market funds and at times may exceed federally insured limits. For purposes of reporting cash flows, the Company considers all cash accounts that are not subject to withdrawal restrictions or penalties to be cash and cash equivalents.

~~Restricted cash~~

The Company was required to maintain a restricted cash balance of less than $0.1 million as of September 30, 2021 and December 31, 2020, respectively, associated with a business credit card and credit card clearance operations. The Company was required to maintain a restricted cash balance of $7.2 million as of September 30, 2021 in connection with the amendment to the Wintrust Credit Facility (as defined below). See "Note 7 - Debt" for additional information.

~~Share repurchases~~

In August 2021, the Company's Board of Directors approved a share repurchase program that authorizes the repurchase of up to $2.0 million of the Company's outstanding common stock in the open market through December 31, 2021. Repurchased shares are immediately retired and returned to unissued status. During the nine months ended September 30, 2021, 344,775 shares were repurchased for $1.3 million, inclusive of broker's commissions.

Advertising

The Company charges advertising costs to expense as incurred and such charges are included in ~~sales~~selling, general and ~~marketing expenses in the Consolidated Statements of Operations.~~administrative ("SG&A") expenses. The Company's advertising expenses consist primarily of online advertising, search costs, email advertising, and radio advertising. In addition, ~~we reimburse our~~the Company reimburses its customers and third parties for in store activities and record these costs as ~~sales and marketing~~advertising expenses. Advertising costs were ~~$3.0~~$4.8 million and ~~$7.3~~$10.0 million for the three and nine months ended September 30, 2022, respectively, of which $2.1 million is related to the amortization of the prepaid advertising contract with iHeart for both the three and nine months ended September 30, 2022. Advertising costs were $2.9 million and $7.0 million for the three and nine months ended September 30, 2021, respectively, ~~and $1.8~~of which $0.9 million ~~and $4.4 million~~is related to the amortization of the prepaid advertising contract with iHeart for both the three and nine months ended September 30, ~~2020, respectively.~~2021. See "Note 4 - Prepaid expenses and other current assets" for additional information on the prepaid advertising contract with iHeart.

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Share repurchases

On May 10, 2022, the Company's board of directors approved a share repurchase program that authorizes the repurchase of up to $3.0 million of the Company's outstanding common stock in the open market through December 31, 2022. Repurchased shares are immediately retired and returned to unissued status. During the nine months ended September 30, 2022 no shares were repurchased.

New accounting standards

~~Recently adopted~~

~~ASU 2020-03 “Codification Improvements to Financial Instruments”~~

In March 2020, FASB issued Accounting Standards Update ("ASU") 2020-03, Codification Improvement to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates, some of which were effective for the Company beginning on January 1, 2021. The amendments adopted did not have a material impact on the Company’s condensed 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 new guidance was effective for the Company beginning on January 1, 2021 and did not have an impact on the Company’s condensed consolidated financial statements.

Issued 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 2016-13, ~~“Financial Instruments - Credit Losses (Topic 326),”~~ a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for the Company on January 1, 2023, and early adoption is permitted. The Company is currently evaluating the impact the standard, including subsequent updates, will have on its consolidated financial statements and related ~~disclosures.~~

~~ASU 2020-04 “Reference Rate Reform (Topic 848), Facilitation of~~disclosures, but does not expect the ~~Effects of Reference Rate Reform on Financial Reporting”~~

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ~~ease~~have a significant impact on the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company is currently evaluating the impact the standard will have on its consolidated financial ~~statements and related disclosures.~~statements.

Note 2 - Revenue

The Company records revenue net of discounts, which primarily consist of trade promotions, certain customer allowances and early pay ~~discounts, general percentage allowances and contractual trade promotions.~~discounts.

The Company excludes sales taxes collected from revenues. Retail-partner based customers are not subject to sales tax.

The Company’s direct-to-consumer ("DTC") loyalty program enables customers to accumulate points based on their spending. A portion of revenue is deferred at the time of sale when points are earned and recognized when the loyalty points are redeemed.

~~Shipping costs~~

Shipping costs associated with moving finished products to customers were $1.2 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively, and $0.3 million and $0.4 million for the three months ended September 30, 2021 and 2020, respectively. Such shipping costs are recorded as part of general and administrative expenses.

~~Table of Contents~~

Revenue channels

The Company groups its revenue channels into four ~~distinct~~ categories: ~~E-Commerce,~~E-commerce, which includes the sale of product to online retailers such as Amazon and Chewy; Brick & Mortar, which primarily includes the sale of product to ~~pet specialty chains~~Pet Specialty retailers such as Petco, ~~PetSmart, select grocery chains,~~Pet Supplies Plus and neighborhood pet ~~stores;~~stores, as well as to select grocery chains; DTC, which includes the sale of product through the Company's ~~online web platform to more than 20,000 unique customers;~~website; and International, which includes the sale of product to foreign distribution partners and to select international retailers (transacted in U.S. dollars).

Information about the Company’s net sales by revenue channel is as follows (in thousands):


		Nine Months Ended September 30,								Three Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020					2022				2021				2022				2021
E-commerce(1)	E-commerce(1)	$	11,644	33	%	$	10,969	33	%	$	4,742	36	%	$	3,510	32	%	E-commerce(1)	$	3,530	30	%	$	4,742	36	%	$	11,035	24	%	$	11,644	33	%
Brick & Mortar(2)	Brick & Mortar(2)	5,408		16	%	6,725		20	%	1,816		14	%	1,953		17	%	Brick & Mortar(2)	1,342		11	%	1,816		14	%	9,632		21	%	5,408		16	%
DTC	DTC	7,140		20	%	8,198		25	%	2,363		18	%	2,672		24	%	DTC	1,371		12	%	2,363		18	%	5,066		11	%	7,140		20	%
International(3)	International(3)	10,827		31	%	7,410		22	%	4,279		32	%	3,000		27	%	International(3)	5,622		47	%	4,279		32	%	19,661		44	%	10,827		31	%
Net Sales	Net Sales	$	35,019	100	%	$	33,302	100	%	$	13,200	100	%	$	11,135	100	%	Net Sales	$	11,865	100	%	$	13,200	100	%	$	45,394	100	%	$	35,019	100	%

(1)The Company's E-commerce channel includes two customers that amounted to greater than 10% of the Company's total net sales during the three and nine months ended September 30, 2022. These customers had an aggregate of $3.3 million and $10.6 million of net sales during the three and nine months ended September 30, 2022, respectively. Two customers amounted to greater than 10% of the Company's total net sales during the three and nine months ended September 30, 2021, respectively. These customers had an aggregate of $4.4 million and $10.8 million of net sales during the three and nine months ended September 30, 2021, respectively.

(2)The Company's Brick & Mortar channel includes $4.3 million of net sales from one customer that amounted to greater than 10% of the Company's total net sales during the nine months ended September 30, 2022.

(3)One of the Company's International customers that distributes products in China amounted to greater than 10% of the Company's total net sales during the three and nine months ended September 30, 2022 and represented $5.3 million and $16.6 million of net sales, respectively. One of the Company's International customers in China represented greater than 10% of net sales during the three and nine months ended September 30, 2021 and represented $2.9 million and $6.7 million of net sales, respectively.

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Note 3 - Inventories

Inventories are summarized as follows (in thousands):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Food, treats and supplements	Food, treats and supplements	$	3,150	$	4,987	Food, treats and supplements	$	10,948	$	4,666
Inventory packaging and supplies	Inventory packaging and supplies	637		596		Inventory packaging and supplies	1,414		1,028

Total Inventories	Total Inventories	3,787		5,583		Total Inventories	12,362		5,694
Inventory reserve(1)	Inventory reserve(1)	(363)		(714)		Inventory reserve(1)	(751)		(449)
Inventories, net	Inventories, net	$	3,424	$	4,869	Inventories, net	$	11,611	$	5,245

(1)The increase in the Company's inventory reserve is attributable to the Company's rebranding initiatives.

Note 4 - Prepaid expenses and other current assets

Prepaid expenses and other current assets are summarized as follows (in thousands):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Prepaid advertising contract with iHeart (1)	Prepaid advertising contract with iHeart (1)	$	2,095	$	1,788	Prepaid advertising contract with iHeart (1)	$	—	$	2,095
Other prepaid expenses and other current assets ~~(2)~~	Other prepaid expenses and other current assets ~~(2)~~	1,631		2,286		Other prepaid expenses and other current assets ~~(2)~~	1,108		845
Total Prepaid expenses and other current assets	Total Prepaid expenses and other current assets	$	3,726	$	4,074	Total Prepaid expenses and other current assets	$	1,108	$	2,940

(1)On August 28, 2019, the Company entered into a radio advertising agreement with iHeart Media + Entertainment, Inc. ("iHeart") and issued 166,667 shares of common stock valued at $3.4 million for future advertising services. The Company issued an additional 20,834 shares valued at $0.1 million on March 5, 2020 pursuant to the agreement. The current portion of the remaining value, reflected above, is the remaining value of services that the Company expects to utilize within the twelve months following the reporting period date, unless the term is extended. ~~There was a long-term portion of $1.2 million recorded in other non-current assets as of December 31, 2020.~~

~~(2) As of~~The Company utilized the remaining advertising services during the three months ended September 30, 2021, this amount includes various other prepaid contracts. In December 2020, the Company entered into an agreement for access to an investment platform in exchange for 83,334 shares of common stock valued at $0.6 million and also entered into an agreement for marketing services in exchange for 83,334 shares of common stock valued at $0.5 million, both of which are being amortized over 12 months.2022.

~~Table of Contents~~

Note 5 - Accrued and other liabilities

Accrued and other liabilities consist of the following (in thousands):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Accrued professional fees		$	197	$	697
Accrued sales tax		136		1,009
Accrued taxes						Accrued taxes	$	107	$	139
Accrued payroll and benefits	Accrued payroll and benefits	939		913		Accrued payroll and benefits	870		755
Accrued trade promotions		44		106
Accrued trade promotions and advertising						Accrued trade promotions and advertising	662		119
Accrued interest	Accrued interest	23		86		Accrued interest	45		25
Accrued commissions						Accrued commissions	281		—
Deferred revenue	Deferred revenue	182		350		Deferred revenue	297		225
Short-term financing						Short-term financing	289		—
Other	Other	86		239		Other	558		616
Total accrued and other liabilities	Total accrued and other liabilities	$	1,607	$	3,400	Total accrued and other liabilities	$	3,109	$	1,879

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Note 6 - ~~Intangible assets, royalties,~~Goodwill and ~~goodwill~~

~~Intangible assets~~

~~The Company’s~~ intangible assets ~~(in thousands) and related useful lives (in years) are as follows:~~

September 30, 2021 December 31, 2020
Estimated useful life Gross
carrying
amount Accumulated
amortization Net carrying
amount Accumulated
amortization Net carrying
amount
Customer relationships 7 $ 7,190 $ (1,831) $ 5,359 $ (1,059) $ 6,131
Trade name 15 7,500 (891) 6,609 (516) 6,984
Total intangible assets $ 14,690 $ (2,722) $ 11,968 $ (1,575) $ 13,115

~~Amortization expense was $0.4 million and $1.2 million for both the three and nine months ended September 30, 2021 and 2020, respectively.~~

~~The estimated future amortization of intangible assets over the remaining weighted average useful life of 9.6 years is as follows (in thousands):~~

Remainder of 2021 $ 382
2022 1,527
2023 1,527
2024 1,527
2025 1,527
Thereafter 5,478
$ 11,968

~~There were no indicators or impairment of the intangible assets as of September 30, 2021.~~

Goodwill

Goodwill was $18.6 million as of September 30, ~~2021~~2022 and December 31, ~~2020, respectfully. The~~2021, respectively. Goodwill is evaluated for impairment if an event occurs or circumstances change that indicate the carrying value of a reporting unit may not be recoverable. During July 2022, the Company completed a legal merger of TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc. ("TruPet"), and Halo, Purely for Pets, Inc., a wholly owned subsidiary of Better Choice Company Inc. ("Halo"), with Halo as the surviving entity in connection with the execution of rebranding its former TruDog brand under the Halo brand umbrella. In conjunction with the legal merger and rebranding, the Company performed an analysis of its reporting units and concluded it has one reporting unit after the legal merger and rebrand, and as such, the Company performed a quantitative goodwill assessment ~~for its annual impairment test~~ as of ~~October~~July 1, ~~2020.~~2022. Under the quantitative approach, the Company makes various estimates and assumptions to determine the estimated fair value of the reporting unit using a combination of a discounted cash flow model and ~~earnings multiples for~~a guideline ~~public companies.~~comparable analysis. The fair value measurements used in the impairment review of goodwill are Level 3 measurements which include unobservable inputs that are supported by little, infrequent or no market activity and reflect management’s own assumptions. Key assumptions used in the discounted cash flow analysis included a discount rate, forecasted operating results and long-term growth rates; key assumptions used in the guideline comparable analysis include the determination of comparable companies and market multiples. As a result of the Company's quantitative analysis, no impairment charge was recorded as the fair value of the reporting unit exceeded the carrying value.

During the period from July 2, 2022 through September 30, 2022, there was a decline in the Company's stock price and a change in the Company's Chief Executive Officer ("CEO"), and as such, the Company determined there were triggering events present during the interim period. The Company performed a qualitative analysis around its market capitalization and determined the decline in stock price is not indicative of its operating results and that the decline in market value from July 2,2022 to September 30, 2022 was not of sufficient duration to indicate impairment. Additionally, the Company performed other qualitative analyses which considered the potential impacts of the change in CEO and other known information that could cause a change in the assumptions used in the July 1, 2022 assessment. As a result of the Company's qualitative analysis, it was concluded that it was more-likely-than-not that the carrying value of the reporting unit did not exceed the fair value and no impairment charge was recorded. As of September 30, 2022 and December 31, 2021, there was no accumulated impairment loss and no impairment expense related to ~~goodwill~~goodwill. If global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or projected operating margins decline, weighted average cost of capital increases, or if the Company has a further sustained decline in its stock price, it is possible this could result in a material impairment charge.

Intangible assets

The Company’s intangible assets (in thousands) and ~~no indicators, events or changes in circumstances that would indicate goodwill~~related useful lives (in years) are as follows:


				September 30, 2022				December 31, 2021
	Estimated useful life	Gross carrying amount		Accumulated amortization		Net carrying amount		Accumulated amortization		Net carrying amount
Customer relationships	7	$	7,190	$	(2,858)	$	4,332	$	(2,088)	$	5,102
Trade name	15	7,500		(1,391)		6,109		(1,016)		6,484
Total intangible assets		$	14,690	$	(4,249)	$	10,441	$	(3,104)	$	11,586

Amortization expense was ~~impaired during~~$0.4 million and $1.2 million for the ~~period from October 2, 2020 through~~three and nine months ended September 30, ~~2021.~~2022 and 2021, respectively.

The estimated future amortization of intangible assets over the remaining weighted average useful life of 8.9 years is as follows (in thousands):


Remainder of 2022	$	382
2023	1,527
2024	1,527
2025	1,527
2026	1,494
Thereafter	3,984
	$	10,441

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The Company assesses intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. If impairment indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-lived assets to their carrying value. Based on the potential impairment indicators described above, the Company performed an assessment of its intangible assets at the end of the reporting period and determined that the undiscounted cash flows of the intangible asset group exceeded the carrying value, and as such, there has been no impairment of the intangible assets as of September 30, 2022.

Note 7 - Debt

The components of the Company’s debt consist of the following (in thousands):

Dollars in thousands September 30, 2021 December 31, 2020
Amount Rate Maturity
Date Amount Rate Maturity
Date
Term loan, net $ 5,559 (1) 1/6/2024 $ 7,826 (2) 1/15/2021
Line of credit, net 4,846 (1) 1/6/2024 5,023 (3) 7/5/2022
November 2019 notes payable, net (November 2019 Notes) — — % (4) 2,830 10 % 6/30/2023
December 2019 senior notes payable, net (Senior Seller Notes) — — % (4) 10,332 10 % 6/30/2023
December 2019 junior notes payable, net (Junior Seller Notes) — — % (4) 4,973 10 % 6/30/2023
ABG Notes — — % (4) 687 10 % 6/30/2023
June 2020 notes payable, net (June 2020 Notes) — — % (4) 88 10 % 6/30/2023
Halo PPP Loan — — % (4) 431 1 % 5/3/2022
TruPet PPP Loan — — % (4) 421 0.98 % 4/6/2022
Total debt 10,405 32,611
Less current portion 780 8,016
Total long term debt $ 9,625 $ 24,595


		September 30, 2022			December 31, 2021
	Maturity Date	Amount		Rate	Amount		Rate
Term loan, net	1/6/2024	$	4,777	(1)	$	5,414	(2)
Line of credit, net	1/6/2024	7,375		(1)	4,856		(2)







Total debt		12,152			10,270
Less current portion		1,922			855
Total long term debt		$	10,230		$	9,415

(1)Interest at a variable rate of the daily Federal Funds Rate plus 285 basis points with an interest rate floor of 2.50% per annum.

(2)Interest at a variable rate of LIBOR plus 250 basis points with an interest rate floor of 2.50% per ~~annum~~

~~(2)Interest at Bank of Montreal Prime plus 8.05%~~

~~(3)Interest at a variable rate of LIBOR plus 250 basis points with an interest rate floor of 3.25% per annum~~

~~(4)~~Converted to common stock upon commencement of the trading of the Company's common stock on the NYSE on June 29, 2021. See "Note 1 - Nature of business and summary of significant accounting policies" for additional information.annum.

Term loans and lines of credit

The term loan balance of $7.8 million at December 31, 2020 was related to the Company's prior loan facilities agreement and after the fifth amendment to that agreement was entered into on November 25, 2020, the term loan maturity date was extended to January 15, 2021.

On July 16, 2020, the Company entered into a revolving line of credit with Citizens Business Bank in the aggregate amount of $7.5 million (the “ABL Facility”). The ABL Facility was scheduled to mature on July 5, 2022 and accrued interest at a variable rate of LIBOR plus 250 basis points, with an interest rate floor of 3.25% per annum. Accrued interest on the ABL Facility was payable monthly commencing on August 5, 2020. The ABL Agreement provided for customary financial covenants, such as maintaining a specified adjusted EBITDA and a maximum senior debt leverage ratio, that commenced on December 31, 2020 and customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The ABL Facility was secured by a general security interest on the assets of the Company and was personally guaranteed by a member of the Company’s board of directors. The Company prepaid all the outstanding principal and accrued interest under the ABL Facility in full and did not incur any prepayment charges.

On January 6, 2021, Halo ~~Purely for Pets, Inc., a wholly owned subsidiary of Better Choice Company Inc. ("Halo")~~ entered into a credit facility with Old Plank Trail Community Bank, N.A., an affiliate of Wintrust Bank, N.A. (“Wintrust”) consisting of a $6.0 million term loan and a $6.0 million revolving line of credit, each scheduled to mature on January 6, 2024 and each ~~bear~~bore interest at a variable rate of LIBOR plus 250 basis points, with an interest rate floor of 2.50% per annum (the "Wintrust Credit Facility"). The Second Wintrust Amendment described below updated the rate at which the Wintrust Credit Facility bore interest to the greater of the daily U.S. Federal Funds Rate plus 285 basis points, or the interest rate floor, which remained unchanged. The Third Wintrust Amendment described below updated the interest rate on the Wintrust Credit Facility to the U.S. Federal Funds Rate plus 375 basis points, with an interest rate floor of 3.75% and extends the maturity date of the Wintrust Credit Facility from January 6, 2024 to October 31, 2024. Accrued interest on the Wintrust Credit Facility is payable monthly ~~commencing~~which commenced on February 1, 2021. Principal payments ~~are~~were required to be made monthly on the term loan commencing February 2021 with a balloon payment upon ~~maturity.~~the original maturity date. The proceeds from the Wintrust Credit Facility were used (i) to repay outstanding principal, interest and fees under the ~~ABL Facility~~previous revolving line of credit with Citizens Business Bank (the "ABL Facility") and (ii) for general corporate purposes. The Company applied extinguishment accounting to the outstanding balances of the term loan and ABL Facility and recorded a loss on extinguishment of debt of $0.4 million during the three months ended March 31, 2021. Debt issuance costs of $0.1 million were incurred related to the Wintrust Credit Facility.

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The Wintrust Credit Facility ~~subjects~~subjected the Company to certain financial covenants, including the maintenance of a fixed charge coverage ratio of no less than 1.25 to 1.00, tested as of the last day of each fiscal quarter. The numerator in the fixed charge coverage ratio iswas the operating cash flow of Halo, defined as Halo EBITDA less cash paid for unfinanced Halo capital expenditures, income taxes and dividends. The denominator iswas fixed charges such as interest expense and principal payments paid or payable on other indebtedness attributable to Halo. As of December 31, 2021, the Company failed to satisfy the fixed charge coverage ratio and entered into a default waiver agreement with Wintrust in which Wintrust waived the existing default through the next testing date, March 31, 2022. As part of the Second Wintrust Amendment described below, the financial covenants were amended to subject the Company to a minimum liquidity covenant test in lieu of a fixed charge coverage ratio which required the Company to maintain liquidity, tested on the last day of each fiscal quarter beginning March 31, 2022, of no less than (i) $13.0 million as of the last day of each fiscal quarter ending March 31, 2022, through and including the last day of the fiscal quarter ending December 31, 2022 and (ii) $12.0 million as of the last day of the fiscal quarter ending March 31, 2023, and as of the last day of each fiscal quarter thereafter. Furthermore, as part of the Third Wintrust Amendment described below, the financial covenants were further amended to require the Company to maintain a minimum liquidity of $8.5 million tested on the last day of each fiscal quarter beginning September 30, 2022 and thereafter.

The Wintrust Credit Facility is secured by a general guaranty and security interest on the assets, including the intellectual property, of the Company and its subsidiaries. The Company has also pledged all of the capital stock of Halo held by the Company as additional collateral. Furthermore, the Wintrust Credit Facility was supported by a collateral pledge by a member of the Company’s board of directors; as a result of the First Wintrust Amendment described below, this collateral pledge was terminated and released.

On August 13, 2021, Halo entered into the first amendment to the Wintrust Credit Facility (the ~~“Wintrust~~“First Wintrust Amendment”) to increase the revolving line of credit from $6.0 million to $7.5 million. The First Wintrust Amendment also required Halo to secure the credit facility with a pledge of a deposit account in the amount of $7.2 million, which ~~decreases~~was decreased to $6.9 million

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on January 1, 2022 and was to further decrease to $6.0 million on January 1, 2023. Additionally, on March 25, 2022, the Company entered into the second amendment to the Wintrust Credit Facility (the "Second Wintrust Amendment") which provided for the release of the Company's Bona Vida subsidiary as a guarantor, an update to the financial covenants as described above and an update to the rate at which the Wintrust Credit Facility bore interest, which is also described above. Furthermore, on October 24, 2022, the Company entered into the third amendment to the Wintrust Credit Facility (the "Third Wintrust Amendment") which provided for an increase to the revolving line of credit from $7.5 million to $13.5 million, set the amount of Halo's obligation to pledge a deposit account with Wintrust to a fixed amount of $6.3 million throughout the remainder of the term and provided updates to the interest rate, maturity date and financial covenants as described above.

As of September 30, ~~2021,~~2022, the term loan and line of credit outstanding under the Wintrust Credit Facility were ~~$5.6~~$4.8 million and ~~$4.8~~$7.4 million, respectively, net of debt issuance costs of less than $0.1 million, respectively. As part of the Third Wintrust Amendment described above, Halo used a portion of the increased revolving credit facility to repay and retire the outstanding term loan portion of the Wintrust Credit Facility. As of December 31, ~~2020,~~2021, the ~~previous~~ term loan and line of credit outstanding were ~~$7.8~~$5.4 million and ~~$5.0~~$4.9 million, respectively, net of debt issuance costs ~~and discounts~~ of less than ~~$0.2 million and $0.2~~$0.1 million, respectively. Debt issuance costs ~~and discounts~~ are amortized using the effective interest method.

~~Notes payable~~

On November 4, 2019, the Company issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carried a 10% interest rate and a maturity date of November 4, 2021. The interest was payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. Payment in kind ("PIK") interest was payable by increasing the aggregate principal amount of the November 2019 Notes. The November 2019 Notes were convertible any time from the date of issuance and carried an initial conversion price of the lower of (a) $24.00 per share or (b) the IPO Price. The November 2019 Notes were amended on January 6, 2020. The amendment incorporated only the preferable terms of the Seller Notes as noted below, and all other terms and provisions of the November 2019 Notes remained in full force and effect. As amended, for so long as any event of default existed and was continuing, interest would accrue at the default interest rate of 12.0% per annum, and such accrued interest would be immediately due and payable.

On December 19, 2019, the Company issued $10.0 million and $5.0 million in senior subordinated convertible notes (the “Senior Seller Notes”) and junior subordinated convertible notes (the “Junior Seller Notes” and together with the Senior Seller Notes, the “Seller Notes”), respectively, to the sellers of Halo. The Seller Notes were convertible any time from the date of issuance and carried a 10% interest rate and a maturity date of June 30, 2023. Interest was payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year by increasing the aggregate principal amount of the Seller Notes. The Seller Notes carried a conversion price of the lower of (a) $24.00 per share or (b) the IPO Price.

On January 13, 2020, the Company issued $0.6 million in senior subordinated convertible notes to Authentic Brands and Elvis Presley Enterprises (“ABG”) in connection with the termination of a previous licensing agreement (the "ABG Notes"). The terms of the ABG Notes were the same as the Seller Notes. In addition to issuing the ABG Notes, as part of the ABG termination on January 13, 2020, the Company paid ABG $0.1 million in cash, issued ABG 12,120 shares of the Company’s common stock, agreed to pay ABG $0.1 million in cash in four equal installments each month from July 31, 2020 through October 31, 2020 and issued ABG common stock purchase warrants (the “ABG Warrants”) equal to a fair value of $0.2 million.

The November 2019 Notes were amended for the second time and the Seller Notes and the ABG Notes were also amended on June 24, 2020 in connection with the issuance of the June 2020 Notes, discussed below. The amendments lowered the maximum conversion price applicable to the conversion of these notes from $24.00 per share to $22.50 per share and aligned all maturity dates to be June 30, 2023. The Company accounted for the change in conversion price as a modification of the debt instruments and recognized the increase in the fair value of the conversion option as a reduction to the carrying amount of the respective debt instrument by increasing the associated debt discount or decreasing the debt premium, with a corresponding increase in Additional paid-in capital. The increase in fair value of the conversion options were $0.3 million for the November 2019 Notes, less than $0.3 million for the Seller Notes and less than $0.1 million for the ABG Notes.

On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “June 2020 Notes”) which carried a 10% interest rate and matures on June 30, 2023. Interest was payable in kind, in arrears on March 31, June 30, September 30, and December 31 of each year by increasing the aggregate principal amount of the June 2020 Notes. The June 2020 Notes were convertible any time from the date of issuance and carried a conversion price $4.50 per share.

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The Company evaluated the conversion option within the June 2020 Notes to determine whether the conversion price was beneficial to the note holders and recorded a beneficial conversion feature (“BCF”) related to the issuance of these notes. The BCF for the June 2020 Notes was recognized and measured by allocating a portion of the proceeds to the BCF, based on relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature limited to the proceeds amount allocated to the instrument. The discount recorded in connection with the BCF valuation was being accreted as interest expense over the term of the June 2020 Notes, using the effective interest rate method. Upon the conversion of the June 2020 Notes discussed below, the remaining discount of $1.4 million associated with the June 2020 Notes was fully accreted through interest expense.

As of September 30, 2021, all of the notes payable described had $0 outstanding since they were automatically converted to common stock in connection with the Company's IPO, at a price of $5.00 per share (except for the June 2020 Notes, which were converted at a price of $4.50 per share). See "Note 1 - Nature of business and summary of significant accounting policies" for additional information. As of December 31, 2020, the November 2019 Notes outstanding were $2.8 million, net of discounts of less than $0.3 million, the Senior Seller Notes outstanding were $10.3 million, net of discounts of $0.8 million, the Junior Seller Notes outstanding were $5.0 million, net of discounts of $0.5 million, the ABG Notes outstanding were $0.7 million, including a debt premium of less than $0.1 million, and the June 2020 Notes outstanding were less than $0.1 million, net of discounts of less than $1.5 million. The debt discounts and premium were being amortized over the life of the respective notes using the effective interest method.

Previously, $0.1 million of the Seller Notes were held by an executive of the Company and $2.2 million of the subordinated convertible notes were held by a member of the board of directors, all of which were converted to common stock as described above. PIK interest related to these notes was $0.1 million for the nine months ended September 30, 2021 and less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2020, respectively.

~~PPP loans~~

On April 10, 2020, TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc., was granted a loan from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program ("PPP") under Division A, Title I of the CARES Act (the “TruPet PPP Loan”). The loan matured on April 6, 2022 and had an interest rate of 0.98% per annum, with interest and principal payable monthly, commencing on November 6, 2020. During the nine months ended September 30, 2021, the TruPet PPP loan was fully forgiven and the Company recognized a gain on extinguishment of debt of $0.4 million.

On May 7, 2020, Halo, Purely for Pets, Inc., a wholly owned subsidiary of Better Choice Company Inc., was granted a loan from Wells Fargo Bank, N.A. in the aggregate amount of $0.4 million, pursuant to the PPP (the “Halo PPP Loan”). The loan matured on May 3, 2022 and had an interest rate of 1.00% per annum, with interest and principal payable monthly, commencing on November 1, 2020. During the nine months ended September 30, 2021 the Halo PPP loan was fully forgiven and the Company recognized a gain on extinguishment of debt of $0.4 million.

The Company recorded interest expense related to its outstanding indebtedness of $3.1 million and $7.3 million for the nine months ended September 30, 2021 and September 30, 2020, respectively, and $0.1 million and $2.5 million for the three months ended September 30, 2021 and September 30, 2020, respectively. PIK interest relating to notes payable was $1.1 million for the nine months ended September 30, 2021 and $0.5 million and $1.5 million for the three and nine months ended September 30, 2020, respectively.

The carrying amount for the Company’s term loan and line of credit approximate fair value as the instruments have variable interest rates that approximate market rates.

AsPrior to the Third Wintrust Amendment, the Company would have been in violation of the previous debt covenant associated with the Wintrust Credit Facility as of September 30, ~~2021 and December 31, 2020,~~2022. Upon execution of the Third Wintrust Amendment in October as described above, the Company was in compliance with all debt covenant requirements and there were no events of ~~default.~~default as of September 30, 2022. The Company currently expects it will be able to generate sufficient cash flow from operations and maintain sufficient liquidity to meet the required debt covenants; however if the Company fails to satisfy the debt covenant as described above, Wintrust has the right to call on the debt.

Note 8 - Commitments and contingencies

The Company had no material purchase obligations as of September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

The Company 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. The Company accrues 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. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred and are recorded in ~~general and administrative expenses in the Condensed Consolidated Statements of Operations.~~SG&A expenses. The Company does not accrue for contingent losses that are considered to be reasonably possible, but not probable; however, the Company discloses the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed.

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Litigation is subject to numerous uncertainties and the outcome of individual claims and contingencies is not predictable. It is possible that some legal matters for which reserves have or have not been established could result in an unfavorable outcome for the Company and any such unfavorable outcome could be of a material nature or have a material adverse effect on the Company's 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 consolidated financial position or results of operations of the Company.

~~Note 9~~ - ~~Convertible preferred stock~~

During October, 2020, the Company consummated an insider-led equity financing, including the transactions contemplated by a securities purchase agreement (the “Securities Purchase Agreement”) between the Company and certain accredited and sophisticated investors (the “Purchasers”) and an exchange agreement (the “Series E Exchange Agreement”) between the Company and Cavalry Fund LP ("Cavalry"), the holder of all of the Company’s previously outstanding Series E preferred stock.

Pursuant to the Securities Purchase Agreement, the Company, in a private placement (the “Series F Private Placement”), issued and sold units (the “Series F Units”) to the Purchasers for a purchase price of $1,000 per Unit. Each Unit consisted of: (i) 1 share of the Company’s Series F convertible preferred stock, par value $0.001 per share (the “Series F Preferred Stock”), which is convertible into shares of the Company’s common stock, par value $0.001 per share, at a value per share of common stock of $3.00; and (ii) a warrant to purchase for a six year period such number of shares of common stock (the “Series F Warrant Shares”) into which such share of Series F Preferred Stock is convertible at an exercise price per Warrant Share of $4.50. Pursuant to the Series F Private Placement, the Company raised approximately $18.2 million in gross cash proceeds, approximately $6.5 million of which was invested by certain officers, directors, employees and associated related parties thereto of the Company. The Series F Shares were recorded at fair value on the date of issuance on an as converted basis.

Concurrently with the execution of the Securities Purchase Agreement, the Company and the Purchasers entered into a registration rights agreement, (as amended by a certain first amendment dated October 29, 2020, the "Registration Rights Agreement"), pursuant to which the Company filed a registration statement which was declared effective by the SEC on February 16, 2021 to register the Warrant Shares and the shares of common stock issuable upon conversion of the Series F Preferred Stock.

In connection with the consummation of the Series F Private Placement, on October 1, 2020, the Company filed with the Secretary of State of Delaware a Certificate of Designations which authorizes a total of 30,000 shares of Series F Preferred Stock and sets forth the designations, preferences, and rights of the Company's Series F Preferred Stock.

On October 1, 2020, the Company issued 14,264 Series F Units in connection with the Series F Private Placement. In addition, pursuant to the Series E Exchange Agreement, on October 1, 2020, the Company issued 3,500 Series F Units to Cavalry in exchange for all of its outstanding Series E Preferred Stock. The exchange of Series E Preferred Shares resulted in a $5.4 million gain and was recorded to Accumulated deficit on the Company's Condensed Consolidated Balance Sheets.

On October 12, 2020 and October 23, 2020, the Company issued 1,106 and 2,832 Series F Units, respectively, in connection with the Series F Private Placement. In addition, on October 23, 2020, the Company issued an additional 100 shares of Series F Preferred Stock in conjunction with a marketing agreement.

The Company evaluated the conversion option within the Series F Preferred Stock on the dates of issuance to determine whether the conversion price was beneficial to the holders. The Company recorded a BCF related to the issuance of the Series F Preferred Stock. The BCF was recognized and measured by allocating a portion of the proceeds to the beneficial conversion feature, based on fair value and was recorded to Accumulated deficit on the Company's Condensed Consolidated Balance Sheets limited to the proceeds amount allocated to the instrument.

On July 1, 2021, all outstanding shares of convertible preferred stock were converted to common stock in connection with the consummation of the Company's IPO. See "Note 1 - Nature of business and summary of significant accounting policies" for additional information.

~~Note 10 - Stockholders’ equity (deficit)~~

On January 22, 2021, the Company consummated a private placement of common stock units (the “January 2021 Private Placement”) in which the Company raised approximately $4.1 million, including an investment by certain officers, directors, employees and associated related parties thereto of approximately $1.6 million. Each common stock unit was sold at a per unit price of $7.50 and consisted of (i) 1 share of the Company’s common stock, par value $0.001 per share; and (ii) a warrant to purchase one share of common stock. The proceeds were used to pay expenses related to the offering and for general corporate purposes. In connection with the January 2021 Private Placement, the Company entered into a registration rights agreement (the “January 2021 Registration Rights Agreement”) pursuant to which the Company filed a registration statement that was declared effective by the SEC on February 16, 2021 to register the shares of common stock issued, and issuable upon the exercise of the warrants issued, in the January 2021 Private Placement.

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See "Note 1 - Nature of business and summary of significant accounting policies" for additional information regarding the impacts to the Company's Stockholders’ equity (deficit) related to the commencement of its common stock trading on the NYSE and the consummation of its IPO.

~~The Company has reserved common stock for future issuance as follows:~~

September 30, 2021 December 31, 2020
Conversion of Series F Preferred Stock — 7,251,189
Exercise of options to purchase common stock 2,672,937 1,302,574
Exercise of warrants to purchase common stock 9,433,584 9,916,997
Conversion of notes payable — 1,255,039
Total 12,106,521 19,725,799

Note 119 - Warrants

The following summarizes the Company's outstanding warrants to purchase shares of the Company's common stock as of and for the periods ended September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		Warrants	Exercise Price			Warrants	Weighted Average Exercise Price
Warrants outstanding as of December 31, 2019		2,830,309	$	19.38
Issued		8,321,412	$	4.62
Exercised		(322,948)	$	3.48
Terminated/Expired		(911,776)	$	18.42
Warrants outstanding as of December 31, 2020	Warrants outstanding as of December 31, 2020	9,916,997	$	7.32	Warrants outstanding as of December 31, 2020	9,916,997	$	7.32
Issued	Issued	548,110	$	8.70	Issued	548,110	$	8.70
Exercised	Exercised	(389,881)	$	4.52	Exercised	(389,881)	$	4.52
Terminated/Expired	Terminated/Expired	(641,642)	$	24.64	Terminated/Expired	(641,642)	$	24.64
Warrants outstanding as of September 30, 2021		9,433,584	$	5.92
Warrants outstanding as of December 31, 2021					Warrants outstanding as of December 31, 2021	9,433,584	$	5.92
Issued					Issued	—	$	—
Exercised					Exercised	—	$	—
Terminated/Expired					Terminated/Expired	—	$	—
Warrants outstanding as of September 30, 2022					Warrants outstanding as of September 30, 2022	9,433,584	$	5.92

~~The~~There was no intrinsic value ofassociated with the outstanding warrants ~~was $0.0 million and $23.8 million~~ as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. ~~The following discussion provides details on the various types of outstanding warrants and the related relevant disclosures around each type.~~

~~Warrant derivative liability~~

During May 2019, the Company acquired 118,804 warrants with a weighted average exercise price of $23.40 (the "May Acquisitions Warrants"). These warrants included an option to settle in cash in the event of a change of control of the Company and a reset feature if the Company issues shares of common stock with a strike price below the exercise price of the warrants, which required the Company to record the warrants as a derivative liability. The Company calculates the fair value of the derivative liability through a Monte Carlo Model that values the warrants based upon a probability weighted discounted cash flow model.

During January 2020, the Company issued shares below the exercise price of the May Acquisitions Warrants. As such, the Company issued an additional 167,206 warrants on March 17, 2020 to certain of its warrant holders at an exercise price of $9.72 and modified the exercise price of the existing May Acquisitions Warrants to $9.72.

During June 2020, the Company issued common stock equivalents below the exercise price of the warrants issued on March 17, 2020. As such, the Company issued an additional 331,771 warrants to certain of its warrant holders at an exercise price of $4.50 and modified the exercise price of the existing warrants to $4.50.

During September 2020, the Company amended all of these warrants to eliminate certain anti-dilution rights, fix the number of shares of common stock purchasable under each warrant, and set the exercise price thereof at $3.90 per share. As such, the Company issued an additional 95,043 warrants to certain of its warrant holders at an exercise price of $3.90.

During the fourth quarter of 2020, holders exercised a total 281,282 warrants for which the Company issued shares of common stock. During December 2020, 418,721 of these warrants expired and an immaterial amount remained outstanding as of December 31, 2020, all of which expired during January 2021.

~~Table of Contents~~

The following schedule shows the fair value of the warrant derivative liability as of September 30, 2021 and December 31, 2020, and the change in fair value during the periods ended September 30, 2021 and year ended December 31, 2020 (in thousands):


	~~Warrant Derivative Liability~~
~~Balance as of December 31, 2019~~	$	~~2,220~~
~~Change in fair value of warrant derivative liability~~	~~(2,220)~~
~~Balance as of December 31, 2020~~	$	—
~~Change in fair value of warrant derivative liability~~ ~~(1)~~	—
~~Balance as of September 30, 2021~~	$	—

~~(1) All of the May Acquisition Warrants were expired by January 2021.~~

~~Series F warrant liability~~

During October 2020, the Company issued 7,233,855 warrants to purchase common stock in connection with the Series F Private Placement with an exercise price of $4.50 (the "Series F Warrants"). The warrants are exercisable commencing on the date of issuance and expire 72 months after the date of issuance. These warrants included a reset feature if the Company issues common stock, options, or convertible securities with a strike price below the exercise price of the warrants. During the second quarter of 2021, a Series F warrant holder exercised 83,334 warrants, resulting in the Company’s receipt of approximately $0.4 million. Initially, these warrants did not meet the definition of a derivative or the requirements to be considered equity; as such, the Company recorded these as a liability. Due to changes in certain terms of the warrant agreements in connection with the Company's IPO whereby the warrants did meet the requirements to be considered equity, the outstanding Series F warrants were reclassified to equity upon consummation of the IPO on July 1, 2021. See "Note 9 - Convertible preferred stock" for more information on Series F and see "Note 1 - Nature of business and summary of significant accounting policies" for additional information on the Company's IPO.

The warrant liability was remeasured at fair value each reporting period and upon the Company's IPO and represented a Level 3 financial instrument. The Company calculates the fair value of the warrant liability through a Monte Carlo Model and a Black Scholes Option Model. The total value of the consideration received in connection with the Series F Private Placement was first allocated to the warrant liability at fair value, with the remainder allocated to the preferred stock, which led to a discount ascribed to the Series F Preferred Stock. Accordingly, the Company recorded a discount of $14.6 million on the Series F Preferred Stock by adjusting Additional paid-in capital.

~~The following schedule shows the fair value of the warrant liability upon issuance, and the change in fair value during the periods ended September 30, 2021 and December 31, 2020 (in thousands):~~


	~~Warrant liability~~
~~Issuance of Series F warrants~~	$	~~14,952~~
~~Change in fair value of warrant liability~~	~~24,898~~
~~Balance as of December 31, 2020~~	$	~~39,850~~
~~Change in fair value of warrant liability~~	~~(23,463)~~
~~Reclassification of warrant liability to equity~~	~~(16,387)~~
~~Balance as of September 30, 2021~~	$	—

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~~The following schedule shows the inputs used to measure the fair value of the warrant liability:~~

Warrant Liability July 1, 2021 December 31, 2020
Stock Price $4.19 $7.62
Exercise Price $4.50 $4.50
Expected remaining term (in years) 5.25 - 5.31 5.75 - 5.81
Volatility 60.0% 67.5%
Risk-free interest rate 0.94% 0.5%

The valuation of the warrants was subject to uncertainty as a result of the unobservable inputs. If the volatility rate or risk-free interest rate were to change, the value of the warrants would be impacted.

~~Equity-classified warrants~~

On May 6, 2019, the Company issued 957,499 warrants to purchase common stock with an exercise price of $25.50 (the "May 2019 PIPE Warrants"). Additionally, in connection with the May 2019 PIPE transaction, the Company issued 36,757 warrants to brokers with an exercise price of $18.00. The warrants were exercisable commencing on the issuance date and expire 24 months after the issuance date. In March 2021, the Company offered to a limited number of holders the opportunity to exercise, in full or in part, these warrants to purchase shares of Common Stock at a reduced exercise price of $7.50 per share. The Company received exercise notices for a total of 174,602 warrants, resulting in the Company’s receipt of approximately $1.3 million. The Company recognized the increase in the fair value of the modified warrants on the date of exercise of $0.2 million as a deemed dividend through Accumulated deficit with a corresponding increase in Additional paid-in capital. The remainder of the outstanding and unexercised May 2019 PIPE Warrants expired during May 2021.

On November 4, 2019, the Company issued 1,834 warrants in connection with the November 2019 Notes. The warrants are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of an IPO, which occurred July 1, 2021. The warrants carried an initial exercise price equal to the greater of (i) $30.00 per share or (ii) the price at which the common stock was sold in the IPO (which was $5.00).

On December 19, 2019, the Company issued 1,083,334 warrants with an exercise price of $10.92 as consideration for certain directors and shareholders of the Company guaranteeing the Company's obligations under a prior credit facility agreement (the "Guarantor Warrants"), which are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of an IPO, which occurred July 1, 2021. The Guarantor Warrants had a fair value of $4.2 million on the date of issuance.

On December 19, 2019, the Company issued 156,250 warrants in connection with the Seller Notes. The warrants are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of an IPO, which occurred July 1, 2021. The warrants carried an initial exercise price equal to the greater of (i) $30.00 per share or (ii) the price at which the common stock was sold in the IPO (which was $5.00).

On January 13, 2020, the Company issued the ABG Warrants, which are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of an IPO, which occurred July 1, 2021 and carried an initial exercise price equal to the greater of (i) $30.00 per share or (ii) the price at which the common stock was sold in the IPO (which was $5.00).

On June 24, 2020, the warrants related to the November 2019 Notes, the Seller Notes and the ABG Notes were amended in connection with the issuance of the June 2020 Notes to lower the maximum exercise price applicable to these warrants from $30.00 to $25.50 per share. The decrease in the exercise price resulted in an increase to the fair value of the warrants of $0.1 million which was recognized in general and administrative expense.

On June 24, 2020, the Company issued 166,667 warrants to a member of the board of directors with an exercise price of $7.50 per share in connection with the June 2020 Notes (the “June 2020 Warrants”), which are exercisable commencing on the date of issuance and expire 84 months from the date of the consummation of an IPO, which occurred July 1, 2021.

On July 20, 2020, the Company issued 50,000 warrants to a member of the board of directors with an exercise price of $6.30 per share in consideration for a personal guarantee by a member of the Company's board of directors on the ABL Facility (the "July 2020 Guarantor Warrants"), which are exercisable commencing on the date of issuance and expire 84 months from the date of the consummation of an IPO, which occurred July 1, 2021.

~~Table of Contents~~

On January 22, 2021, the Company issued 548,067 warrants in connection with the January 2021 PIPE transaction. The warrants are exercisable at an exercise price per share of $8.70 commencing on the date of issuance and expire after a six year period, subject to beneficial ownership limitations (the “January 2021 Warrants”). Due to the discounted warrant exercise associated with the May 2019 PIPE warrants as discussed above, the down round provision on the January 2021 Warrants was triggered such that these warrants could be exercised at a price of $7.50 per share. The Company recognized the increase in the fair value of the modified warrants of $0.2 million as a deemed dividend through Accumulated deficit with a corresponding increase in Additional paid-in capital.

~~Warrants issued as compensation~~

On September 17, 2019, a Company advisor was issued 416,667 warrants with an exercise price of $0.60 per share and 250,000 warrants with an exercise price of $60.00 per share; 208,334 of the $0.60 exercise price warrants (the "Tranche 1 Warrants") were exercisable on the earlier of twelve-months after issuance date or immediately prior to a change in control subject to the advisor’s continued service and 208,334 of the $0.60 exercise price warrants (the "Tranche 2 Warrants") and the 250,000 warrants with the $60.00 exercise price (the "Tranche 3 Warrants") were exercisable on the earlier of eighteen-months after issuance or immediately prior to a change in control subject to the advisor’s continued service.

On June 1, 2020, the Company entered into a termination agreement (the “Termination Agreement”) with the advisor. Pursuant to the terms of the Termination Agreement, the Tranche 1 Warrants were amended to reduce the number of shares of common stock purchasable thereunder to 173,611 shares, and the Tranche 2 Warrants and Tranche 3 Warrants were cancelled. The Tranche 1 Warrants (as amended pursuant to the Termination Agreement) were fully vested as of the date of the termination of the agreement and will remain exercisable until September 17, 2029. Furthermore, if the Company engages in any restricted business line as defined in the Termination Agreement, the Company will issue to the former advisor additional shares of common stock based on formulas intended to compensate the former advisor for the warrants that were reduced or terminated. In connection with the Termination Agreement, the Company recorded expense of $5.7 million during the year ended December 31, 2020 in general and administrative expense. During the first quarter of 2021, the former advisor exercised 131,945 of his remaining warrants outstanding in a cashless exercise resulting in 122,782 shares of common stock issued.

On June 24, 2020, the Company issued 166,667 warrants with an exercise price of $7.50 per share to 2 non-employee directors, which are exercisable commencing on the date of issuance and expire 84 months from the date of the consummation of an IPO, which occurred July 1, 2021. On July 20, 2020, the Company issued 33,334 warrants to 2 non-employee directors at a price of $6.30 per share (the "July 2020 Director Warrants"), which are exercisable commencing on the date of issuance and expire 84 months from the date of the consummation of an IPO, which occurred July 1, 2021. The warrants issued to the non-employee directors were immediately vested and as such, the Company recorded $1.0 million of share-based compensation expense upon issuance.

On November 30, 2020, the Company issued 66,667 warrants to a third-party for services with an exercise price of $6.00 and an expiration date 72 months after issuance. These warrants were immediately vested and as such, the Company recorded $0.1 million in general and administrative expense.

Note 1210 - Share-based compensation

During the three and nine months ended September 30, 2022, the Company recognized $0.6 million and $2.5 million, respectively, of share-based compensation expense. During the three and nine months ended September 30, 2021, the Company recognized $0.7 million and $3.5 ~~million, respectively, of share-based compensation expense. During the three and nine months ended September 30, 2020, the Company recognized $1.5 million and $7.0~~ million, respectively, of share-based compensation expense.

On November 11, 2019, the Company received shareholder approval for the Amended and Restated 2019 Incentive Award Plan (the “Amended 2019 Plan”). The Amended 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock or cash-based awards or a dividend equivalent award. The Amended 2019 Plan authorized the issuance 1,083,334 shares of common stock which was increased to 1,500,000 after the Halo acquisition; the Amended 2019 Plan also provides for an annual increase on the first day of each calendar year beginning on January 1, 2021 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. The total number of shares currently authorized for issuance under the Amended 2019 Plan is ~~2,700,000.~~5,614,637.

Stock options

Options granted under the Amended 2019 Plan vest over a period of two to three years. All vested options are exercisable and may be exercised through athe ten-year anniversary of the grant date (or such earlier date described in the applicable award agreement)~~.The~~. The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. During the three and nine months ended September 30, 2022, the Company granted 9,000 and 611,000 stock options, respectively, under the Amended 2019 Plan. During the three and nine months ended September 30, 2021, ~~and September 30, 2020,~~ the Company granted ~~1,429,408~~473,720 and ~~50,002~~1,429,408 stock options, respectively, under the Amended 2019 Plan.

~~Table~~As of ~~Contents~~

September 30, 2022 and December 31, 2021, the Company had 3,250,770 and 2,684,041 stock options outstanding, respectively.

~~Restricted stock~~Stock awards

In ~~March 2020,~~February 2022, the Company ~~issued 75,000 shares of restricted common stock to 3 non-employee directors in return for services provided in their capacity as directors and issued 993 restricted~~granted 218,345 shares of common stock to ~~an officer~~members of its board of directors under the ~~Company.~~Amended 2019 Plan as compensation for annual board service. The ~~restricted shares~~stock awards were immediately vested and, as such, the Company recorded share-based compensation expense of $0.5 million upon issuance.

Note 1311 - Income taxes

For the three and nine months ended September 30, ~~2021~~2022, the Company recorded minimal income tax expense and for the three and nine months ended September 30, ~~2020,~~2021, the Company recorded no income tax expense. For the three and nine months ended September 30, ~~2021~~2022, the Company's effective tax rate was less than 1% and for the three and nine months ended September 30, ~~2020,~~2021, the Company’s effective tax rate was 0%. The Company’s effective tax rate ~~of 0%~~ differs from the ~~United States~~U.S. federal statutory rate of 21% ~~due to permanent differences attributable to the change in the fair value of the warrant liabilities and~~primarily because the Company’s losses have been fully offset by a valuation allowance due to uncertainty of realizing the tax benefit of net operating losses ("NOLs”) for the nine months ended September 30, ~~2021~~2022 and for the year ended December 31, ~~2020.~~2021.

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Note 12 - Related party transactions

Director fees

The Company pays quarterly board of director fees. As of September 30, 2022 and December 31, 2021, $0.1 million of director fees were included in accounts payable on the Condensed Consolidated Balance Sheets, respectively.

Note 1413 - Concentrations

Major suppliers

The Company sourced approximately 70% of its inventory purchases from three vendors for the nine months ended September 30, 2022. The Company sourced approximately 76% of its inventory purchases from three vendors for the nine months ended September 30, 2021. ~~The Company sourced approximately 78% of its inventory purchases from three vendors for the nine months ended September 30, 2020.~~

Major customers

Accounts receivable from three customers represented ~~86%~~96% of accounts receivable as of September 30, ~~2021.~~2022. Accounts receivable from ~~two~~three customers represented ~~72%~~71% of accounts receivable as of December 31, ~~2020.~~2021. Four customers represented 70% of gross sales for the nine months ended September 30, 2022. Three customers represented 54% of gross sales for the nine months ended September 30, 2021. ~~Two customers represented 35% of gross sales for the nine months ended September 30, 2020.~~

Credit risk

AtAs of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s cash and cash equivalents were deposited in accounts at ~~several~~certain financial institutions and may maintain some balances in excess of federally insured limits. The Company maintains its cash and cash equivalents with high-quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk. The Company has not experienced any losses historically in these accounts and believes it is not exposed to significant credit risk in its cash and cash equivalents.

Note 1514 - ~~Earnings (loss)~~(Loss) earnings per share

The Company presents (loss) earnings ~~(loss)~~ per share on a basic and diluted basis. Basic (loss) earnings ~~(loss)~~ per share is computed by dividing net ~~income~~ (loss) earnings by the weighted average number of common shares outstanding ("WASO") during the period. Diluted (loss) earnings ~~(loss)~~ per share includes the dilutive effect of common stock equivalents, consisting of stock options and warrants using the treasury stock method and convertible notes and preferred stock using the if-converted method. Under the treasury stock method, the amount the holder must pay for exercising stock options or warrants and the amount of average compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares.

For the three and nine months ended September 30, 2022 and the three months ended September 30, 2021, the Company’s basic and diluted net loss per share attributable to common stockholders are the same because the Company generated a net loss and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact. As the Company reported net income for the nine months ended September 30, 2021, basic and diluted net earnings per share attributable to common stockholders are calculated as outlined above. For the nine months ended September 30, 2021, the weighted average diluted common shares had 5,397,048 common stock equivalents excluded based on the fact that their inclusion would have had an anti-dilutive effect on earnings per share. For the three months ended September 30, 2021 and for the three and nine months ended September 30, 2020, the Company’s basic and diluted net loss per share attributable to common stockholders are the same because the Company generated a net loss and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact.

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The following table sets forth basic and diluted net ~~income~~ (loss) earnings per share ~~attributable~~available to common stockholders for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (in thousands, except share and per share amounts):

Nine Months Ended September 30, Three Months Ended September 30,
Common stockholders 2021 2020 2021 2020
Basic earnings (loss) per share:
Numerator:
Net income (loss) $ 8,470 $ (29,551) $ (3,456) $ (1,693)
Less: Preferred stock dividends — 103 — 35
Less: Adjustment due to warrant modifications 402 — — —
Adjusted net income (loss) available to common stockholders $ 8,068 $ (29,654) $ (3,456) $ (1,728)
Denominator:
Weighted average shares used in computing net earnings (loss) per share attributable to common stockholders, basic 16,799,796 8,134,957 29,466,520 8,160,242
Net earnings (loss) per share attributable to common stockholders, basic $ 0.48 $ (3.65) $ (0.12) $ (0.21)
Dilutive earnings (loss) per share:
Numerator:
Net income (loss) $ 8,470 $ (29,551) $ (3,456) $ (1,693)
Less: Preferred stock dividends — 103 — 35
Less: Adjustment due to warrant modifications 402 — — —
Adjusted net income (loss) available to common stockholders $ 8,068 $ (29,654) $ (3,456) $ (1,728)
Denominator:
Weighted average shares used in computing net earnings (loss) per share attributable to common stockholders, basic 16,799,796 8,134,957 29,466,520 8,160,242
Dilutive common stock equivalents 6,885,555 — — —
Weighted average shares used in computing net earnings (loss) per share attributable to common stockholders, diluted 23,685,351 8,134,957 29,466,520 8,160,242
Net earnings (loss) per share attributable to common stockholders, diluted $ 0.34 $ (3.65) $ (0.12) $ (0.21)


	Three Months Ended September 30,				Nine Months Ended September 30,
Common stockholders	2022		2021		2022		2021
Basic (loss) earnings per share:
Numerator:
Net (loss) income	$	(6,547)	$	(3,456)	$	(14,954)	$	8,470
Less: Adjustment due to warrant modifications	—		—		—		402
Adjusted net (loss) income available to common stockholders	$	(6,547)	$	(3,456)	$	(14,954)	$	8,068
Denominator:
Basic WASO	29,364,712		29,466,520		29,339,918		16,799,796
Net (loss) earnings per share available to common stockholders, basic	$	(0.22)	$	(0.12)	$	(0.51)	$	0.48

Dilutive (loss) earnings per share:
Numerator:
Net (loss) income	$	(6,547)	$	(3,456)	$	(14,954)	$	8,470
Less: Adjustment due to warrant modifications	—		—		—		402

Adjusted net (loss) income available to common stockholders	$	(6,547)	$	(3,456)	$	(14,954)	$	8,068
Denominator:
Basic WASO	29,364,712		29,466,520		29,339,918		16,799,796
Dilutive common stock equivalents	—		—		—		6,885,555
Diluted WASO	29,364,712		29,466,520		29,339,918		23,685,351
Net (loss) earnings per share available to common stockholders, diluted	$	(0.22)	$	(0.12)	$	(0.51)	$	0.34

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. The financial condition, results of operations and cash flows discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of Better Choice Company Inc. and its consolidated subsidiaries, collectively, the “Company,” “Better Choice Company,” “we,” “our,” or “us”. These statements represent projections, beliefs, and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview and ~~outlook~~Outlook

~~We are~~Better Choice is a pet health and wellness company ~~focused on providing~~committed to leading the industry shift toward pet products and services that help dogs and cats live healthier, happier and longer lives. Our mission is to become the most innovative premium pet food company in the world, and we are motivated by our commitment to making products with integrity and treating pets and their parents with respect. We believe that our broad portfolio of ~~brands~~pet health and wellness products are well positioned to benefit from the trends of growing pet humanization and an increased consumer focus on health and wellness, and we have adopted a laser focused, channel-specific approach to growth that is driven by new product innovation. Our executive team has a proven history of success in both ~~the~~ pet and consumer-packaged goods, ~~industries, with~~and has over 50 years of combined experience in the pet industry and over 100 years of combined experience in the consumer-packaged goods industry.

~~Our product offering is sold today~~We sell our premium and super-premium products (which we believe generally includes products with a retail price greater than $0.20 per ounce) under the Halo brand umbrella, which includes Halo Holistic™, Halo Elevate® and the former TruDog ~~brands~~brand, which has been rebranded and successfully integrated under the Halo brand umbrella during the third quarter of 2022. Our core products sold under the Halo brand are made with high-quality, thoughtfully sourced ingredients for natural, science based nutrition. Each innovative recipe is formulated with leading veterinary and nutrition experts to deliver optimal health. Our diverse and established customer base has enabled us to penetrate multiple channels of trade, which we believe enables us to deliver on core consumer needs and ~~respond to changing channel dynamics that have accelerated as a result of the COVID-19 pandemic.~~serve pet parents wherever they shop. We group these channels of trade into four distinct categories: ~~E-Commerce,~~E-commerce, which includes the sale of product to online retailers such as Amazon and Chewy; Brick & Mortar, which primarily includes the sale of product to ~~pet specialty chains~~Pet Specialty retailers such as Petco, ~~PetSmart, select grocery chains~~Pet Supplies Plus and neighborhood pet ~~stores;~~stores, as well as to select grocery chains; DTC, which includes the sale of product through our ~~online web platform;~~website halopets.com; and International, which includes the sale of product to foreign distribution partners and to select international retailers. ~~We believe our omni-channel approach is~~

The Global Pet Food and Treat Market

The U.S. represents the largest and most developed market for pet food globally, with food and treats accounting for approximately $39 billion of consumer sales in 2019, or 36% of the total U.S. pet care market, according to AlphaWise and Morgan Stanley Research. According to the American Pet Product Association, between 66% and 70% of all households in the U.S. own a pet, equating to a total pet population of more than 130 million companion animals and an average of 1.7 pets per household. Pet spending represents a significant ~~competitive advantage,~~portion of household spend on consumer products, as ~~it allows us~~this translates to ~~design~~an average annual spend on pet care of more than $1,500 per pet owning household, with $460 of this spend attributed to pet food and ~~sell products purpose-built for success~~treats.

Historically, consumer spending on pets grew at an approximately 3% CAGR in ~~specific channels while maintaining our ability~~the decade leading up to ~~leverage marketing and sales resources cross-channel.~~

~~Although~~ the COVID-19 pandemic, driven by steady annual increases in household pet ownership of approximately 1%, the continued premiumization of the category and the humanization of pets. These industry tailwinds have been magnified in the post-COVID landscape, as stay-at-home orders have driven a more than tripling of annual pet ownership growth alongside fundamental changes in consumer purchasing behavior. This surge in pet acquisition has ~~dramatically changed~~led to a dramatic increase in the ~~U.S. retail landscape,~~forecasted growth of the pet care industry ~~has proven~~over the next ten years.

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Beyond the estimated $3.9 billion permanent increase to ~~be resilient, with Packaged Facts recently increasing their projected 2021 growth rate for U.S. retail sales of~~annual spend on pet food and ~~supplies~~treats, this “Pet Boom” was driven by the acceleration of pet ownership by millennial and Gen-Z households. From a demographic perspective, younger pet owners are more likely to spend a higher percentage of their income on pets, treat their pet as an important member of the family and to purchase products from ~~5.3%~~pet specialty and online retailers rather than from grocery stores. Along these lines, women are 3.2 times more interested in purchasing pet food than men, and are 2.4 times more likely to ~~7.6%. While the industry-wide E-Commerce sales have retreated somewhat following the March 2020 pantry stocking, the sale of~~engage with search ads than men. Taken holistically, these traits suggest a preference to purchase more premium and super-premium pet food and ~~supplies online has increased 35% year-over-year according~~treats from brands like Halo, with a tendency to Packaged Facts, with subscription sales nearly equal to the March 2020 peak. We anticipate our ability to reach a growing base of diverse customers online will increase as the majority of our sales are derived from our DTC and E-Commerce channels. At the same time, we believe that our long-established relationships with key Brick & Mortar customers will enable us to jointly launch newpurchase products in the ~~future that are designed~~channels where we compete.

Globally, Asia is the second largest market for ~~in-store success.~~

~~In addition to our domestic sales channels,~~pet products, with China representing the ~~Halo brand’s international sales grew~~largest market opportunity for growth. Like the U.S., growth in the Asian pet care industry has been driven by ~~95%~~dramatic increases in ~~2020, driven primarily by Halo’s ability to secure Product Import Registrations for 15 dog and cat food diets from the Ministry of Agriculture and Rural Affairs of China (“MOA”) in June 2020.~~household pet ownership. We believe that ~~our~~ growth in Asia is fueled by increasing levels of economic financial status and demand for premium, western manufactured products as a result of product quality concerns. This demand has been supported by a rapidly growing middle class in China, where a recent McKinsey report estimated that in 2018 roughly 730 million people in urban areas fell into the income categories of “aspirants” and “affluents,” with ~~China representing~~ the ~~largest market opportunity for~~Brookings group estimating that approximately 60 million people are added to these income categories each year. We believe that this growth ~~and 48%~~drove the increase in the number of ~~Better Choice’s international sales~~dog-owning Chinese households as measured by Euromonitor, which increased from 12% in ~~2020.~~2015 to 20% in 2020, according to Euromonitor. According to Euromonitor, the Chinese market for premium dry dog and cat food is anticipated to grow at a 20% CAGR and 28% CAGR, respectively, from 2015 through 2025. This growth rate is driven by dramatic increases in pet ownership, which has seen the number of dog-owning Chinese households increase from 12% in 2015 to 20% in 2020. On a relative basis, 67% of U.S. households owned a pet in 2020 according to the American Pet Products Association,2025, suggesting that the Chinese pet market has significant room ~~to grow~~for growth in the foreseeable future.

~~New product innovation, through our own research~~ We are focused on targeting Chinese pet owners with the highest willingness to pay, which tend to be urban dwelling millennial and ~~development activities as well as through acquisitions, represents the cornerstone~~Gen-Z women. In 2021, 80% of our ~~growth plan,~~products were purchased online, and approximately 50% of our ~~established supply~~end-consumers were born after 1990.

Our Growth Strategy

•Strong Innovation Pipeline. We have a robust and ~~distribution infrastructure allows us~~growing pipeline of new products, and believe our size is an advantage as we are nimble enough to ~~develop, manufacture and~~quickly bring new products to market, but large enough to benefit from strong existing customer relationships and established economies of scale with our co-manufacturers.

•Ability to Leverage Differentiated Omni-Channel Strategy for Growth. We believe that we can leverage our differentiated omni-channel strategy to design and sell products purpose-built for success in ~~generally under nine months. Our flexible~~specific channels while maintaining our ability to leverage marketing and ~~scalable outsourced manufacturing model also promotes innovation, as we are able~~sales resources cross-channel. We believe that this strategy will allow us to ~~offer~~deliver on core consumer needs, maximize gross margin and respond to changing channel dynamics that have accelerated in recent years.

•Capitalize on Continuing Trends of Humanization of Pets. We believe our combination of innovative products designed specifically for certain channels can assist our growth to become a ~~wide variety of~~leader in the premium and super-premium categories across dog and cat ~~food products under~~food.

•Well Positioned to Capitalize on a Once-in-a-Generation Demographic Shift in Asia. We believe that Asia represents the Halo and TruDog brands that serve many different consumer needs. Founded in 1986, the Halo brand consists of a diversified, premium natural dog and cat portfolio, with products derived from real whole meat, no rendered meat meal and non-genetically modified (non-"GMO") fruits and vegetables, unlike many other kibble and canned products currentlylargest macro-growth opportunity in the ~~marketplace.~~global pet food industry. In China, the number of households that own a pet has doubled in the last five years, with younger pet owners leading growth.

Recent Corporate Developments

On September 13, 2022, we announced that Scott Lerner was stepping down from his role as CEO, effective September 14. Also on September 13, 2022, we announced that Lionel F. Conacher was appointed as Interim CEO, effective September 14, 2022.

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In addition to its dry kibble and canned wet food offering, Halo also has a successful line of freeze-dried treats for dogs and cats and a growing line of award-winning vegan products for dogs. Founded in 2013, the TruDog brand offers ultra-premium, freeze-dried raw dog food, toppers, treats and supplements sold predominantly on its DTC website. Freeze-dried raw dog food is one of the fastest growing sub-categories of premium pet food, with Packaged Facts reporting 39% year-over-year growth in the sub-category in 2019. We believe that both brands are positioned to take advantage of pet parents’ increasing desire to feed only the highest quality ingredients to their pets, and that there will continue to be innovative opportunities for brand consolidation over time.

Our marketing strategies are designed to clearly communicate to consumers the benefits of our products and to build awareness of our brands. We deploy a broad set of marketing tools across various forms of media to reach consumers through multiple touch points and engage with a number of marketing agencies to develop content and product packaging. Our marketing initiatives include the use of social and digital marketing, Search Engine Optimization, email and SMS marketing, and paid media (Facebook, Instagram & YouTube), among other proven strategies to generate and convert sales prospects into loyal, satisfied customers. In addition to directly targeting and educating consumers of our products, we partner with both E-commerce platforms and retailers such as Amazon, Chewy and Petco to develop joint sales and marketing initiatives to increase sales and acquire new customers.

On February 2, 2019 and February 28, 2019, respectively, we entered into definitive agreements to acquire through stock exchange agreements, approximately 93% of the outstanding 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 pet 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 was treated as a reverse acquisition whereby TruPet is considered the acquiror of Better Choice Company and Bona Vida, Inc. Thus, the historical financial information of the registrant is that of TruPet even though the legal registrant remains Better Choice Company.

On December 19, 2019, we acquired 100% of the issued and outstanding capital stock of Halo, Purely for Pets, Inc., in exchange for a combination of cash consideration, shares of our common stock, and convertible subordinated notes and accompanying stock purchase warrants.

Although Bona Vida remains a wholly owned subsidiary, we do not currently sell or market any CBD products, we do not currently own any CBD related inventory or raw materials and we do not currently have plans to re-enter the CBD market at this time.

The impact that the ongoing COVID-19 pandemic and related supply chain challenges will have on our consolidated results of operations is uncertain. Although we have not observed a material reduction in demand as of September 2021 as a result of the COVID-19 pandemic, we have seen some impact to our revenue growth as a result of supply chain issues and a notable reduction in our safety stocks during the third quarter of 2021. We will continue to evaluate the nature and extent of the pandemic's impact to our business, consolidated results of operations, financial condition, and liquidity. Our results presented herein are not necessarily indicative of the results to be expected for future periods in 2021 or the full fiscal year. Management cannot predict the full impact of the COVID-19 pandemic on our sourcing, manufacturing and distribution of its products or to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on us is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Results of ~~operations~~Operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021

The following table sets forth our consolidated results for the periods presented (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change % 2021 2020 Change %
Net sales $ 13,200 $ 11,135 $ 2,065 19 % $ 35,019 $ 33,302 $ 1,717 5 %
Cost of goods sold 8,762 6,678 2,084 31 % 22,407 20,563 1,844 9 %
Gross profit 4,438 4,457 (19) — % 12,612 12,739 (127) (1) %
Operating expenses:
General and administrative 3,727 3,545 182 5 % 11,778 23,158 (11,380) (49) %
Sales and marketing 4,018 2,650 1,368 52 % 9,619 6,847 2,772 40 %
Share-based compensation 660 1,543 (883) (57) % 3,517 7,047 (3,530) (50) %
Total operating expenses 8,405 7,738 667 9 % 24,914 37,052 (12,138) (33) %
Loss from operations $ (3,967) $ (3,281) $ (686) (21) % $ (12,302) $ (24,313) $ 12,011 49 %


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		2021		Change		%		2022		2021		Change		%
Net sales	$	11,865	$	13,200	$	(1,335)	(10)	%	$	45,394	$	35,019	$	10,375	30	%
Cost of goods sold	7,700		8,762		(1,062)		(12)	%	31,795		22,407		9,388		42	%
Gross profit	4,165		4,438		(273)		(6)	%	13,599		12,612		987		8	%
Operating expenses:
Selling, general and administrative	10,007		7,745		2,262		29	%	25,771		21,397		4,374		20	%
Share-based compensation	562		660		(98)		(15)	%	2,454		3,517		(1,063)		(30)	%
Total operating expenses	10,569		8,405		2,164		26	%	28,225		24,914		3,311		13	%
Loss from operations	(6,404)		(3,967)		(2,437)		(61)	%	(14,626)		(12,302)		(2,324)		(19)	%
Other (expense) income:
Interest expense, net	(142)		(79)		(63)		80	%	(324)		(3,148)		2,824		(90)	%
Gain on extinguishment of debt, net	—		—		—		—	%	—		457		(457)		(100)	%
Change in fair value of warrant liabilities	—		590		(590)		(100)	%	—		23,463		(23,463)		(100)	%
Total other (expense) income, net	(142)		511		(653)		(128)	%	(324)		20,772		(21,096)		(102)	%
Net (loss) income before income taxes	(6,546)		(3,456)		(3,090)		(89)	%	(14,950)		8,470		(23,420)		277	%
Income tax expense	1		—		1		—	%	4		—		4		100	%

Net (loss) income available to common stockholders	$	(6,547)	$	(3,456)	$	(3,091)	(89)	%	$	(14,954)	$	8,470	$	(23,424)	277	%

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Net sales

We sell our products through online retailers, pet specialty retailers, our online portal directly to our consumers and internationally to foreign distribution partners (transacted in U.S. dollars). Generally, our sales transactions are single performance obligations that are recorded at the time the product is shipped from our distribution centers and when control transfers. We offer a variety of trade promotions, discounts and incentives to our customers, which impacts the transaction price of our products and our net sales accordingly. DTC net sales include revenue derived from shipping fees and are net of loyalty points earned (a portion of revenue is deferred at the time of the sale as points are earned and not recognized until the redemption of the points, estimated based on historical experience). We record a revenue reserve based on historical return rates to account for customer returns.

Information about our revenue channels is as follows (in thousands):


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020					2022				2021				2022				2021
E-commerce(1)	E-commerce(1)	$	4,742	36	%	$	3,510	32	%	$	11,644	33	%	$	10,969	33	%	E-commerce(1)	$	3,530	30	%	$	4,742	36	%	$	11,035	24	%	$	11,644	33	%
Brick & Mortar(2)	Brick & Mortar(2)	1,816		14	%	1,953		17	%	5,408		16	%	6,725		20	%	Brick & Mortar(2)	1,342		11	%	1,816		14	%	9,632		21	%	5,408		16	%
DTC	DTC	2,363		18	%	2,672		24	%	7,140		20	%	8,198		25	%	DTC	1,371		12	%	2,363		18	%	5,066		11	%	7,140		20	%
International(3)	International(3)	4,279		32	%	3,000		27	%	10,827		31	%	7,410		22	%	International(3)	5,622		47	%	4,279		32	%	19,661		44	%	10,827		31	%
Net Sales	Net Sales	$	13,200	100	%	$	11,135	100	%	$	35,019	100	%	$	33,302	100	%	Net Sales	$	11,865	100	%	$	13,200	100	%	$	45,394	100	%	$	35,019	100	%

(1)Our E-commerce channel includes two customers that amounted to greater than 10% of our total net sales during the three and nine months ended September 30, 2022. These customers had an aggregate of $3.3 million and $10.6 million of net sales during the three and nine months ended September 30, 2022, respectively. Two customers amounted to greater than 10% of our total net sales during the three and nine months ended September 30, 2021, respectively. These customers had an aggregate of $4.4 million and $10.8 million of net sales during the three and nine months ended September 30, 2021, respectively.

(2)Our Brick & Mortar channel includes $4.3 million of net sales from one customer that amounted to greater than 10% of our total net sales during the nine months ended September 30, 2022.

(3)One of our International customers that distributes products in China amounted to greater than 10% of our total net sales during the three and nine months ended September 30, 2022 and represented $5.3 million and $16.6 million of net sales, respectively. One of our International customers in China represented greater than 10% of net sales during the three and nine months ended September 30, 2021 and represented $2.9 million and $6.7 million of net sales, respectively.

Net sales ~~increased $2.1~~decreased $1.3 million, or ~~19%~~10%, to $11.9 million for the three months ended September 30, 2022 compared to $13.2 million for the three months ended September 30, ~~2021 compared~~2021. The decrease was driven by softness in our E-commerce channel as one of our primary customers significantly reduced its levels of on-hand inventory and lower customer acquisition and retention marketing spend as we prepare for the Halo Holistic™ relaunch, softness in our DTC channel as we began to ~~$11.1~~re-introduce customer acquisition marketing spend after finalizing the rebranding of TruDog under the Halo umbrella, and a reduction in our Brick & Mortar channel as we exited select grocery chains and shifted the focus of this channel to the Halo Elevate® product line, partially offset by increased International sales. Net sales increased $10.4 million, or 30%, to $45.4 million for the ~~three~~nine months ended September 30, ~~2020. Net sales increased $1.7 million, or 5%,~~2022 compared to $35.0 million for the nine months ended September 30, ~~2021 compared to $33.3 million for the nine months ended September 30, 2020.~~2021. The increase was driven by growth in our Brick & Mortar channel driven by the launch of Halo Elevate® and growth in our International ~~and E-commerce channels,~~channel, partially offset by lower ~~Brick & Mortar sales as we reshuffle our product lineup ahead of our new product launch in 2022,~~E-commerce and ~~lower~~ DTC sales driven by an intentional ~~decrease~~reduction in new customer acquisition and retention marketing spend ~~as we expect to shift~~in connection with our strategic rebranding of TruDog under the ~~focus of these investments to our longer-term DTC strategy, rather than chasing short term revenue gains.~~Halo umbrella which was successfully executed and implemented in July 2022 and the Halo Holistic™ relaunch. Our revenue growth ~~has been~~and the sales for certain products was negatively impacted ~~throughout~~in the ~~year~~first half of 2022 by the supply chain issues being felt globally as ~~the pandemic continues to present challenges. We are navigating~~we navigate through short-term shortages in raw materials as well as production delays stemming from ~~supply shortages and~~ labor constraints.

Key factors that we expect to affect our future sales growth include new product innovation ~~our new product launch,~~and launches, our expansion strategy in each of the sales channels and our key supplier relationships.

~~Cost of goods sold and~~ Gross profit

Our products are manufactured to our specifications by contracted manufacturing plants using raw materials sourced by our contracted manufacturers. We design our packaging for manufacture by third parties, 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.

Cost of goods sold consists primarily of the cost of product obtained from ~~third-party contract manufacturing plants,~~co-manufacturers, packaging materials, ~~inventory~~ freight costs for shipping ~~product from third-party contract manufacturing plants~~inventory to the warehouse, as well as third-party warehouse and ~~third-party fulfillment.~~order fulfillment costs. We review inventory on hand periodically to identify damages, slow moving inventory, and/or aged inventory. Based on ~~the~~this analysis, we record inventories at the lower of cost or net realizable value, with any reduction in value expensed as cost of goods sold.

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Our products are manufactured to our specifications by our co-manufacturers using raw materials. We ~~calculate gross profit as net sales, including any shipping revenue collected from~~work with our ~~customers, less cost~~co-manufacturers to secure a supply of ~~goods sold.~~ raw materials that meet our specifications. In addition to procuring raw materials that meet our formulation requirements, our co-manufacturers manufacture, test and package our products. We design our packaging for our co-manufacturers and the packaging is shipped directly to them.

Our gross profit has been and will continue to be affected by a variety of factors, primarily product sales mix, volumes sold, discounts offered to newly acquired and recurring customers, the cost of our manufactured products, and the cost of freight from the manufacturer to the warehouse.

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~~Cost of goods sold increased $2.1~~During the three months ended September 30, 2022, gross profit decreased $0.2 million, or ~~31%~~6%, to ~~$8.8~~$4.2 million compared to $4.4 million during the three months ended September 30, 2021. Gross profit margin increased 1% to 35% for the three months ended September 30, ~~2021~~2022 compared to ~~$6.7 million~~34% for the three months ended September 30, ~~2020. As a percentage~~2021. The increase in margin was driven by cost savings realized due to transitioning the production of ~~revenue, cost of goods~~our dry kibble sold through our International channel to our new co-manufacturer, which was partially offset by an inventory write-off attributable to our Halo Holistic™ rebranding initiatives. During the nine months ended September 30, 2022, gross profit increased $1.0 million, or 8%, to ~~66%~~$13.6 million compared to $12.6 million during the three months ended September 30, ~~2021 compared~~2021. Gross profit margin decreased 6% to ~~60%~~30% for the ~~three~~nine months ended September 30, ~~2020.~~2022 compared to 36% for the nine months ended September 30, 2021. The ~~increase~~decrease in margin was driven primarily by several cost increases from our primary suppliers as a result of broad-scale inflation in the ~~industry. We are actively working with our co-manufacturing and freight partners~~industry as well as an inventory write-off attributable to our Halo Holistic™ rebranding initiatives, which is partially offset by cost savings from transitioning some of our primary suppliers and price increases to customers as described below. We expect these cost savings offsets will contribute to a higher gross profit realization going forward.

We continue to actively work with our co-manufacturer and freight partners to generate future cost ~~savings.~~savings, and have successfully transitioned some of our primary suppliers to help realize improved gross profit margins in future periods. Additionally, we ~~have taken~~began implementing price increases to our customers ~~effective~~to help cover these cost increases beginning late in the third quarter of 2021. We implemented additional price increases during 2022, which became effective in the second and third quarters of 2022. We could see continued margin variability due to ~~help cover cost increases.~~the current economic environment and pricing pressures due to inflationary costs for both transportation and raw materials. We will continue to refine and optimize our overall pricing strategy as we evaluate the future impact of inflation and align ourselves with the market.

~~Cost~~Operating expenses

Our SG&A expenses consist of ~~goods sold~~the following:

•Sales and marketing costs for specific customer promotional programs, paid media, content creation expenses and our DTC selling platform. Marketing costs are geared towards customer acquisition and retention and building brand awareness. During the three months ended September 30, 2022, sales and marketing costs increased ~~$1.8~~approximately $1.9 million or 9%54%, to ~~$22.4~~$5.4 million from $3.5 million during the three months ended September 30, 2021. During the nine months ended September 30, 2022, sales and marketing costs increased approximately $3.9 million or 49%, to $11.9 million from $8.0 million during the nine months ended September 30, 2021. The increases were driven primarily by non-cash amortization related to the utilization of the remaining prepaid radio advertisement services with iHeart, marketing and advertising agency fees related to building and launching our new sales strategy as well as increased marketing spend in our International sales channel, partially offset by a temporary intentional decrease in customer acquisition and retention marketing spend as we shift the focus of our investments to our longer-term sales strategy.

•Employee compensation and benefits increased approximately $0.3 million or 19% during the three months ended September 30, 2022 to $1.9 million from $1.6 million during the three months ended September 30, 2021. During the nine months ended September 30, 2022, employee compensation and benefits increased approximately $0.4 million or 7% to $6.1 million from $5.7 million during the nine months ended September 30, 2021. The increases were primarily related to the addition of several key members to our management team during the second half of 2021 that have significant operating experience in the pet and consumer-packaged good sectors which we believe will enable us to successfully execute our growth strategy, partially offset by higher severance costs during the first half of 2021.

•Freight, which is primarily related to the shipping of DTC orders to customers, remained flat at $0.3 million for both the three months ended September 30, 2022 and 2021. Freight also remained flat at $1.2 million for both the nine months ended September 30, 2022 and 2021. Freight costs are generally increasing, offset by our lower DTC sales as described above.

•Non-cash charges including depreciation, amortization, disposal or sale of assets and bad debt expense increased $0.1 million or 25% during the three months ended September 30, 2022 to $0.5 million from $0.4 million for the three months ended September 30, 2021. The increase was driven by additional capital expenditures. During the nine months ended September 30, 2022, non-cash charges decreased approximately $0.1 million or 7% to $1.4 million from $1.5 million during the nine months ended September 30, 2021. The decrease was driven by disposals of certain assets during 2021, offset by additional capital expenditures throughout 2022.

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•Other general and administrative costs for various general corporate expenses, including professional services, information technology, insurance, travel, costs related to merchant credit card fees, product development costs, rent, and certain tax costs. During both the three months ended September 30, 2022 and September 30, 2021, other general and administrative costs remained flat at $1.9 million. During the nine months ended September 30, 2022, other general and administrative costs increased $0.2 million, or 4% to $5.2 million compared to $5.0 million for the nine months ended September 30, ~~2021 compared to $20.6 million for~~2021. The increase was driven by higher international consulting fees, additional travel fees and higher product development costs during the nine months ended September 30, ~~2020. As~~2022, partially offset by a ~~percentage~~non-cash reduction of ~~revenue, cost~~our sales tax liability of ~~goods sold increased to 64%~~$0.6 million during the nine months ended September 30, 2021 ~~compared to 62% for~~with no similar reduction of expense during the nine months ended September 30, ~~2020. These results were driven by the cost increases~~2022, as described above, partially offset by $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 in the first quarter of 2020.

~~Operating expenses~~

~~General~~well as lower professional fees, lower franchise taxes and administrative expenses include management and back office personnel compensation and bonuses, warrant expense, 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, warehousing costs and general corporate expenses. During the three months ended September 30, 2021, general and administrative expenses increased $0.2 million, or 5%, to $3.7 million compared to $3.5 million for the three months ended September 30, 2020. The increase was driven by product development costs related to our new product innovation, increased investor relations and professional services costs related to our recent IPO and Board fees, offset by a reduction in rent expense as a result of prior lease terminations. Additionally, there was a shift in personnel compensation as there was an increase due to new hires in the current year, offset by a reduction due to the warehouse outsourcing in 2020 and other terminations in early 2021. During the nine months ended September 30, 2021, general and administrative expenses decreased $11.4 million, or 49%, to $11.8 million compared to $23.2 million for the nine months ended September 30, 2020. In addition to the items discussed above, the nine-month period was impacted by non-recurring warrant expense of $10.0 million and contract termination costs of $1.1 million incurred in 2020, non-cash reductions of our sales tax liability during 2021, partially offset by lease termination and loss on sale of certain assets earlier in 2021, and an overall decrease in legal fees.

Sales and marketing expenses include costs related to compensation for sales and customer service personnel, other costs related to the selling platform, as well as marketing, including paid media and content creation expenses. Marketing expenses consist primarily of social media and digital ads and marketing tools, as well as other advertising and marketing costs, all geared towards acquiring new customers and building brand awareness. During the three months ended September 30, 2021, sales and marketing expenses increased $1.3 million, or 52%, to $4.0 million from $2.7 million during the three months ended September 30, 2020. During the nine months ended September 30, 2021, sales and marketing expenses increased $2.8 million, or 40%, to $9.6 million from $6.8 million during the nine months ended September 30, 2020. These increases were driven primarily by increased promotional spend in our E-Commerce and International sales channels and higher advertising and market research costs related to developing our new product line.

Share-based compensation includes expenses related to ~~stock options, common stock issued in connection with severance arrangements and certain warrants~~equity awards issued to employees and non-employee directors. During the three months ended September 30, ~~2021,~~2022, share-based compensation decreased ~~$0.8~~$0.1 million, or ~~57%~~15%, to ~~$0.7~~$0.6 million as compared to ~~$1.5~~$0.7 million for the three months ended September 30, ~~2020.~~2021. The decrease was primarily driven by accelerated vesting of certain stock option grants during the three months ended September 30, 2021. During the nine months ended September 30, ~~2021,~~2022, share-based compensation decreased ~~$3.5~~$1.0 million, or ~~50%~~30%, to ~~$3.5~~$2.5 million as compared to ~~$7.0~~$3.5 million for the nine months ended September 30, ~~2020.~~2021. The decrease ~~for both the three and nine months were~~was driven by a lower monthly expense due to an overall decrease in the fair value of the outstanding options in 2021 as compared to 2020. The decrease for the nine months ended was also driven by certain restricted stock and warrant grants for which compensation expense was recognized immediately during the second quarter of 2020; this was partially offset by accelerated vesting on certain stock option grants during 2021, partially offset by common stock issued for board service and accelerated vesting of a certain stock option grant during 2022 and additional option grants.

We have had no impairment expense related to goodwill or intangible assets through September 30, 2022. In conjunction with the rebranding of TruDog and legal merger with Halo, we performed an analysis of our reporting units and concluded we have one reporting unit, and as such, we performed a quantitative goodwill assessment as of July 1, 2022 that indicated no impairment. Additionally, during the period from July 2, 2022 through September 30, 2022, there was a decline in our stock price and a ~~common stock grant for compensation~~change in CEO, and as such, we determined there were triggering events present during the ~~first quarter~~interim period. We performed a qualitative analysis around the market value and determined the decline in stock price is not indicative of ~~2021.~~

~~Table~~our operating results and that the decline in market value from July 2,2022 to September 30, 2022 was not of ~~Contents~~

sufficient duration to indicate impairment. Additionally, we performed other qualitative analyses which considered the potential impacts of the change in CEO and other known information that could cause a change in the assumptions used in the July 1, 2022 assessment. As a result of our analysis, we concluded that the fair value was more-likely-than-not above carrying value. If global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or projected operating margins decline, weighted average cost of capital increases, or if we have a sustained decline in its stock price, it is possible this could result in a potentially material goodwill impairment charge.

Interest expense, net

During the three months ended September 30, 2022, interest expense remained flat at $0.1 million for both the three months ended September 30, 2022 and 2021. During the nine months ended September 30, 2022, interest expense decreased $2.8 million to $0.3 million from $3.1 million for the nine months ended September 30, 2021. Interest expense ~~relates primarily to existing~~for the three and ~~prior indebtedness including term loans, lines~~nine months ended September 30, 2022 and three months ended September 30, 2021 is comprised of ~~credit~~interest on our Wintrust Credit Facility and ~~subordinated convertible notes and during~~the amortization of debt issuance costs. Interest expense for the nine months ended September 30, 2021 ~~includes~~is comprised of interest on our Wintrust Credit Facility, payable in-kind interest on our previous senior subordinated convertible notes, and the amortization of debt issuance costs and accretion of debt discounts, including $1.4 million during the three months ended June 30, 2021 associated with the remaining discount on the ~~June 2020 Notes,~~previous convertible notes, which was fully accreted to interest expense in connection with the conversion to common stock resulting from the commencement of the trading of our common stock on the NYSE. During the three months ended September 30, 2021, interest expense decreased $2.4 million to $0.1 million from $2.5 million for the three months ended September 30, 2020. During the nine months ended September 30, 2021, interest expense decreased $4.2 million to $3.1 million from $7.3 million for the nine months ended September 30, 2020. The overall reduction in interest expense was driven by a decrease in outstanding debt balances as well as a more favorable interest rate on our new Wintrust Credit Facility.

~~(Gain) Loss~~Gain on extinguishment of debt, net

During the three months ended September 30, 2020, we incurred a loss on extinguishment of debt of $0.1 million, while there was no corresponding activity for the three months ended September 30, 2021. Loss on extinguishment of debt for the three months ended September 30, 2020 relates to extinguishment accounting applied in connection with us entering into the ABL Facility. During the nine months ended September 30, 2021, we incurred a ~~gain on extinguishment of debt,~~ net ~~of a loss~~gain on extinguishment of debt of $0.5 million, while there was ~~a loss on extinguishment of debt of $0.1 million~~no corresponding activity for the nine months ended September 30, ~~2020.~~2022. Gain on extinguishment of debt for the nine months ended September 30, 2021 relates to extinguishment accounting applied in connection with the forgiveness of our PPP ~~Loans,~~loans, partially offset by the loss on termination of a term loan and ABL Facility. Loss on extinguishment of debt for the nine months ended September 30, 2020 relates to extinguishment accounting applied in connection with us entering into the ABL Facility. See "Note 7 - Debt" for additional information.

Change in fair value of warrant liabilities

Common stock warrants classified as liabilities are revalued at each balance sheet date subsequent to the initial issuance and changes in the fair value are reflected in the Condensed Consolidated Statements of Operations as change in fair value of warrant ~~liability.~~liabilities. The change in fair value for the three andnine months ended September 30, 2021 relates to the ~~decrease~~change in the fair value of common stock warrants issued in connection with a private placement. Upon consummation of our IPO on July 1, 2021, these warrants met the ~~Series F Warrants. See "Note 11 - Warrants" for additional information.~~requirements to be considered equity were reclassified as such.

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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 as they arise. ~~No provision has been made for federal~~During the three and ~~state~~nine months ended September 30, 2022, we recorded minimal income ~~taxes prior to the date of the May Acquisitions as the proportionate share of TruPet’s income or loss was included in the personal~~ tax ~~returns of its members as TruPet was a limited liability company. Subsequent to the acquisitions, we, as a corporation are required to provide for income taxes.~~

expense. During the three and nine months ended September 30, 2021, ~~and 2020, respectively,~~ we did not record income tax expense due to the continued losses incurred by us. The effective tax rate is less than 1% for the three and nine months ended September 30, 2022 and 0%, for the three and nine months ended September 30, 2021, which differs from the U.S. Federal statutory rate of 21% ~~due to permanent differences attributable to the change in the fair value of the warrant liabilities and~~primarily because our ~~deferred tax assets arising from operating~~ losses ~~are~~have been fully offset by a valuation allowance due to uncertainty ~~as to~~of realizing the ~~realization~~tax benefit of ~~those deferred tax assets.~~our NOLs.

Liquidity and capital resources

~~Since our founding,~~Historically, we have financed our operations primarily ~~through sales of member units while a limited liability company, and since becoming a corporation,~~ through the sales of shares of our common stock, warrants, preferred stock, and loans. ~~On September 30, 2021 and December 31, 2020, we had cash and cash equivalents and restricted cash of $33.3 million and $4.0 million, respectively.~~

In connection with our IPO on July 1, 2021, we issued and sold 8,000,000 shares of common stock at a price of $5.00 per ~~share. On July 1, 2021 we~~share and received total net proceeds of approximately ~~$36.2~~$36.1 million, ~~from the IPO,~~ after deducting underwriting discounts and commissions of $2.8 million, and offering costs of approximately ~~$1.0~~$1.1 million. ~~Upon commencement~~On September 30, 2022 and December 31, 2021, we had cash and cash equivalents and restricted cash of ~~our common stock trading on the NYSE, all outstanding convertible notes were converted into 4,732,420 shares of common stock~~$12.6 million and ~~upon consummation of the IPO, all shares of convertible preferred stock were converted into 5,764,533 shares of common stock.~~$28.9 million, respectively.

We are subject to risks common in the pet wellness consumer market including, but not limited to, dependence on key personnel, competitive forces, successful marketing and sale of ~~its~~our products, the successful protection of ~~its~~our proprietary technologies, ability to grow into new markets, and compliance with government regulations. As of September 30, ~~2021,~~2022, we have not experienced a significant adverse impact to our business, financial condition or cash flows resulting from the COVID-19 ~~pandemic.~~pandemic, geopolitical actions or threat of cyber-attacks. However, ~~uncertainties~~we have seen adverse impacts to our gross profit margin due to inflationary pressures in the current economic environment. Uncertainties regarding the continued economic impact of inflationary pressures, the COVID-19 pandemic, geopolitical actions and threat of cyber-attacks are likely to result in sustained market turmoil, which could negatively impact our business, financial condition, and cash flows in the future.

~~Table~~Our ability to raise additional capital may be adversely impacted by the potential worsening of ~~Contents~~

global economic conditions, including inflationary pressures, and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and geopolitical tensions. If we seek additional financing to fund our business activities in the future, 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 necessary funds when needed or achieve planned cost savings, or other strategic objectives are not achieved, we may not be able to continue our operations, or we could be required to modify our operations that could slow future growth.

We are required to maintain a minimum liquidity (as defined in the Wintrust Credit Facility) of no less than $8.5 million tested on the last day of each fiscal quarter beginning September 30, 2022 and thereafter to comply with our financial covenants. As of September 30, 2022, we were in compliance with all debt covenant requirements and there were no events of default. We have historically incurred losses and expect to continue to generate operating losses and consume ~~significant~~ cash resources ~~for~~in the ~~foreseeable future;~~near term; however, due to our high level of working capital, ~~and~~ minimal debt ~~after~~and expected financial performance in the ~~IPO,~~future, we expect to be in compliance with all required debt covenants and do not anticipate substantial doubt about our ability to continue as a going concern. We have implemented and continue to implement plans to achieve ~~cost savings and other strategic objectives,~~operating profitability, including ~~realized cost savings from~~various margin improvement initiatives, the consolidation of ~~our third-party logistics operations~~ and ~~reduction~~introduction of ~~overhead costs and we expect to achieve further cost savings from~~new co-manufacturers, the ~~consolidation of third-party manufacturers and~~ optimization of ~~shipping costs. The business is focused on growing the most profitable channels while reducing investments in areas that are expected to have lower long-term benefits.~~our pricing strategy and ingredient profiles, and new product innovation.

A summary of our cash flows is as follows (in thousands):


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash flows (used in) provided by:	Cash flows (used in) provided by:					Cash flows (used in) provided by:
Operating activities	Operating activities	$	(8,320)	$	(4,523)	Operating activities	$	(17,972)	$	(8,320)
Investing activities	Investing activities	(124)		(42)		Investing activities	(198)		(124)
Financing activities	Financing activities	37,716		4,112		Financing activities	1,843		37,716
Net increase (decrease) in cash and cash equivalents and restricted cash		$	29,272	$	(453)
Net (decrease) increase in cash and cash equivalents and restricted cash						Net (decrease) increase in cash and cash equivalents and restricted cash	$	(16,327)	$	29,272

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Cash flows from operating activities

Cash used in operating activities increased ~~$3.8~~$9.7 million, or ~~84%~~116%, during the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020.~~2021. The increase in cash used in operating activities was primarily driven by significant fluctuations in our working capital, including a comparative increase in ~~accounts receivable balances~~our inventory balance of ~~$3.1~~$8.3 million ~~due~~as we built inventory to support the ~~timing~~Halo Elevate® launch and the rebranding of ~~sales~~TruDog and ~~collections, as well as~~Halo Holistic™. Additionally, net (loss) income from operations adjusted for non-cash expenses was $(8.5) million for the nine months ended September 30, 2022 compared to $(7.4) million for the nine months ended September 30, 2021. This increase in operating cash outflows was primarily driven by increased ~~costs~~marketing spend related to ~~developing~~building and launching our new ~~product line.~~long-term sales strategy during 2022, which is not expected to recur at the same levels in 2023.

Cash flows from investing activities

Cash used in investing activities was ~~$0.1~~$0.2 million during the nine months ended September 30, ~~2021~~2022 and ~~less than $0.1~~$0.1 million during the nine months ended September 30, ~~2020.~~2021. The cash used in investing activities ~~for~~ is related to the purchase of ~~property and equipment.~~fixed assets.

Cash flows from financing activities

Cash provided by financing activities was ~~$37.7~~$1.8 million for the nine months ended September 30, ~~2021~~2022 compared to cash provided by financing activities of ~~$4.1~~$37.7 million during the nine months ended September 30, ~~2020~~2021. The cash provided by financing activities for the nine months ended September 30, 2022 was related to net proceeds from the revolving line of credit of $2.5 million, partially offset by payments on the term loan of $0.7 million. The cash provided by financing activities for the nine months ended September 30, 2021 was primarily related to net proceeds from the IPO of ~~$36.2~~$36.2 million, proceeds from ~~the January Private Placement~~private placements of ~~$4.1~~$4.1 million and cash received from warrant exercises of ~~$1.7~~$1.7 million, partially offset by net payments on the term loans of ~~$2.4~~$2.4 million, net payments on the revolving line of credit of $0.3 million, $0.1 million inof debt issuance costs and $1.3 million related to share repurchases. Net cash provided by financing activities during the nine months ended September 30, 2020 was related to proceeds from the revolving line of credit, proceeds related to the June 2020 Notes and proceeds related to the PPP Loans.repurchases.

Indebtedness

As of September 30, ~~2021,~~2022, our indebtedness consisted of a term loan and a revolving credit facility. For additional details about the terms, covenants and restrictions contained in the Wintrust Credit Facility, see "Note 7 - Debt" to our interim condensed consolidated financial statements included in this Quarterly ~~Report on Form 10-Q.~~Report.

~~Off-balance sheet arrangements~~

~~We do not have any off-balance sheet arrangements, as defined by applicable regulations~~Critical Accounting Estimates

Our discussion and analysis of ~~the SEC, that are reasonably likely to have a current or future material effect on~~ our financial condition and results of operations ~~liquidity, capital expenditures or capital resources.~~

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~~Critical accounting policies and significant estimates~~

~~In connection~~are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with ~~the~~GAAP. The preparation of our unaudited condensed consolidated financial statements ~~prepared in accordance with GAAP, we are required~~and related disclosures requires us to make estimates, assumptions and ~~estimates about future events, and apply~~ judgments that affect the reported ~~amount~~amounts of assets, liabilities, ~~revenues,~~net sales, costs and expenses and ~~the~~ related disclosures. We believe that the estimates, assumptions and judgements involved in the accounting policies described below and in our Annual Report for the year ended December 31, 2021 have ~~identified~~the greatest potential impact on our financial statements and, therefore, we consider those to be our critical accounting ~~policies~~estimates. Accordingly, we evaluate our estimates and ~~significant~~assumptions on an ongoing basis. Our actual results may differ from these estimates that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. Our most critical accounting policies are related to accounting for warrants, share-based compensation, accounting for convertible notes, goodwill impairment, revenue recognition, accounting for business combinationsassumptions and ~~income taxes. There~~conditions. Other than noted below, there have been no material changes to our critical accounting ~~policies and estimated~~estimates compared to the descriptions in our Annual Report for the year ended December 31, ~~2020.~~2021.

Goodwill Impairment

We evaluate goodwill for impairment at least annually at the reporting unit level. We monitor the existence of potential impairment indicators throughout the year and will evaluate for impairment whenever events or circumstances indicate that the fair value of a reporting unit is below its carrying value. Impairment testing is based on our current business strategy in light of present industry and economic conditions, as well as future expectations. Fair value measurements used in the impairment review of goodwill are Level 3 measurements.

When evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions, and overall company financial performance. If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, a quantitative impairment test is unnecessary. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill. We consider fair value to be substantially in excess of carrying value at a 20% premium or greater.

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When performing a quantitative impairment test, determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes. If a quantitative assessment is deemed necessary, we determine fair value using a weighted average of widely accepted valuation techniques, including the income approach and market approach. The income approach applies a fair value methodology based on discounted cash flows, which contains uncertainties because it requires management to make significant assumptions and judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital or discount rate, which is risk-adjusted to reflect the specific risk profile of our business. The market approach includes determining appropriate comparable companies and applying an estimated multiple to apply to our operating results. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization.

See "Note 6 - Goodwill and intangible assets" to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information regarding goodwill impairment assessment completed during the period.

In performing our assessments, we believe that we have made reasonable estimates based on the facts and circumstances that were available. However, the determination of fair value includes assumptions that are subject to risk and uncertainty. If our future performance varies from current expectations, assumptions, or estimates, including those assumptions around inflationary pressures on product and labor costs, our revenue growth rates and our overall profitability, as well as our expectations around the duration of our stock price decline, may trigger future impairment charges. We will continue to monitor developments throughout the remainder of 2022, including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are 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

Evaluation of disclosure controls and procedures

Management evaluated its internal control over financial reporting for the quarter ended September 30, ~~2021.~~2022. Based upon that evaluation, ~~and as a result of the remediation of previously identified material weaknesses, as described in~~ our ~~most recent Annual Report, our Chief~~Principal Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2021.~~2022.

Changes in internal control over financial reporting

~~As of September 30, 2021, management concluded that the remediated controls were operating effectively.~~ There were no ~~other~~ changes in internal control over financial reporting during the fiscal quarter ended September 30, ~~2021~~2022 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II

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

Other than ~~otherwise~~ noted below, there have been no material changes from the risk factors described under the heading “Risk Factors” in ~~the Registration Statement on Form S-1/A~~our Annual Report filed on ~~June 16, 2021 (the "IPO Registration Statement"). Other than noted below, while~~March 29, 2022. Additionally, in the Quarterly Report filed with the SEC on August 11, 2022, we ~~believe there have been no material changes~~included a risk factor concerning our ability to continue as a going concern for at least one year from the ~~risk factors previously disclosed, you~~issuance of the financial statements which has since been alleviated and therefore removed from our Risk Factors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for further discussion around going concern. You should carefully consider, in addition to the other information set forth in this report, the below and the risk factors discussed in our ~~IPO Registration Statement~~Annual Report that could materially affect our business, financial condition or future results. The risks described in our ~~IPO Registration Statement~~Annual Report are not the only risks facing our Company. In addition to risks and uncertainties inherent in forward-looking statements contained in this Quarterly 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.

~~Increases in sourcing, manufacturing and/~~If our goodwill or ~~warehousing costs, supply shortages, and/~~amortizable intangible assets become impaired, then we could be required to record a significant charge to earnings.

We evaluate goodwill for impairment at least annually. We monitor the existence of potential impairment indicators throughout the year and will evaluate for impairment whenever events or ~~supply changes could have an adverse effect on our business, financial condition, and operating results.~~

~~Our products are sourced from~~circumstances indicate that the fair value of a ~~limited number of third-party suppliers, and as a result we~~reporting unit is below its carrying value. Factors that may be ~~subject to price fluctuations or demand disruptions. Our operating results would be negatively impacted by increases~~considered a change in circumstances indicating that the ~~prices~~carrying value of our ~~products, and we have no guarantees that prices will not rise. Increases in our supplier costs could have a material effect on our gross margins. We~~goodwill or amortizable intangible assets may not be ~~able to pass increased prices on to customers, which could adversely affect our margins~~recoverable include declines in stock price, market capitalization or cash flows, and operating results. Our ability to meet increases in demand may be impacted by our reliance on our suppliers and we are subject to the risk of shortages and long lead times. We may not be able to develop alternate sources in a timely manner. Therefore, we may not be able to source sufficient product on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner.

~~Table of Contents~~

~~Additionally, product we receive from suppliers may not be of sufficient quality or free from damage, or such merchandise may be damaged during shipping or while stored~~slower growth rates in our ~~fulfillment center. We may incur additional expenses and our reputation~~industry. Depending on the results of these evaluations, we could be ~~harmed if customers and potential customers believe that~~required to record a significant charge to earnings in our ~~merchandise does not meet their expectations, is not properly labeled or is damaged.~~

~~In addition, supply chains may be impacted by events outside~~consolidated financial statements during the period in which any impairment of our ~~control and limit~~goodwill or amortizable intangible assets were determined, negatively impacting our ~~ability to procure timely delivery~~results of our products. The loss of a significant supplier, an increase in supplier costs, or delays or disruptions in the delivery of product, could adversely impact our ability to generate future revenue and earnings and have an adverse effect on our business, financial condition, and operating results.operations.

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

Purchases of Equity Securities by the Issuer

The ~~following table~~below presents information with respect to ~~our repurchases of Better Choice Company~~ common stock repurchases during the three months ended September 30, ~~2021:~~2022:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2021 to July 31, 2021 — $ — — $ 2,000,000
August 1, 2021 to August 31, 2021 206,689 $ 3.64 206,689 $ 1,246,801
September 1, 2021 to September 30, 2021 138,086 $ 3.77 138,086 $ 726,590
Total 344,775 $ 3.69 344,775


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2022 to July 31, 2022	—	$	—	—	$	3,000,000
August 1, 2022 to August 31, 2022	—	$	—	—	$	3,000,000
September 1, 2022 to September 30, 2022	—	$	—	—	$	3,000,000
Total	—	$	—	—

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following exhibits are filed herewith.

EXHIBIT INDEX

Exhibit Exhibit Description Form File
No. Exhibit Filing
date
2.1
Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc. and Bona Vida, Inc.
8-K 333-161943 2.1 05/10/2019
2.2
First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019
8-K 333-161943 2.2 05/10/2019
2.3
Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC
8-K 333-161943 2.3 05/10/2019
2.4
First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC, dated May 6, 2019
8-K 333-161943 2.4 05/10/2019
2.5
Amended and Restated Stock Purchase Agreement, dated December 18, 2019, by and among the Company, Halo, Purely For Pets, Inc., Thriving Paws, LLC and HH-Halo LP
8-K 333-161943 2.1 12/26/2019
3.1
Certificate of Incorporation, dated January 1, 2019
10-Q 333-161943 3.1 04/15/2019
3.2
Certificate of Amendment to Certificate of Incorporation, dated February 1, 2019
10-Q 333-161943 3.2 04/15/2019


Exhibit	Exhibit Description	Form	File No.	Exhibit	Filing Date
2.1	Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc. and Bona Vida, Inc.	8-K	333-161943	2.1	05/10/2019
2.2	First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019	8-K	333-161943	2.2	05/10/2019
2.3	Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC	8-K	333-161943	2.3	05/10/2019
2.4	First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC, dated May 6, 2019	8-K	333-161943	2.4	05/10/2019
2.5	Amended and Restated Stock Purchase Agreement, dated December 18, 2019, by and among the Company, Halo, Purely For Pets, Inc., Thriving Paws, LLC and HH-Halo LP	8-K	333-161943	2.1	12/26/2019
2.6	Agreement and Plan of Merger, dated July 28, 2022, by and among TruPet LLC and Halo, Purely for Pets, Inc.	10-Q	001-40477	2.6	08/11/2022
3.1	Certificate of Incorporation, dated January 1, 2019	10-Q	333-161943	3.1	04/15/2019
3.2	Certificate of Amendment to Certificate of Incorporation, dated February 1, 2019	10-Q	333-161943	3.2	04/15/2019
3.3	Certificate of Amendment to Certificate of Incorporation, dated March 13, 2019	8-K	333-161943	3.1	03/20/2019
3.4	Certificate of Amendment to Certificate of Incorporation, dated April 18, 2019	10-KT	333-161943	3.5	07/25/2019
3.5	Certificate of Amendment to Certificate of Incorporation, dated July 30, 2020	8-K	333-161943	99.1	07/30/2020
3.6	Certificate of Merger of Sport Endurance, Inc. with and into the Company	10-Q	333-161943	3.4	04/15/2019
3.7	Bylaws	10-Q	333-161943	3.5	04/15/2019
3.8	Certificate of Designation for Series F Convertible Preferred Stock	8-K	333-161943	3.1	10/02/2020
3.9	Certificate of Cancellation of Series F Preferred Stock of Better Choice Company Inc.	8-K	001-40477	3.1	07/29/2022
3.10	Certificate of Merger of TruPet LLC with and into Halo, Purely for Pets, Inc.	10-Q	001-40477	3.10	08/11/2022
4.1	Form of Warrant in connection with the November 2019 private placement	8-K	333-161943	4.2	11/15/2019
4.2	Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers	10-Q	333-161943	10.6	01/31/2020
4.3	Form of Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers	10-Q	333-161943	4.8	01/31/2020
4.4	Form of Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors	10-Q	333-161943	4.10	01/31/2020
4.5	Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement	8-K	333-161943	10.1	04/30/2019
4.6	Form of Subscription Agreement in connection with the November 2019 private placement	8-K	333-161943	10.1	11/15/2019
4.7†	Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan	10-K	333-161943	10.19	05/04/2020
4.8†	Form of 2019 Incentive Award Plan Stock Option Agreement	S-1	333-234349	10.7	10/28/2019
4.9	Form of Warrant in connection with the June 2020 private placement.	10-Q	333-161943	4.11	06/25/2020
4.10	Form of Subscription Agreement in connection with the June 2020 private placement.	10-Q	333-161943	4.13	06/25/2020

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Exhibit Exhibit Description Form File
No. Exhibit Filing
date
3.3
Certificate of Amendment to Certificate of Incorporation, dated March 13, 2019
8-K 333-161943 3.1 03/20/2019
3.4
Certificate of Amendment to Certificate of Incorporation, dated April 18, 2019
10-KT 333-161943 3.5 07/25/2019
3.5
Certificate of Amendment to Certificate of Incorporation, dated July 30, 2020
8-K 333-161943 99.1 07/30/2020
3.6
Certificate of Merger of Sport Endurance, Inc. with and into the Company
10-Q 333-161943 3.4 04/15/2019
3.7
Bylaws
10-Q 333-161943 3.5 04/15/2019
3.8
Amended and Restated Certificate of Designation for Series E Convertible Preferred Stock
8-K 333-161943 3.1 05/23/2019
3.9
Certificate of Designation for Series F Convertible Preferred Stock
8-K 333-161943 3.1 10/02/2020
3.10
Certificate of Cancellation of the Amended and Restated Certificate of Designation Preference and Rights of the for Series E Convertible Preferred Stock
S-1/A 333-256405 3.9 06/16/2021
4.1
Form of Common Stock Purchase Warrant in connection with the May 2019 private placement
8-K 333-161943 4.1 04/30/2019
4.2
Form of Tranche 1 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Registrant and Bruce Linton
8-K 333-161943 4.1 09/23/2019
4.3
Form of Tranche 2 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton
8-K 333-161943 4.2 09/23/2019
4.4
Form of Additional Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton
8-K 333-161943 4.3 09/23/2019
4.5
Form of Subordinated Convertible Promissory Note in connection with the November 2019 private placement
8-K 333-161943 4.1 11/15/2019
4.6
Form of Common Stock Purchase Warrant in connection with the November 2019 private placement
8-K 333-161943 4.2 11/15/2019
4.7
Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers
10-Q 333-161943 10.6 01/31/2020
4.8
Form of Subordinated Convertible Promissory Note, dated December 19, 2019, by and among the Company and the Halo Sellers listed on the signature pages thereto
10-Q 333-161943 4.7 01/31/2020
4.9
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers
10-Q 333-161943 4.8 01/31/2020
4.10
Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors
10-Q 333-161943 4.10 01/31/2020
4.11
Form of Common Stock Purchase Warrant Agreement in connection with the December 2018 private placement
8-K 333-161943 4.1 12/13/2018
4.12
Registration Rights Agreement, dated May 6, 2019, by and among the Company and the persons listed on the signature pages thereto in connection with the May 2019 private placement
S-1 333-234349 10.2 10/28/2019
4.13
First Amendment, dated June 10, 2019, to Registration Rights Agreement, dated May 6, 2019, by and among the Company and the stockholders party thereto
S-1 333-234349 10.3 10/28/2019
4.14
Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement
8-K 333-161943 10.1 04/30/2019
4.15
Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former stockholders of Bona Vida listed on the signature pages thereto
8-K 333-161943 4.1 05/10/2019
4.16
Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former member of TruPet listed on the signature pages thereto
8-K 333-161943 4.2 05/10/2019
4.17
Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the November 2019 private placement
8-K 333-161943 4.3 11/15/2019


Exhibit	Exhibit Description	Form	File No.	Exhibit	Filing Date
4.11	Form of July 2020 Warrants	8-K	333-161943	10.5	07/21/2020
4.12	Form of Warrant in connection with the October 2020 Series F Private Placement	8-K	333-161943	4.1	10/02/2020
4.13	Form of Securities Purchase Agreement in connection with the October 2020 Series F Private Placement	8-K	333-161943	10.1	10/02/2020
4.14	Form of Warrant in connection with the January 2021 Private Placement	S-1/A	333-251241	4.22	02/16/2021
4.15	Form of Securities Purchase Agreement in connection with the January 2021 Private Placement	S-1/A	333-251241	4.23	02/16/2021
10.1†	Form of Indemnification Agreement by and among the Company and its officers and directors	S-1	333-234349	10.8	10/28/2019
10.2†	Employment Agreement, dated December 28, 2020 by and between Scott Lerner and the Company	8-K/A	333-161943	10.2	01/05/2021
10.3†	Employment Agreement, dated October 8, 2020, by and between Sharla Cook and the Company	10-K	333-161943	10.12	03/30/2021
10.4†	Employment Agreement, dated September 27, 2020, by and between Robert Sauermann and the Company	10-K	333-161943	10.13	03/30/2021
10.5†	Employment Agreement, dated January 1, 2021, by and between Donald Young and the Company	10-K	333-161943	10.14	03/30/2021
10.6	Loan and Security Agreement, dated as of January 6, 2021, by and between Old Plank Trail Community Bank, N.A. and Halo, Purely for Pets, Inc.	8-K	333-161943	10.1	01/11/2021
10.7	Term Note A, dated as of January 6, 2021, issued by Halo Purely for Pets, Inc.	8-K	333-161943	10.3	01/11/2021
10.8	Guaranty and Security Agreement, dated as of January 6, 2021, made by Better Choice Company Inc., TruPet LLC, and Bona Vida, Inc., a Delaware corporation	8-K	333-161943	10.4	01/11/2021
10.9	Intellectual Property Security Agreement, dated as of January 6, 2021, executed and delivered by the Company, TruPet and Bona Vida	8-K	333-161943	10.5	01/11/2021
10.10	Stock Pledge Agreement, dated as of January 6, 2021, executed and delivered by the Company in favor of Lender	8-K	333-161943	10.6	01/11/2021
10.11	First Amendment to Loan and Security Agreement, dated as of January 6, 2021, by and between Old Plank Trail Community Bank, N.A. and Halo, Purely for Pets, Inc.	8-K	001-40477	10.1	08/17/2021
10.12	Revolving Promissory Note, dated as of August 13, 2021, issued by Halo Purely for Pets, Inc.	8-K	001-40477	10.2	08/17/2021
10.13	Deposit Account Pledge Agreement, dated as of August 13, 2021, executed and delivered by Halo Purely for Pets, Inc.	8-K	001-40477	10.3	08/17/2021
10.14	Second Amendment to Loan and Security Agreement, dated as of January 6, 2021, by and between Old Plank Trail Community Bank, N.A. and Halo, Purely for Pets, Inc.	10-K	001-40477	10.14	03/29/2022
10.15	Third Amendment to Loan and Security Agreement, dated as of October 24, 2022, by and between Old Plank Trail Community Bank, N.A. (“Lender”) and Halo, Purely for Pets, Inc., a Delaware corporation (“Halo”).	8-K	001-40477	10.1	10/25/2022
10.16	Revolving Promissory Note, dated as of October 24, 2022, issued by Halo in favor of Lender.	8-K	001-40477	10.2	10/25/2022
10.17	First Amendment to Deposit Account Pledge Agreement, dated as of October 24, 2022, executed and delivered by Halo in favor of Lender.	8-K	001-40477	10.3	10/25/2022
10.18†*#	Separation Agreement, dated as of September 14, 2022, by and between the Company and Scott Lerner
10.19†*#	Advisory Consulting Agreement, dated as of November 2, 2022, by and between the Company and Lionel F. Conacher
21.1*	Subsidiaries of the Company

3229

Table of Contents

Exhibit Exhibit Description Form File
No. Exhibit Filing
date
4.18
Form of Subscription Agreement in connection with the November 2019 private placement
8-K 333-161943 10.1 11/15/2019
4.19†
Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan
10-K 333-161943 10.19 05/04/2020
4.20†
Form of 2019 Incentive Aware Plan Stock Option Agreement
S-1 333-234349 10.7 10/28/2019
4.21
Form of Common Stock Purchase Warrant in connection with the June 2020 private placement.
10-Q 333-161943 4.11 06/25/2020
4.22
Form of Subordinated Convertible Promissory Note in connection with the June 2020 private placement.
10-Q 333-161943 4.12 06/25/2020
4.23
Form of Subscription Agreement in connection with the June 2020 private placement.
10-Q 333-161943 4.13 06/25/2020
4.24
Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the June 2020 private placement.
10-Q 333-161943 4.14 06/25/2020
4.25
Form of Amendment to November 2019 Notes, Seller Notes and ABG Notes
10-Q 333-161943 4.15 8/14/2020
4.26
Form of July 2020 Common Stock Purchase Warrants
8-K 333-161943 10.5 07/21/2020
4.27
Form of Warrant in connection with the October 2020 Series F Private Placement
8-K 333-161943 4.1 10/02/2020
4.28
Form of Securities Purchase Agreement in connection with the October 2020 Series F Private Placement
8-K 333-161943 10.1 10/2/2020
4.29
Form of Registration Rights Agreement in connection with the October 2020 Series F Private Placement
8-K 333-161943 10.2 10/2/2020
4.30
Exchange Agreement by and between the Company and Cavalry Fund LP dated September 30, 2020
8-K 333-161943 10.3 10/2/2020
4.31
Form of First Amendment to Registration Rights Agreement in connection with the October 2020 Series F Private Placement
10-Q 333-161943 10.40 11/16/2020
4.32
Form of warrant in connection with the January 2021 Private Placement
S-1/A 333-251241 4.22 2/16/2021
4.33
Form of Securities Purchase Agreement in connection with the January 2021 Private Placement
S-1/A 333-251241 4.23 2/16/2021
4.34
Form of Registration Rights Agreement in connection with the January 2021 Private Placement
S-1/A 333-251241 4.24 2/16/2021
10.1†
Form of Indemnification Agreement by and among the Company and its officers and directors
S-1 333-234349 10.8 10/28/2019
10.2†
Employment Agreement, dated February 1, 2019, for David Lelong
8-K 333-161943 10.1 02/07/2019
10.3†
Employment Agreement, dated as of May 6, 2019, by and between the Company and Damian Dalla-Longa
10-Q 333-161943 10.6 10/09/2019
10.4†
Resignation Letter from Damian Dalla-Longa, dated February 5, 2020
8-K 333-161943 10.3 02/11/2020
10.5†
Amendment to Employment Agreement, dated February 10, 2020, by and between Damian Dalla-Longa and the Company
8-K 333-161943 10.4 02/11/2020
10.6†
Employment Agreement, dated as of May 6, 2019, by and between the Company and Lori Taylor
10-Q 333-161943 10.7 10/09/2019
10.7†
Separation Agreement, dated as of September 13, 2019, by and between the Company and Lori Taylor
10-K 333-161943 10.28 05/04/2020
10.8†
Employment Agreement, dated May 6, 2019, by and among the Company and Anthony Santarsiero
S-1 333-234349 10.11 10/28/2019
10.9†
Employment Agreement, dated June 29, 2019, by and among the Company and Andreas Schulmeyer
S-1 333-234349 10.12 10/28/2019
10.10†
Employment Agreement, dated December 19, 2019, by and between the Company, Werner von Pein, and Halo
8-K 333-161943 10.1 02/11/2020
10.11†
Amendment to Employment Agreement, dated February 10, 2020, by and between Werner von Pein and the Company
8-K 333-161943 10.2 02/11/2020
10.12†
Employment Agreement, dated October 8, 2020, by and between Sharla Cook and the Company
10-K 333-161943 10.12 3/30/2021

~~Table of Contents~~

Exhibit Exhibit Description Form File
No. Exhibit Filing
date
10.13†
Employment Agreement, dated September 27, 2020, by and between Robert Sauermann and the Company
10-K 333-161943 10.13 3/30/2021
10.14†
Employment Agreement, dated January 1, 2021, by and between Donald Young and the Company
10-K 333-161943 10.14 3/30/2021
10.15†
Separation and Retirement Agreement, Dated December 28, 2020 by and between Werner von Pein and the Company
8-K/A 333-161943 10.1 1/5/2021
10.16†
Employment Agreement, Dated December 28, 2020 by and between Scott Lerner and the Company
8-K/A 333-161943 10.2 1/5/2021
10.17
Loan and Security Agreement, dated as of January 6, 2021, by and between Old Plank Trail Community Bank, N.A. ("Lender") and Halo, Purely for Pets, Inc., a Delaware corporation ("Halo")
8-K 333-161943 10.1 1/11/2021
10.18
Term Note A, dated as of January 6, 2021, issued by Halo in favor of Lender
8-K 333-161943 10.3 1/11/2021
10.19
Guaranty and Security Agreement, dated as of January 6, 2021, made by Better Choice Company Inc. (the "Company"), TruPet LLC, a Delaware limited liability company ("TruPet") and Bona Vida, Inc., a Delaware corporation ("Bona Vida"), in favor of Lender
8-K 333-161943 10.4 1/11/2021
10.20
Intellectual Property Security Agreement, dated as of January 6, 2021, executed and delivered by the Company, TruPet and Bona Vida in favor of Lender
8-K 333-161943 10.5 1/11/2021
10.21
Stock Pledge Agreement, dated as of January 6, 2021, executed and delivered by the Company in favor of Lender
8-K 333-161943 10.6 1/11/2021
10.22
First Amendment to Loan and Security Agreement, dated as of January 6, 2021, by and between Old Plank Trail Community Bank, N.A. ("Lender") and Halo, Purely for Pets, Inc., a Delaware corporation ("Halo")
8-K 001-40477 10.1 8/17/2021
10.23
Revolving Promissory Note, dated as of August 13, 2021, issued by Halo in favor of Lender.
8-K 001-40477 10.2 8/17/2021
10.24
Deposit Account Pledge Agreement, dated as of August 13, 2021, executed and delivered by Halo in favor of Lender.
8-K 001-40477 10.3 8/17/2021
21.1
Subsidiaries of the Company
S-1 333-256405 21.1 5/21/2021
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
32.1*
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101* The following materials from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders Equity (Deficit), (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes, tagged as blocks of text and including detailed tags
104* Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (included as Exhibit 101)

Exhibit

Exhibit Description

Form

File
No.

Exhibit

Filing
Date

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

32.1*

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

101*

The following materials from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes, tagged as blocks of text and including detailed tags

104*

Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL (included as Exhibit 101)

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

* Filed or furnished herewith.

# 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)(iv). Such excluded information is both not material and ~~would likely cause competitive harm to~~is the type that the registrant ~~if publicly disclosed.~~treats as private or confidential.

3430

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BETTER CHOICE COMPANY INC.

Date: November 10, ~~2021~~2022	By:	/s/ ~~SCOTT LERNER~~LIONEL F. CONACHER

		~~Scott Lerner~~Lionel F. Conacher
		Interim Chief Executive Officer (Principal Executive Officer)

Date: November 10, ~~2021~~2022	By:	/s/ SHARLA A. COOK

		Sharla A. Cook
		Chief Financial Officer (Principal Financial and Accounting Officer)

3531


	Common Stock									Redeemable Series E Convertible Preferred Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Deficit		Shares	Amount
Balance as of December 31, 2019	7,996,232	$	8	$	194,190	$	(201,269)	$	(7,071)	1,387,378	$	10,566
Shares issued pursuant to a private placement	51,440	—		500		—		500		—	—
Share-based compensation	75,993	1		2,484		—		2,485		—	—
Shares and warrants issued to third party for contract termination	12,120	—		198		—		198		—	—
Shares issued to third parties for services	20,833	—		125		—		125		—	—
Warrants issued to third parties for services	—	—		2,594		—		2,594		—	—
Net loss available to common stockholders	—	—		—		(9,488)		(9,488)		—	—
Balance as of March 31, 2020	8,156,618	$	9	$	200,091	$	(210,757)	$	(10,657)	1,387,378	$	10,566
Warrants issued to third parties for services	—	—		7,390		—		7,390		—	—
Share-based compensation	—	—		3,020		—		3,020		—	—
Warrants issued in connection with June 2020 Notes	—	—		337		—		337		—	—
Beneficial conversion feature of June 2020 Notes	—	—		1,163		—		1,163		—	—
Modification of conversion feature for November 2019 Notes, Seller Notes, and ABG Notes	—	—		528		—		528		—	—
Modification of warrants	—	—		43		—		43		—	—
Net loss available to common stockholders	—	—		—		(18,438)		(18,438)		—	—
Balance as of June 30, 2020	8,156,618	$	9	$	212,572	$	(229,195)	$	(16,614)	1,387,378	$	10,566
Shares issued pursuant to warrant exercise	33,334	—		—		—		—		—	—
Share-based compensation	—	—		1,543		—		1,543		—	—
Warrants issued in connection with ABL Facility	—	—		230		—		230		—	—
Net loss available to common stockholders	—	—		—		(1,728)		(1,728)		—	—
Balance as of September 30, 2020	8,189,952	$	9	$	214,345	$	(230,923)	$	(16,569)	1,387,378	$	10,566


Remainder of 2021	$	382
2022	1,527
2023	1,527
2024	1,527
2025	1,527
Thereafter	5,478
	$	11,968


Dollars in thousands	September 30, 2021					December 31, 2020
	Amount		Rate		Maturity Date	Amount		Rate		Maturity Date
Term loan, net	$	5,559	(1)		1/6/2024	$	7,826	(2)		1/15/2021
Line of credit, net	4,846		(1)		1/6/2024	5,023		(3)		7/5/2022
November 2019 notes payable, net (November 2019 Notes)	—		—	%	(4)	2,830		10	%	6/30/2023
December 2019 senior notes payable, net (Senior Seller Notes)	—		—	%	(4)	10,332		10	%	6/30/2023
December 2019 junior notes payable, net (Junior Seller Notes)	—		—	%	(4)	4,973		10	%	6/30/2023
ABG Notes	—		—	%	(4)	687		10	%	6/30/2023
June 2020 notes payable, net (June 2020 Notes)	—		—	%	(4)	88		10	%	6/30/2023
Halo PPP Loan	—		—	%	(4)	431		1	%	5/3/2022
TruPet PPP Loan	—		—	%	(4)	421		0.98	%	4/6/2022
Total debt	10,405					32,611
Less current portion	780					8,016
Total long term debt	$	9,625				$	24,595


	September 30, 2021	December 31, 2020
Conversion of Series F Preferred Stock	—	7,251,189
Exercise of options to purchase common stock	2,672,937	1,302,574
Exercise of warrants to purchase common stock	9,433,584	9,916,997
Conversion of notes payable	—	1,255,039
Total	12,106,521	19,725,799


Warrant Liability	July 1, 2021	December 31, 2020
Stock Price	$4.19	$7.62
Exercise Price	$4.50	$4.50
Expected remaining term (in years)	5.25 - 5.31	5.75 - 5.81
Volatility	60.0%	67.5%
Risk-free interest rate	0.94%	0.5%