AcquisitionUse of Halo
On October 15, 2019, the Company entered into a Stock Purchase Agreement (the “Halo Agreement”) to acquire Halo, a Delaware corporation. Halo is an ultra-premium, natural pet food brand. The strategic objective of the acquisition was to accelerate the growth of the Company’s animal health platform by acquiring an all-encompassing, global, animal health and wellness consumer product goods company. Under the terms of the Halo Agreement, the Company completed the Halo Acquisition on December 19, 2019 (the “Halo Acquisition Date”), for $38.2 million. The consideration was subject to customary adjustments for Halo’s net working capital, cash, and indebtedness, and consisted of a combination of (i) cash consideration of $20.5 million, (ii) 2,134,390 shares of the Company’s common stock, par value $0.001 per share ($3.9 million), (iii) Seller Notes totaling $15,000,000, and (iv) 937,500 Seller Warrants ($0.3 million). The Company incurred $0.9 million in transaction costs, which are included in general and administrative expenses.Estimates
The Halo Acquisition was accounted for underpreparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the purchase methodreported amounts of accounting, and accordingly, the purchase price was allocated to the identifiable assets and liabilities, based on their estimated fair valuesdisclosure of contingent assets and liabilities at the Halo Acquisition Date. Halo’sdate 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 $0.7 million and netmanagement, the condensed consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive loss for the periods ended March 31, 2021 and 2020, the financial position as of $0.2 million have been includedMarch 31, 2021 and December 31, 2020 and the cash flows for the periods ended March 31, 2021 and 2020. Going Concern Considerations The Company is subject to risks common in the consolidated resultspet wellness consumer market including, but not limited to, dependence on key personnel, competitive forces, successful marketing and sale of its products, the Company since the Halo Acquisition Date.successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government TABLE OF CONTENTS regulations. As of March 31, 2021, the Company has not experienced a significant adverse impact to its business, financial condition or cash flows resulting from the COVID-19 pandemic. However, uncertainties regarding the continued economic impact of COVID-19 are likely to result in sustained market turmoil which could also negatively impact the Company's business, financial condition, and cash flows in the future. The determinationCompany has continually incurred losses and has an accumulated deficit. The Company continues to rely on current investors and the public markets to finance these losses through debt and/or equity issuances. These operating losses, working capital deficit and the outstanding debt create substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the preliminary purchase price allocationdate these condensed consolidated financial statements are issued. The Company is implementing plans to specific assets acquiredachieve cost savings and liabilities assumedother strategic objectives to address these conditions. The Company expects cost savings from consolidation of third-party manufacturers, optimizing shipping and warehousing as well as overhead cost reductions. The business is incomplete for Halo.focused on successful completion of capital raises and growing the most profitable channels while reducing investments in areas that are not expected to have long-term benefits. The preliminary purchase price allocation may change in future periodsaccompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the fair value estimatesrealization of assets and payments of liabilities in the ordinary course of business. Accordingly, the condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that may result should the Company be unable to continue as a going concern. Summary of Significant Accounting Policies For additional information, please refer to our most recently filed Annual Report regarding the Company's summary of significant accounting policies. 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 valuationrelated 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)” 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 new standard will have on its consolidated financial statements. ASU 2020-04 “Reference Rate Reform (Topic 848), Facilitation of the related tax assetsEffects 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 liabilities are completed. The preliminary purchase price allocation is summarized as follows: Dollars in thousands
| | | | Total purchase price
| | | $38,244
| | | | | Assets and liabilities acquired:
| | | | Assets
| | | | Property and equipment
| | | 260
| Accounts receivable
| | | 5,540
| Inventories
| | | 5,160
| Intangible assets
| | | 14,690
| Other assets
| | | 329
| Total assets
| | | 25,979
| Liabilities
| | | | Accounts payable
| | | 4,628
| Accrued liabilities
| | | 1,553
| Long term liability
| | | 168
| Total liabilities
| | | 6,349
| Net assets acquired
| | | 19,630
| Goodwill
| | | $18,614
|
The intangible assets acquired relateexceptions for applying generally accepted accounting principles to customercontracts, hedging relationships, and trade name. The intangible asset related to customer relationships reflects the estimated net present value of the future cash flows associated with the stable and recurring customer base acquired in the Halo Acquisition. The fair value was determined using an income approach, which recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs for each product line. Acquired customer relationships are finite-lived intangible assets and are amortized over their estimated life of 7 years using the straight-line method, which approximates the customer attrition rate, reflecting the pattern of economic benefits associated with these assets.
All of Halo’s products and services are sold under the “Halo” trade name, and each major product is identifiedother transactions affected by this trade name. The trade name of the Company was valued on an income approach using a 2% royalty rate which is supported by both market royalty rate data and profitability factors of Halo. The trade name is a finite-lived intangible asset and is being amortized over its estimated life of 15 years using the straight-line method, which reflects the pattern of economic benefits associated with this asset.
The excess of purchase price over the fair value amounts assigned to the identifiable assets acquired and liabilities assumed represents goodwill from the acquisition. The Company believes the factors that contributed to goodwill include the acquisition of a talented workforce and administrative cost synergies. The Company does not expect any portion of this goodwill to be deductible for tax purposes. See “Note 9—Intangible assets, royalties and goodwill.”
TABLE OF CONTENTS Pro Forma Information (Unaudited)
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 following pro forma results reflect only pro forma adjustments for additional interest expenseASU provides companies with optional guidance to fundease the Halo Acquisition, amortization of deferred financing costs related to short term loan and line of credit, reduction in interest expensepotential 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 repaymentimpact the standard will have on its consolidated financial statements and related disclosures. ASU 2020-06 “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU reduces the number of accounting models for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the Halo debt on the Halo Acquisition Date, amortization of identifiable intangible assets associated with the Halo Acquisition, share-based compensation expense relatedrequirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to stock options granted and effects of adjustments made to carrying values of acquired assets and liabilities. However, pro forma results do not include any anticipated synergies from the acquisition of Halo and accordingly, are not necessarily indicative of the results that would have occurred if the Halo Acquisition had occurred on the dates indicated or that may resultbe classified in the future. Net revenues | | | $48,152 | | | $51,388 | Net loss per share attributable to common stockholders | | | $192,592 | | | $25,958 |
Reverse Acquisitions of Better Choice and Bona Vida by TruPet
On May 6, 2019,equity. This standard is effective for the Company completedbeginning on January 1, 2024 with early adoption permitted. The Company is currently evaluating the May Acquisitions through the issuanceimpact of 33,130,806 shares of common stock, par value $0.001 of the Company. Following the completion of the May Acquisitions, the operations of the Company were primarily comprised of the operations of TruPet and Bona Vida. The strategic objective for combining the two complementary businesses was to create a leading innovative holistic pet wellness company operating in a rapidly evolving and growing industry.
TruPet was determined to be the accounting acquirer of the Company and Bona Vida. As such, the historicalthis standard on its consolidated financial statements are those of TruPet, and TruPet’s equity has been re-cast to reflect the equity structure of the Company and the shares of common stock received. Better Choice exchanged 15,027,533 shares for the outstanding membership interest in TruPet.related disclosures.
The May Acquisitions were accounted for as asset acquisitions. The purchase price for Better Choice Company was $37.9 million which includes stock, minority interest, and fully vested share-based compensation and transaction expenses. The transaction price of Better Choice Company includes 100% of all outstanding stock valued at net $32.7 million, non-cash transaction costs of $4.8 million, cash transaction costs of $0.4 million and fully vested share-based compensation with an estimated fair value of $0.1 million. The stock exchanged in the May Acquisitions of Better Choice Company is equal to the 3,915,856 shares of Better Choice Company outstanding prior to the issuance of additional shares in the May Acquisitions, at the market price of $6.00 per share. The total purchase price has been allocated based on an estimate of the fair value of Better Choice Company’s assets acquired and liabilities assumed with the remainder recorded as an expense. The loss on acquisition of Better Choice Company’s net liabilities is $39.6 million.
The purchase price for Bona Vida was $108.6 million for 100% of all outstanding stock. At the closing of the Bona Vida transaction, the Company issued 18,103,273 shares of common stock in exchange for 100% of the outstanding shares of Bona Vida. The fair value of Bona Vida’s net assets acquired is estimated to be $0.8 million. The estimated purchase price has been allocated based on an estimate of the fair value of assets acquired and liabilities assumed. The excess of the purchase price over the net assets acquired has been recorded as an expense. The loss on acquisition of Bona Vida’s net assets is $107.8 million.
TABLE OF CONTENTS
On May 6, 2019, the fair value of the following assets and liabilities were acquired resulting in the total loss of approximately $147.4 million:
Total Purchase Price | | | $37,949 | | | $108,620 | | | $146,569 | | | | | | | | | | | Net Assets (Liabilities) Acquired:
| | | | | | | | | | Assets
| | | | | | | | | | Cash and cash equivalents | | | 7 | | | 384 | | | 391 | Restricted cash | | | — | | | 25 | | | 25 | Accounts receivable | | | — | | | 69 | | | 69 | Inventories | | | — | | | 95 | | | 95 | Prepaid expenses and other current assets | | | 32 | | | 348 | | | 380 | Intangible assets | | | 986 | | | — | | | 986 | Other assets | | | — | | | 74 | | | 74 | Total Assets | | | 1,025 | | | 995 | | | 2,020 | Liabilities
| | | | | | | | | | Warrant derivative liability | | | (2,130) | | | — | | | (2,130) | Accounts payable & accrued liabilities | | | (544) | | | (153) | | | (697) | Total Liabilities | | | (2,674) | | | (153) | | | (2,827) | Net Assets (Liabilities) Acquired | | | (1,649) | | | 842 | | | (807) | Loss on Acquisitions | | | $(39,598) | | | $(107,778) | | | $(147,376) |
Note 3 –2 - Revenue The Company recognizesrecords revenue to depict the transfernet of promised goods to the customer in an amount that reflects the consideration todiscounts, which the Company expects to be entitled in exchange for the goods. primarily consist of early pay discounts, general percentage allowances and contractual trade promotions. The Company has two categories of revenue channels: retail-partnerexcludes sales taxes collected from revenues. Retail-partner based (“Retail”), which includes the sale of productcustomers are not subject to e-commerce retailers, pet specialty chains, grocery, mass and distributors, and direct to consumer, (“DTC”), which is focused on driving consumers to directly purchase product through our online web platform. A significant portion of the Company’s revenue is derived from the DTC channel which represents 89% of consolidated revenue; the Retail channel represents 11% of consolidated revenue for the year ended December 31, 2019. The revenue channel percentage will change in 2020 with the acquisition of Halo, as the Halo business is predominantly driven by the Retail channel. The majority of these sales transactions are single performance obligations that are recorded when control is transferred to the customer. The Company offers a loyalty program to their DTC customer which creates a separate performance obligation upon customer participation. The following is a description of principal activities from which the Company generates its revenue, by revenue channel.tax.
The Company’s DTC products are offered through the online stores where customers place orders directly for delivery across the United States. Revenue is recorded, net of point of sale discounts, at the time the order is shipped to the customer as this is when it has been determined that control has been transferred, and includes shipping paid by customers. Revenue is measured as the amount of consideration, net of discounts, the Company expects to receive in exchange for transferring the merchandise. The Company has elected to exclude from revenue all collected sales taxes paid by its customers. Revenue is deferred for orders that have been placed, and paid for, but have not yet have been shipped. Based on the historical experience, the Company records an estimated liability for returns. Product returns were less than $0.4 million and $0.7 million in 2019 and 2018, respectively.
For the Company’s DTCdirect-to-consumer (“DTC”) loyalty program, a portion of revenue is deferred at the time of the sale as points are earned based on the relative stand-alone selling price, and not recognized until the redemption of the loyalty points. The program enables customers to accumulate points based on their spending. For every $1 spent, customers receive
TABLE OF CONTENTS
twelveA portion of revenue is deferred at the time of sale when points are earned and for every five hundredrecognized when the loyalty points earned, customers will receive a $5 gift card which can be redeemed for goods purchased on-line. The points do not expire and the Company, based on historical redemption experience estimates a redemption rate of 37%.are redeemed. As of March 31, 2021 and December 31, 2019 and 2018,2020, customers earned, but not redeemed,held unredeemed loyalty program awards amounted to $0.2of $0.3 million and less than $0.1$0.4 million, respectively. The Company recognized less than $0.2 million as revenue from the loyalty program for the year ended December 31, 2019. There was no revenue recognized for the year ended December 31, 2018 related to the loyalty program.
The amount included in net sales related to recoveries of shipping costs by charging the customer a shipping fee for direct to consumer customers was $0.7 million and $0.9 million for the years ended December 31, 2019 and 2018, respectively.Shipping Costs
The Company’s Retail channel includes the sale of goods to Retail customers for resale. The Retail sale of goods is considered a single performance obligation. The Company records revenue net of point of sale discounts. Retail customers are not subject to sales tax.
Revenue for Retail sales are recognized when the product is shipped to the Retail customer as this is when it has been determined that control has been transferred, the majority of Retail customers pick up their orders. There is an exception with one key customer with specific FOB destination shipping terms as this is when it has been determined that control has transferred. Shipping costs associated with moving finished products to customers through third party carriers were $2.3$0.5 million and $2.5$0.4 million for the yearsthree months ended DecemberMarch 31, 20192021 and 2018,2020, respectively. Such shipping costs are recorded as part of general and administrative expenses.
Note 4 – InventoriesRevenue Channels
Inventories are summarized as follows:
Food, treats and supplements | | | $6,425 | | | $1,301 | Inventory packaging and supplies | | | 504 | | | 133 | Other products and accessories | | | 73 | | | 191 | | | | 7,002 | | | 1,625 | Inventory reserve | | | (422) | | | (68) | | | | $6,580 | | | $1,557 |
Note 5 – Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
Prepaid advertising & marketing | | | $1,776 | | | $— | Prepaid slotting fees | | | 425 | | | — | Prepaid insurance | | | 164 | | | 15 | Deposits | | | 115 | | | — | Prepaid state registration fees | | | 81 | | | — | Other | | | 80 | | | 254 | Total prepaid expenses and other current assets | | | $2,641 | | | $269 |
On August 28, 2019, the Company entered into a radio advertising agreement with iHeartMedia + Entertainment, Inc. and issued 1,000,000 shares of common stock valued at $3.4 million for future advertising to be provided to the Company from August 2019 to August 2021. During the year ended December 31, 2019, $0.6 million of the $3.4 million of the prepaid advertising was incurred. In addition, the agreement required the Company to spend a minimum amount for talent fees or other direct iHeart costs. The company has committed to using $1.7 million of the media inventory by August 28, 2020, with the remainder of the inventory available through August 28, 2021. The Company expensed $0.6 milliongroups its revenue channels into four distinct categories: E-Commerce, which includes the sale of product to online retailers such as Amazon and Chewy; Brick & Mortar, which includes the media inventory forsale of product to pet specialty chains such as Petco, PetSmart, select grocery chains, and neighborhood pet stores; DTC which includes the year ended December 31, 2019, reducingsale of product through the prepaid advertising balanceCompany's online web platform to $2.8 million,more than 20,000 unique customers; and International, which includes the sale of which $1.7 millionproduct to foreign distribution partners (transacted in U.S. dollars) and to select international retailers. Information about the Company’s net sales by revenue channel is recorded in prepaid expenses and other current assets and $1.1 million in other noncurrent assets.as follows (in thousands):
E-commerce | | | $4,010 | | | 37% | | | $4,481 | | | 37% | Brick & Mortar | | | 1,894 | | | 18% | | | 2,897 | | | 23% | DTC | | | 2,436 | | | 22% | | | 2,804 | | | 23% | International | | | 2,490 | | | 23% | | | 2,044 | | | 17% | Net Sales | | | $10,830 | | | 100% | | | $12,226 | | | 100% |
TABLE OF CONTENTS Note 6 – Property3 - Inventories Inventories are summarized as follows (in thousands): Food, treats and supplements | | | $4,439 | | | $4,987 | Inventory packaging and supplies | | | 503 | | | 596 | Total Inventories | | | 4,942 | | | 5,583 | Inventory reserve | | | (360) | | | (714) | Inventories, net | | | $4,582 | | | $4,869 |
Note 4 - Prepaid expenses and equipmentother current assets Prepaid advertising contract with iHeart (1) | | | $2,500 | | | $1,788 | Other prepaid expenses and other current assets (2) | | | 1,758 | | | 2,286 | Total Prepaid expenses and other current assets | | | $4,258 | | | $4,074 |
Property and equipment consist of the following:Equipment | | | $222 | | | $49 | Furniture and fixtures | | | 138 | | | 46 | Computer software | | | 115 | | | — | Computer equipment | | | 4 | | | 14 | Total property and equipment | | | 479 | | | 109 | Accumulated depreciation | | | (62) | | | (38) | Net property and equipment | | | $417 | | | $71 |
Depreciation expense was less than $0.1 million for the years ended December 31, 2019 and 2018. Depreciation expense is included as a component of general and administrative expenses.
(1)
| On August 28, 2019, the Company entered into a radio advertising agreement with iHeart Media + Entertainment, Inc. and issued 1,000,000 shares of common stock valued at $3.4 million for future advertising services. The Company issued an additional 125,000 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 are required to be utilized within the next twelve months, unless the term is extended. The long-term portion of the remaining value of $0.5 million and $1.2 million was recorded in other non-current assets as of March 31, 2021 and December 31, 2020, respectively. |
(2)
| As of March 31, 2021, this amount includes various other prepaid contracts. During the fourth quarter of 2020, the Company entered into an agreement for access to an investment platform in exchange for 500,000 shares of common stock valued at $0.5 million and also entered into an agreement for marketing services in exchange for 500,000 shares of common stock valued at $0.5 million. |
Note 7 –5 - Accrued liabilities Accrued liabilities consist of the following:following (in thousands): Dollars in thousands | | | December 31,
2019 | | December 31,
2018 | | | | | | March 31, 2021 | | December 31, 2020 | Accrued professional fees | | $1,695 | | $— | | $225 | | $704 | Accrued sales tax | | 1,233 | | — | | 412 | | 1,009 | Accrued payroll and benefits | | 994 | | 85 | | 1,147 | | 913 | Accrued trade promotions | | 357 | | — | | 112 | | 106 | Accrued dividends | | 256 | | — | | Accrued interest | | 109 | | — | | 24 | | 86 | Other | | 77 | | — | | 170 | | 185 | Total accrued liabilities | | $4,721 | | $85 | | $2,090 | | $3,003 |
Note 6 - Intangible assets, royalties, and goodwill Intangible assets The Company has historically collectedCompany’s intangible assets (in thousands) and remitted sales tax based on the locations of its significant physical operations. On June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494. Among other things, the Court held that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. The Company discovered that TruPet had not collected and paid sales tax related to all sales in some states where it had a physical presence. The Company recognized $1.2useful lives (in years) are as follows: Customer relationships | | | 7 | | | $7,190 | | | $(1,317) | | | $5,873 | | | $(1,059) | | | $6,131 | Trade name | | | 15 | | | 7,500 | | | (641) | | | 6,859 | | | (516) | | | 6,984 | Total intangible assets | | | | | | $14,690 | | | $(1,958) | | | $12,732 | | | $(1,575) | | | $13,115 |
Amortization expense was $0.4 million and no sales tax liability as of December 31, 2019 and 2018, respectively. While additional assessments are not anticipated, additional states may assert that the Company has nexus and must pay sales tax for prior sales. The Company does not believe that additional assessments, if any, will have a material impact on our financial position or results of operations. In connection with the preparation of the Company’s consolidated financial statements for the yearthree months ended DecemberMarch 31, 2019, the Company identified an error as of December 31, 2018 related to an understatement of sales taxes due2021 and payable of $0.7 million. The error was corrected during the year ended December 31, 2019. The Company believes that the correction of this error is not material to the consolidated financial statements as of and for the year ended December 31, 2019.
Note 8 – Operating leases
Effective January 1, 2019, the Company adopted the FASB guidance on leases (“Topic 842”), which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted Topic 842 using the modified retrospective transition approach. Prior year financial statements were not recast under Topic 842, and therefore those amounts are not disclosed. The Company has elected certain practical expedients, including the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs as well as an accounting policy to account for lease and non-lease components as a single component. The Company also elected the optional transition method that gives companies the option to2020, respectively.
TABLE OF CONTENTS use the effective date as the date of initial application on transition, and as a result, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date. The Company has elected to make the accounting policy election for short-term leases. Consequently, short-term leases are recorded as an expense on a straight-line basis over the lease term. The Company did not elect the hindsight practical expedient.
The Company’s leases relate to our corporate offices and warehouse. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Lease renewal options are not included in the measurement of the right-of-use assets and right-of-use liabilities unless the Company is reasonably certain to exercise the optional renewal periods. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, the Company’s leases contain rent escalations over the lease term and the Company recognizes expense for these leases on a straight-line basis over the lease term. Some of the Company’s leases include rent escalations based on inflation indexes.
The Company identified an error as of January 1, 2019 related to the adoption of ASC 842, Leases, which resulted in an overstatement of less than $0.1 million for right-of-use assets and operating lease liabilities, respectively. The Company also identified an overstatement of Accumulated Deficit of less than $0.1 million as of January 1, 2019. The errors related to the impact upon adoption of ASC 842 were corrected during the twelve months ended December 31, 2019. The Company believes the correction of these errors is not material to the consolidated financial statements as of and for the twelve months ended December 31, 2019.
For leases entered into or reassessed after the adoption of the new standard, the Company has elected the practical expedient allowed by the standard to account for all fixed consideration in a lease as a single lease component. Therefore, the lease payments used to measure the operating lease liability for these leases include fixed minimum rentals along with fixed operating costs such as common area maintenance and utilities.
The Company’s leases do not provide a readily available implicit rate. Therefore, the Company estimates the incremental borrowing discount rate based on information available at lease commencement. The discount rates used are indicative of a synthetic credit rating based on quantitative and qualitative analysis.
The table below presents the lease-related assets and liabilities recorded upon adoption:
Assets
| | | | | | | Operating lease right-of-use assets
| | | Operating lease right-of-use assets
| | | 421
| Liabilities
| | | | | | | Current - operating
| | | Operating lease liability short term
| | | 87
| Noncurrent - operating
| | | Operating lease liability long term
| | | 342
| Total lease liabilities
| | | | | | $429
|
The table below presents certain information related to the lease costs for operating leases for the years ended December, 31 2019 and 2018.
Operating lease costs | | | 369 | | | 189 | Variable lease costs | | | 31 | | | 42 | Total operating lease costs | | | $400 | | | 231 |
As of December 31, 2019, the weighted-average remaining operating lease term was 2.6 years and the incremental borrowing rate was 12.5% for operating leases recognized on our consolidated balance sheet. Short term lease costs, excluding expenses relating to leases with a lease term of one month or less, was $0.1 million for the year ended December 31, 2019.
Rent expense for the year ended December 31, 2019 and 2018 was $0.5 million and $0.2 million, respectively.
TABLE OF CONTENTS
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first four years and total of the remaining years to the operating lease liabilities recorded on the balance sheet.
Operating Leases
| | | | 2020 | | | 444 | 2021 | | | 459 | 2022 | | | 240 | 2023 | | | 5 | Total minimum lease payments | | | 1,148 | Less: amount of lease payments representing interest | | | 162 | Present value of future minimum lease payments | | | $986 | Less: current obligations under leases | | | 345 | Long-term lease obligations | | | $641 |
Future minimum lease payments under contractually-obligated leases as of December 31, 2018 were as follows (in thousands):
2019 | | | 257 | 2020 | | | 296 | 2021 | | | 296 | 2022 | | | 123 | 2023 | | | — | | | | $972 |
Note 9 – Intangible assets, royalties and goodwill
Intangible assets and royalties
The Company’s intangible assets as of December 31, 2019 consist of customer relationships and trade name acquired in the Halo Acquisition. The customer relationships and trade name are amortized over their estimated useful lives of 7 and 15 years respectively, using the straight-line method.
In April 2019, Better Choice Company entered into a licensing agreement with Authentic Brands and Elvis Presley Enterprises (“ABG”) whereby Better Choice was to sell newly developed hemp-derived CBD products that will be marketed under the Elvis Presley Houndog name. The license agreement required an upfront equity payment of $1.0 million worth of common stock. Upon the May Acquisitions on May 6, 2019, the Company acquired the license agreement and recorded it at its amortized cost which approximated fair value.
As of December 31, 2019, the Company paid $0.6 million of the 2019-2020 agreed royalty payments. As there were no sales related to Houndog products during the year ended December 31, 2019, the Company determined that the minimum royalties paid during the year through December 31, 2019 should be expensed. The Houndog license agreement was terminated on January 13, 2020, see “Note 22—Subsequent events.” The Company recognized amortization expense of $0.1 million and an impairment of the license intangible of $0.9 million as of and for the period ended December 31, 2019, respectively.
TABLE OF CONTENTS
The Company’s intangible assets as of December 31, 2019 are as follows:
License | | | — | | | $— | | | $986 | | | $(986) | | | $— | | | $— | | | $— | Customer relationships | | | 7 | | | — | | | 7,500 | | | — | | | 7,500 | | | (35) | | | 7,465 | Trade name | | | 15 | | | — | | | 7,190 | | | — | | | 7,190 | | | (14) | | | 7,176 | Total intangible assets | | | | | | $— | | | $15,676 | | | $(986) | | | $14,690 | | | $(49) | | | $14,641 |
The Company did not have intangible assets or amortization expense during the year ended December 31, 2018.
The estimated future amortization of intangible assets over the remaining weighted average useful life of 1010.0 years is as follows:follows (in thousands): Dollars in thousands | | | | Years ended December 31, | | | | | 2020 | | $1,551 | | 2021 | | 1,551 | | Remainder of 2021 | | | $1,145 | 2022 | | 1,551 | | 1,527 | 2023 | | 1,551 | | 1,527 | 2024 | | 1,551 | | 1,527 | 2025 | | | 1,527 | Thereafter | | 6,886 | | 5,479 | | | $14,641 | | $12,732 |
There were no indicators or impairment of the intangible assets as of March 31, 2021. Goodwill Goodwill was $18.6 million as of March 31, 2021 and December 31, 2020, respectfully. The Company performed a quantitative assessment for its annual impairment test as of October 1, 2020. 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 guideline public companies. As of March 31, 2021, there was no accumulated impairment loss and no impairment expense related to goodwill. Note 10 – Line of credit, short term loan and notes payable7 - Debt The components of the Company’s debt consist of the following:following (in thousands): Note payable (due to related parties) | | | $— | | | | | | | | | $1,600 | | | 26.6% | | | May 6, 2019 | Short term loan, net | | | 16,061(2) | | | | | | December 19, 2020 | | | | | | | | | | Lines of credit, net | | | 4,819(2) | | | | | | December 19, 2020 | | | 4,600(1) | | | | | | May 6, 2019 | November 2019 notes payable, net (November 2019 Notes) | | | 2,769 | | | 10.0% | | | November 4, 2021 | | | | | | | | | | December 2019 senior notes payable, net (Seller Notes) | | | 9,191 | | | 10.0% | | | June 30, 2023 | | | — | | | | | | | December 2019 junior notes payable, net (Seller Notes) | | | 4,410 | | | 10.0% | | | June 30, 2023 | | | | | | | | | | Total debt | | | 37,250 | | | | | | | | | 6,200 | | | | | | |
Term loan, net | | | $5,847 | | | (1) | | | 1/6/2024 | | | $7,826 | | | (2) | | | 1/15/2021 | Line of credit, net | | | 4,781 | | | (1) | | | 1/6/2024 | | | 5,023 | | | (3) | | | 7/5/2022 | November 2019 notes payable, net
(November 2019 Notes) | | | 2,927 | | | 10.00% | | | 6/30/2023 | | | 2,830 | | | 10.00% | | | 6/30/2023 | December 2019 senior notes payable, net
(Senior Seller Notes) | | | 10,679 | | | 10.00% | | | 6/30/2023 | | | 10,332 | | | 10.00% | | | 6/30/2023 | December 2019 junior notes payable, net
(Junior Seller Notes) | | | 5,153 | | | 10.00% | | | 6/30/2023 | | | 4,973 | | | 10.00% | | | 6/30/2023 | ABG Notes | | | 702 | | | 10.00% | | | 6/30/2023 | | | 687 | | | 10.00% | | | 6/30/2023 | June 2020 notes payable, net
(June 2020 Notes) | | | 148 | | | 10.00% | | | 6/30/2023 | | | 88 | | | 10.00% | | | 6/30/2023 | Halo PPP Loan | | | 431 | | | 1.00% | | | 5/3/2022 | | | 431 | | | 1.00% | | | 5/3/2022 | TruPet PPP Loan | | | 421 | | | 0.98% | | | 4/6/2022 | | | 421 | | | 0.98% | | | 4/6/2022 | Total debt | | | 31,089 | | | | | | | | | 32,611 | | | | | | | Less current portion | | | 943 | | | | | | | | | 8,016 | | | | | | | Total long term debt | | | $30,146 | | | | | | | | | $24,595 | | | | | | |
(1)
| Interest at a variable rate of LIBOR plus 3%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 |
TruPet line of credit, due to related partiesTerm loans and revolving line of credit
In May 2017, TruPet along with the majority owners serving as co-borrowers entered into a line of credit providing for up to $2.0 million of borrowings secured by the personal assets of the two majority owners. Through various amendments, the maximum borrowings under the credit facility increased to $4.6 million as of December 31, 2018, with a maturity of May 2019. Borrowings bore interest at LIBOR plus 3% and were repaid on May 6, 2019. At December 31, 2018, outstanding borrowings were $4.6 million.
TABLE OF CONTENTS
The line of credit was secured by personal assets of the co-borrowers, as noted above. Covenants under the line of credit required TruPet to be within certain restrictions. As of December 31, 2018, TruPet was in compliance with its covenants.
At December 31, 2018, due to related party consisted of a $1.6 million unsecured note payable to a director of TruPet bearing 26.6% interest with principal and interest due within 30 days after change of control, as described below. On May 6, 2019, this loan was repaid. There was no accrued interest recorded at either December 31, 2018 or December 31, 2019.
On May 6, 2019, Better Choice Company refinanced the $4.6 million credit facility and the $1.6 million note payable to a director with a $6.2 million revolving line of credit with a financial institution. The $6.2 million revolving line of credit was secured by restricted cash held in a money market account. In connection with the consummation of the Halo Acquisition, the Company terminated the $6.2 million revolving line of credit. Early termination of the revolving line of credit did not trigger any premiums or penalties, other than customary breakage costs.
Short term loan and linelines of credit
On the Halo Acquisition Date,December 19, 2019, the Company entered into a Loan Facilities Agreement (the “Facilities Agreement”) by and among the Company, as the borrower, the several lenders from time to time parties thereto (collectively, the “Lenders”) and a private debt lender, as agent (the “Agent”). The Facilities Agreement providesprovided for (i) a term loan facility of $20.5 million and (ii) a revolving demand loan facility not to exceed $7.5 million. The Company borrowed $20.5 million on the short term loan and $5.0 million on the line of credit on December 19, 2019. The principal remains outstanding as of December 31, 2019. The short-term loan and line of credit were issued with customary affirmative and negative covenants relating to the incurrence of debt, liens, declaring or paying dividends, purchasing our redeeming our common stock, the making of restricted payments and asset sales and certain other fundamental changes and events of default such as maintaining timely payments, filing tax and regulatory documents in a timely manner, continuing the existing business with control over existing assets, default on senior debt, and voluntary or involuntary bankruptcy or insolvency proceedings. The Facilities Agreement is secured by substantially all assets of the Company and the subsidiary guarantors (who include Halo, TruPet and Bona Vida).
As of December 31, 2019, the term loan outstanding was $20.5 million, net of debt issuance costs and discounts of $4.4 million, and the line of credit outstanding was $5.0 million, net of debt issuance costs of $0.2 million. The debt issuance costs and discounts are amortized using the effective interest method. The term loan and line of credit are scheduled to mature on December 19, 2020 or such earlier date on which a demand iswas made by the Agent or any Lender.
Lender, and was extended as discussed below. The Company usedremaining revolving credit facility balance of $5.1 million was repaid in full with a portion of the proceeds from the ABL Facility, discussed below, and resulted in a loss on debt extinguishment of the short term loan to complete the Halo Acquisition and to pay transaction fees and expenses. The Company intends to use the proceeds of the line of credit for working capital and general corporate purposes.$0.1 million. To induce the Agent to enter into the agreement, certainF-10
TABLE OF CONTENTS Certain directors and shareholders of the Company (“Shareholder Guarantors”) agreed to enter into a Continuing Guaranty (the “Shareholder Guaranties”) in the amount of $20.0 million and guarantee the Company’s obligations under the agreement.Facilities Agreement up to an aggregate amount of $20.0 million pursuant to a Continuing Guarantee between the Shareholder Guarantors and the lender under the Facilities Agreement (the “Shareholder Guaranties”). As consideration for the Shareholder Guaranties, the Company agreed to issueissued common stock purchase warrants to the Shareholder Guarantors in an amount equal to 0.325 warrants for each dollar of debt under the agreement guaranteed by such Shareholder Guarantors (the “Guarantor Warrants”). 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 Guarantor Warrants are exercisableproceeds of the ABL Facility were used (i) to repay all principal, interest and fees outstanding under the Company’s previous revolving credit facility and (ii) for general corporate purposes. Debt issuance costs of less than $0.1 million were incurred related to the Company entering into this revolving line of credit. The ABL Facility was scheduled to mature on July 5, 2022 and bore 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 Company prepaid all of the outstanding principal under the ABL Facility in full and did not incur any timeprepayment charges. 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. On October 5, 2020, the Company paid down the term loan by $11.0 million using proceeds from the dateSeries F Private Placement. On October 29, 2020, the Company made an additional pay down on the term loan of issuance for up$1.0 million using additional proceeds from the Series F Private Placement. On November 25, 2020, the Company entered into the fifth amendment to 24 months from the Facilities Agreement, extending the maturity date of the consummationterm loan to January 15, 2021. 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 IPO (as defined therein)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 interest at a variable rate of LIBOR plus 250 basis points, with an exercise price $1.82interest rate floor of 2.50% per share. The Guarantor Warrants have a fair value of $4.2 millionannum (the “Wintrust Credit Facility”). Accrued interest on the dateWintrust Facility is payable monthly commencing on February 1, 2021. Principal payments are required to be made monthly on the term loan commencing February 2021 with a balloon payment upon maturity. The proceeds from the Wintrust Credit Facility were used (i) to repay the principal, interest and fees outstanding under the ABL Facility and (ii) for general corporate purposes. We applied extinguishment accounting to the outstanding balances of issuance.the ABL Facility and term loan 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. The Wintrust Credit Facility subjects 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 is the operating cash flow of Halo, defined as Halo EBITDA less cash paid for unfinanced Halo capital expenditures, income taxes and dividends. The denominator is fixed charges such as interest expense and principal payments paid or payable on other indebtedness attributable to Halo. 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 is supported by a collateral pledge by a member of the Company’s board of directors. As of March 31, 2021, the term loan and line of credit outstanding under the Wintrust Credit Facility were $5.8 million and $4.8 million, respectively, net of debt issuance costs of less than $0.1 million, respectively. As of December 31, 2019,2020, the previous term loan and line of credit outstanding were $7.8 million and $5.0 million, respectively, net of debt issuance costs and discounts of less than $0.2 million and $0.2 million, respectively. The debt issuance costs and discounts are amortized using the effective interest method. TABLE OF CONTENTS As of March 31, 2021 and December 31, 2020, the Company was in compliance with its debt covenants. Notes Payablepayable On November 4, 2019, the Company issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carry a 10% interest rate and mature on November 4, 2021. The interest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. InterestPayment in kind (“PIK”) interest is payable by increasing the aggregate principal amount of the November 2019 Notes. The November 2019 Notes are exercisableconvertible any time from the date of issuance and carry acarried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The IPO Price is(defined as the price at TABLE OF CONTENTS
which the Company’s stock will be sold atin a future IPO. IPO). The Company issued incremental warrants associated withNovember 2019 Notes were amended on January 6, 2020. The amendment incorporates only the preferable terms of the Seller Notes as noted below, and all other terms and provisions of the November 2019 Notes remain in full force and effect. As amended, for so long as any event of default (as defined in the November 2019 Notes) exists, interest shall accrue on the November 2019 Notes principal at the default interest rate of 12.0% per annum, and such accrued interest shall be immediately due and payable. The November 2019 Notes were amended for the second time on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share and extends the maturity date from November 4, 2021 to June 30, 2023. Under the applicable accounting guidance, the Company accounted for the change in conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of less than $0.1 million. The November 2019 Note was amended on January 6, 2020, see “Note 22—Subsequent events.” the conversion option of $0.3 million as a reduction to the carrying amount of the debt instrument by increasing the associated debt discount with a corresponding increase in additional paid-in capital. As of March 31, 2021 and December 31, 2019,2020, the November 2019 Notes outstanding waswere $2.9 million and $2.8 million, respectively, net of discounts of $0.2 million and less than $0.1 million.$0.3 million, respectively. The discounts are being amortized over the life of the November 2019 Notes using the effective interest method. On December 19, 2019, the Company issued $10.0 million and $5.0 million in senior subordinated convertible notes (the “Senior Seller Notes”) and junior subordinated convertible notes (the “Junior Seller Notes” and together with the Senior Seller Notes, the “Seller Notes”), respectively, to the sellers of Halo. The Seller Notes are exercisableconvertible any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. The interestInterest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. InterestPIK interest is payable by increasing the aggregate principal amount of the Seller Notes. The Seller Notes carrycarried a conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The Seller Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than of $0.3 million as a reduction to the carrying amounts of the debt instruments by increasing the associated debt discounts with a corresponding increase in additional paid-in capital. As of DecemberMarch 31, 2019,2021, the Senior Seller Notes outstanding was $9.2were $10.7 million, net of discounts of $0.9$0.7 million, and the Junior Seller Notes outstanding were $4.4$5.2 million, net of discounts of $0.5 million. As of December 31, 2020, the Senior Seller Notes outstanding were $10.3 million, net of discounts of $0.8 million, and the Junior Seller Notes outstanding were $5.0 million, net of discounts of $0.5 million. The discounts are being amortized over the life of the Seller Notes using the effective interest method. The fair values ofOn January 13, 2020, the November 2019, Senior and Junior Seller Notes are based on observable inputs, including quoted market prices (Level 2). The fair values of the November 2019, Senior and Junior Seller Notes were approximately $2.8Company issued $0.6 million $9.2 million and $4.4 million, respectively, as of December 31, 2019. The remaining borrowings outstanding have a carrying value that approximates fair value due to their short term nature.
The Company’sin senior subordinated convertible notes were allto 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 match those of the Seller Notes, including conversion features convertible any time after the date of issuance, a 10% interest rate and maturity date of June 30, 2023. The interest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the ABG Notes. The ABG Notes carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price.
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 with customary affirmative and negative covenants relating to the incurrenceABG 72,720 shares of debt, prohibitions on liens and restricted payments and events of default such as failure to pay, default on senior debt, and voluntary or involuntary bankruptcy or insolvency proceedings. It is also an event of default if the Company’s common stock, is suspendedagreed to pay ABG $0.1 million TABLE OF CONTENTS in cash in four equal installments each month from trading orJuly 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 ABG Notes were amended on June 24, 2020 in connection with the failureissuance of the common stockJune 2020 Notes. The amendment lowers the maximum conversion price applicable to be listed on the OTC markets,conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the pink sheets, NASDAQ, NYSE or other national securities exchangechange in the United States or Canada forconversion price as a periodmodification of five (5) consecutive days or for morethe debt instrument. The Company recognized the increase in the fair value of the conversion option of less than ten (10) days$0.1 million as a reduction to the carrying amount of the debt instrument by decreasing the associated debt premium with a corresponding increase in any 365-day period.additional paid-in capital. As of March 31, 2021 and December 31, 2019,2020, the ABG Notes outstanding were $0.7 million, including a debt premium of less than $0.1 million, respectively. The debt premium is being amortized over the life of the ABG Notes using the effective interest method. On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “June 2020 Notes”) which carry a 10% interest rate and mature on June 30, 2023. The interest is payable quarterly in kind, in arrears on March 31, June 30, September 30, and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the June 2020 Notes. The June 2020 Notes are convertible any time from the date of issuance and carry a conversion price $0.75 per share. The June 2020 Notes are also convertible automatically upon the Company’s consummation of an initial public offering or change in control (each as defined in the June 2020 Notes). The Company evaluated the conversion option within the June 2020 Notes to determine whether the conversion price was beneficial to the note holders. The Company recorded a beneficial conversion feature (“BCF”) related to the issuance of the June 2020 Notes. The BCF for the June 2020 Notes was recognized and measured by allocating a portion of the proceeds to the beneficial conversion feature, based on relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature limited to the proceeds amount allocated to the instrument. The discount recorded in connection with the BCF valuation is being accreted as interest expense over the term of the June 2020 Notes, using the effective interest rate method. As of March 31, 2021 and December 31, 2020, the June 2020 Notes outstanding were $0.1 million, net of discounts of $1.5 million, respectively. The discounts are being amortized over the life of the June 2020 Notes using the effective interest method. The exercise, conversion or exchange of convertible securities, including for other securities, will dilute the percentage ownership of the Company’s stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect the Company’s ability to obtain additional capital. The Company previously issued $0.1 million of Seller Notes to an executive in satisfaction of a transaction bonus pursuant to his employment agreement. These convertible notes remained outstanding as of March 31, 2021 and December 31, 2020. Additionally, the Company previously issued $2.2 million of subordinated convertible notes to a member of the board of directors, which remain outstanding as of March 31, 2021 and December 31, 2020. Interest expense related to the subordinated convertible notes was less than $0.1 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all covenant requirements and there were no events of default. All notes payable are subordinated to the short term loan and line of credit. Interest expensePPP loans
On April 10, 2020, TruPet, LLC, a wholly owned subsidiary of approximately $0.7 million and $0.9 millionBetter Choice Company Inc., was recordedgranted a loan from JPMorgan Chase Bank, N.A. in the consolidated statementsaggregate amount of operations and comprehensive loss related$0.4 million, pursuant to the linePaycheck Protection Program (“PPP”) under Division A, Title I of credit,the CARES Act (the “TruPet PPP Loan”). The loan matures on April 6, 2022 and bears interest at a rate of 0.98% per annum, with interest and principal payable monthly, commencing on November 20196, 2020. As of March 31, 2021 and Seller Notes, and other indebtedness for the years ended December 31, 2019 and 2018, respectively. Note 11 – Warrant derivative liability
On December 12, 2018, the Company closed a private placement offering (the “December Offering”) of 1,425,641 units (the “Units”), each unit consisting of (i) one share of the Company’s common stock and (ii) a warrant to purchase one half of a share of common stock. The Units were offered at a fixed price of $1.95 per Unit for gross proceeds of $2.8 million. Costs associated with the December Offering were $0.1 million, and net proceeds were $2.7 million. The December Offering generated $2.6 million of net proceeds that were received by the Company during the year ended December 31, 2018 for the sale of 1,400,000 Units, and $0.1 million of the net proceeds were received on January 8, 2019 for the sale of 25,641 Units. The warrants are exercisable anytime from the date of issuance over a two-year period at the initial exercise price of $3.90 per share.
The warrants include 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 $3.90 per share, which requires 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 warrants acquired on May 6, 2019. Pursuant to the warrant agreement, the Company issued an additional 1,003,232 warrants on March 17, 2020 to its warrant holders at a $1.62 exercise price and revise the existing warrants to an exercise price of $1.62.
The warrants are valued based on future assumptions and, as the reset triggerTruPet PPP Loan outstanding was a known event on December 31, 2019, the Company included the trigger in the valuation performed during the period ended December 31, 2019.$0.4 million.
TABLE OF CONTENTS AtOn May 6, 2019, the derivative liability was recorded at fair value as part of the purchase price7, 2020, Halo, Purely for Pets, Inc., a wholly owned subsidiary of Better Choice Company by TruPet.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 following schedule showsloan matures on May 3, 2022 and bears interest at a rate of 1.00% per annum, with interest and principal payable monthly, commencing on November 1, 2020. As of March 31, 2021 and December 31, 2020, the changeHalo PPP Loan outstanding was $0.4 million.
Under the terms of the PPP, certain amounts of the loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company has used all of the proceeds from the TruPet PPP Loan and the Halo PPP Loan for qualifying expenses and during April 2021, the Company applied for forgiveness for both of these loans. The Company recorded interest expense related to its outstanding indebtedness of $0.8 million and $2.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. Fair Value The fair value of the derivative liabilitiesNovember 2019, Senior Seller Notes and Junior Seller Notes, ABG Notes and June 2020 Notes were approximately $2.6 million, $9.5 million, $4.7 million, $0.6 million and $1.3 million, respectively, as at Decemberof March 31, 2019.2021. Fair value was determined by applying the income approach using a discounted cash flow model which primarily uses unobservable inputs (Level 3). Assumption of warrants in May Acquisitions
| | | $2,130
| Change in fair value of warrant derivative liability
| | | 90
| Balance as of December 31, 2019
| | | $2,220
|
Warrant liability
| | | | | | | Stock price | | | $6.00 | | | $2.70 | Exercise price | | | $3.90 | | | $1.62 | Expected remaining term (in years) | | | 1.60 – 1.68 | | | 0.95 – 1.02 | Volatility | | | 64% | | | 69% | Risk-free interest rate | | | 2.39% | | | 1.60% |
The valuationcarrying amounts of the warrants is subjectCompany's PPP loans approximate fair value due to uncertaintythe short term nature. The carrying amount for the Company’s term loan and line of credit approximate fair value as a result of the unobservable inputs. If the volatility rate or risk-freeinstruments have variable interest rate were to change, the value of the warrants would be impacted. At December 31, 2019, the Company would be required to pay $1.1 million if all warrants were settled in cash or issue 712,823 shares if all warrants were settled in shares.rates that approximate market rates.
Note 12 – Other liabilities Other liabilities consist of the following:
Cash advance | | | $— | | | $1,899 | Investor prepayment | | | 500 | | | — | Deferred rent | | | — | | | 15 | Total other liabilities | | | $500 | | | $1,914 |
During fiscal year 2018, the Company received net cash advances totaling $1.9 million from a third-party lender, that were secured by customer payments on future sales and receivables. At December 31, 2019, the Company held $0.5 million as a prepayment for the issuance of common stock in 2020.
Note 13 –8 - Commitments and contingencies
InThe Company had no material purchase obligations as of March 31, 2021 or December 31, 2020. The Company may be involved in legal proceedings, claims, and regulatory, tax, or government inquiries and investigations that arise in the normalordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the Company mayreasonable 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 and comprehensive loss. We do not accrue for contingent losses that are considered to be subject to various legal claims andreasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies that arise, including claims related to commercial transactions, product liability, health and safety, taxes, environmental matters, employee matters and other matters. considered remote are generally not disclosed.
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 ourthe 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. TheNote 9 - Convertible preferred stock
During October, 2020, the Company has noconsummated an insider-led equity financing, including the transactions contemplated by a securities purchase obligations asagreement (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 December 31, 2019.all of the Company’s previously outstanding Series E preferred stock. Note 14 – Redeemable series EPursuant 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 consists of: (i) one share of the Company’s Series F convertible preferred stock,
On May 6, 2019, the Company acquired 2,633,678 outstanding par value $0.001 per share (the “Series F Preferred Stock”), which is convertible into shares of Series E, which represented an element of the purchase price and were recorded at fair value (on an as converted intoCompany’s common stock, basis) based on the $6.00par value $0.001 per share, closing priceat a value per share of Better Choice Company’scommon stock of $0.50; and (ii) a warrant to purchase for a six year period such number of shares of common stock as they remained outstanding after(the “Series F Warrant Shares”) into which such share of Series F Preferred Stock is convertible at an exercise price per Warrant Share of $0.75. 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
TABLE OF CONTENTS invested by certain officers, directors, employees and associated related parties thereto of the reverse acquisitions discussed in “Note 2—Acquisitions” above.Company. The Series E hasF 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 stated valueregistration 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 $0.99 per share; is convertible to common stock at a price of $0.78 per share. On May 10, 2019 and May 13, 2019, holdersissuable upon conversion of the Company’s Series E converted 689,394 and 236,364 preferred shares into 875,000 and 300,000 sharesF Preferred Stock.
In connection with the consummation of the Company’s common stock, respectively. On November 21, 2019, holdersSeries F Private Placement, on October 1, 2020, the Company filed with the Secretary of the Company’s Series E converted 320,542 preferred shares into 406,841 sharesState of the Company’s common stock.
AsDelaware a Certificate of December 31, 2019, 1,387,378Designations 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 conjunction with money received for the Series F Private Placement. In addition, pursuant to the Series E remain outstanding.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 Consolidated Balance Sheets. On October 12, 2020 and October 23, 2020, the Company issued 1,106 and 2,832 Series F Units, respectively, in conjunction 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 Consolidated Balance Sheets limited to the proceeds amount allocated to the instrument. The rights, preferences and privileges of Series EF are as follows: VotingRanking
The Series E has voting rights equalExcept to thosethe extent the holders of the underlying commonSeries F Preferred Stock consent to the creation of a class of equity securities ranking senior to, or pari passu with, the Series F Preferred Stock, the Series F Preferred Stock shall rank senior to all shares of capital stock and ranks senior inof the Company with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution andor winding up of the Company.
DividendsVoting
As to matters submitted to the holders of the Common Stock, each holder of the Series F Preferred Stock will be entitled to such number of votes equal to the number of shares of Common stock issuable upon conversion of such holder’s Series F Preferred Stock and shall vote, or provide consent, together with the Common Stock as if they were a single class. The holders of the Series E are entitledF Preferred Stock shall vote as a separate class on matter affecting the terms of the Series F Preferred Stock, such as the authorization of a class of equity securities ranking senior to, receive cumulative dividends at a rate of 10% per annum onor pari passu with, the stated value. Each HolderSeries F Preferred Stock. Dividends Holders of Series EF Preferred Stock will not be entitled to receive dividends except to the extent that dividends are declared on the Series F Preferred Stock by the Company in its sole discretion or distributions on each share of Series E on an as converted into common stock basis. Pursuantdeclared and made by the Company to waiver letters executed by each investor, the holders of the Company’sCommon Stock. In addition, if the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then each holder of Series E agreedF Preferred Stock will be entitled to waive their rightacquire, upon the terms applicable to such Purchase Rights, the distributionaggregate Purchase Rights which such holder could have acquired if such holder had held the number of dividends until October 22, 2020. Dividends accrued are $0.3 million asshares of December 31, 2019 and remain unpaid. There were no dividends accrued as at December 31, 2018.Common Stock acquirable upon complete conversion of all the Series F Preferred Stock (without taking into account any limitations or restrictions on the convertibility of the Series F Preferred Stock) held by such holder. Liquidation InIf the event of a Liquidation Event,Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of Series E willF Preferred Stock shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available
TABLE OF CONTENTS for distribution to its stockholders, before any amount shall be paid to the holders of any of shares of commonCommon Stock or other capital stock of the Company ranking junior to the Series F Preferred Stock, an amount per share of Series EF Preferred Stock equal to the greater of (A) the sum of (1)$1,000 (subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the Stated Value thereofinitial issuance date with respect to the Series F Preferred Stock, the “Stated Value”)) plus (2) the Additional Amount thereon and any accrued and unpaid Late Charges with respect to such Stated Valuedividends and Additional Amount as of such date of determination (thelate charges (such sum, the “Conversion Amount”) and (B) the amount per share such holder. The rights of holders of Series E wouldF Preferred Stock to receive if such holder converted such Series E into common stock immediately priortheir liquidation preference also will be subject to the dateproportionate rights of such payment. Liquidation Event means, whethercapital stock, if any, ranking senior to or in a single transaction or seriesparity with the Series F Preferred Stock as to liquidation. Optional Conversion Subject to certain beneficial ownership limitations contained in the Certificate of transactions, the voluntary or involuntary liquidation, dissolution or winding upDesignations, holders of the Corporation or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Corporation and its Subsidiaries, taken as a whole. Conversion
Each holder of Series E willF Preferred Stock shall be entitled to convert any portioneach share of the outstanding Series EF Preferred Stock held by such holder into such number of validly issued, fully paid and non-assessable shares of common stock at the conversion rate. The number of shares of common stock issuable upon conversion of any share of Series E would be determined by dividing (x)Common Stock equal to the Conversion Amount of such share of Series EF Preferred Stock divided by (y)$0.50 (subject to adjustment, the “Conversion Price”).
Automatic Conversion Each share of Series F Preferred Stock not previously converted into shares of Common Stock shall automatically, without any further action by the holders of such Series F Preferred Stock, be converted into such number of fully paid and non-assessable shares of Common Stock determined by dividing the Stated Value of such share of Series F Preferred Stock by the then applicable Conversion Price upon the closing of a firm commitment underwritten public offering of shares of Common Stock which results in the Common Stock being traded on any of The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market or any successor market thereto. Any such conversion price. Theshall be subject to the beneficial ownership limitations set forth in the Certificate of Designations. Anti-dilution Holders of the Series E hasF Preferred Stock are entitled to a stated“full rachet” anti-dilution adjustment to the Conversion Price in the event the Company issues, sells or grants any shares of Common Stock (or securities convertible, exercisable or exchangeable for Common Stock) for no consideration or for consideration or purchase price per share (or, in the case of securities convertible, exercisable or exchangeable for Common Stock, with a conversion, exercise or exchange price) less than the Conversion Price then in effect. Note 10 - Stockholders’ 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 $1.25 and consisted of (i) one share of the Company’s common stock, par value of $0.99$0.001 per share; is convertibleand (ii) a warrant to common stock at a pricepurchase one share of $0.78 per share. Redemption
Under certain default conditions, the Series E is subject to mandatory redemption in cash equal to 125% of the greater of $0.99 per share ($1.23 per share) or 75% of the market price of the common stock. The Series E hasproceeds were used to pay expenses related to the offering and for general corporate purposes. In connection with the January 2021 Private Placement, we entered into a stated valueregistration 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 $0.99 per share; is convertible to common stock at a price of $0.78 per share. Redemptionissued, and issuable upon the exercise of the Series E also occurs upon Triggering Events, which are not all entirely within the control of the Company. Due to this redemption option, the Series E is recordedwarrants issued, in the mezzanine equity and subject to subsequent measurement under the guidance provided under FASB ASC 480-10-S99-3A, Accounting for Redeemable Equity Investments.January 2021 Private Placement.
Note 15 – Stockholders’ deficit
As noted above, the May Acquisitions were completed on May 6, 2019. At the closing of the transaction, Better ChoiceThe Company issued 14,229,041 shares of itshas reserved common stock in exchange for 93% of the outstanding ownershipfuture issuance as follows:
Conversion of Series F Preferred Stock | | | 34,611,100 | | | 43,507,130 | Exercise of options to purchase common stock | | | 13,150,872 | | | 7,815,442 | Exercise of warrants to purchase common stock | | | 60,874,177 | | | 59,501,978 | Conversion of Notes payable | | | 7,718,488 | | | 7,530,232 | Total | | | 116,354,637 | | | 118,354,782 |
TABLE OF CONTENTS units of TruPet. Additionally, on May 6, 2019, Better Choice Company issued 18,103,273Note 11 - Warrants
The following summarizes the Company's outstanding warrants to purchase shares of itsthe Company's common stock as of and for the periods ending March 31, 2021 and December 31, 2020: Warrants outstanding as of December 31, 2019 | | | 16,981,854 | | | $3.23 | Issued | | | 49,928,469 | | | $0.77 | Exercised | | | (1,937,690) | | | $0.58 | Terminated/Expired | | | (5,470,655) | | | $3.07 | Warrants outstanding as of December 31, 2020 | | | 59,501,978 | | | $1.22 | Issued | | | 3,288,400 | | | $1.45 | Exercised | | | (1,839,275) | | | $0.76 | Terminated/Expired | | | (76,926) | | | $0.65 | Warrants outstanding as of March 31, 2021 | | | 60,874,177 | | | $1.18 |
The intrinsic value of outstanding warrants was $31.3 million and $23.8 million as of March 31, 2021 and December 31, 2020, 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 712,823 warrants with a weighted average exercise price of $3.90 (the “May Acquisitions Warrants”). These warrants included an option to settle in exchange for all outstanding sharescash in the event of Bona Vida. The operationsa change of Better Choice Company subsequent tocontrol of the May Acquisitions are those of TruPet and Bona Vida. For accounting purposes, the transaction is considered a reverse merger whereby TruPet is considered the accounting acquirer of Better Choice Company and Bona Vida. As a result of the transactions, the historical TruPet members’ equity (units and incentive units) have been re-cast to reflect the equivalent Better Choice common stock for all periods presented after the transaction. Prior to the transaction, TruPet was a limited liability company and as such, the concept of authorized shares was not relevant.
Capital contributions and distributions of capital
During the year ended December 31, 2018, a Company manager contributed $0.4 million and received $0.4 million as distributions. There was no equity issued for the contribution. There was no capital contribution or distribution in 2019 by Company directors.
Series A preferred stock
In December 2018,reset feature if the Company completed a private placement and issued 2,391,403 Series A Preferred Stock to unrelated parties for $2.17 per share. The proceeds were approximately $4.7 million, net of $0.5 million of issuance costs. Additionally, on February 12, 2019, an additional private placement of 69,115 Series A Preferred Stock at $2.17 per share was completed. The proceeds were approximately $0.2 million, net of share issuance costs. On May 6, 2019, all Series A Preferred Shares were converted to 2,460,517 shares of common stock.
Common stock
On March 14, 2019, Better Choice Company Inc. filed a certificate of amendment of Certificate of Incorporation with the Delaware Secretary of State to effect a one-for-26 reverse split of common stock effective March 15, 2019. All of the Common and Preferred Stock amounts and per share amounts in these financial statements and footnotes have been retroactively adjusted to reflect the effect of this reverse split. On April 22, 2019, the Better Choice Company Inc. filed a certificate of amendment of certificate of incorporation with the State of Delaware which resulted in authorizedissues shares of common stock with a strike price below the exercise price of 88,000,000.the warrants, which required the Company to record the warrants as a derivative liability. The Company has 47,977,390calculates 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 1,003,232 warrants on March 17, 2020 to certain of its warrant holders at an exercise price of $1.62 and 11,661,485modified the exercise price of the existing May Acquisitions Warrants to $1.62. 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 1,990,624 warrants to certain of its warrant holders at an exercise price of $0.75 and modified the exercise price of the existing warrants to $0.75. 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 $0.65 per share. As such, the Company issued an additional 570,258 warrants to certain of its warrant holders at an exercise price of $0.65. During the fourth quarter of 2020, holders exercised a total 1,687,690 warrants for which the Company issued shares of common stock. During December 2020, 2,512,321 of these warrants expired and an immaterial amount remained outstanding as of December 31, 20192020, all of which expired during January 2021. The following schedule shows the fair value of the warrant derivative liability as of March 31, 2021 and December 31, 2018, respectively. On December 12, 2018, Better Choice Company Inc. closed a private placement offering (the “December Offering”) of 1,425,641 units (the “Units”), each unit consisting of (i) one share of2020, and the Company’s common stock and (ii) a warrant to purchase one half of a share of common stock. The Units were offered at a fixed price of $1.95 per Unit for gross proceeds of $2.8 million. Costs associated with the December Offering were $0.1 million, and net proceeds were $2.7 million. Net proceeds of $2.6 million were received by Better Choice Company Inc.change in fair value during the periodperiods ended March 31, 2021 and year ended December 31, 2018 for the sale of 1,400,000 Units, and $0.1 million of the net proceeds were received on January 8, 2019 for the sale of 25,641 Units. The Warrants are exercisable over a two-year period at the initial exercise price of $3.90 per share. See “Note 11—Warrant derivative liability,” A portion of the proceeds from this private placement was used to acquire the initial 7% of TruPet.2020 (in thousands):
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 March 31, 2021 | | | $— |
In connection with the December Offering, Better Choice Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with each investor in the December Offering. Pursuant to the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to file with the Securities and Exchange Commission a registration statement on Form S-1 (or other applicable form) within 60 days following the closing date to register the resale of the shares of common stock sold in the December Offering and shares of common stock issuable upon exercise of the Warrants.On May 6, 2019, the Company acquired 1,011,748 shares of common stock valued at $6.1 million representing its initial 7% investment in TruPet. These shares are recorded as an acquisition of treasury shares.
On May 6, 2019, the Company issued 5,744,991 million units for gross proceeds of $3.00 per unit in a PIPE transaction. Each unit included one share of common stock of Better Choice Company stock and a warrant to purchase an additional share. The shares issued in the PIPE are subject to the Securities and Exchange Commission’s Rule 144 restrictions which require the purchasers of the PIPE units to hold the shares for at least 6 months from the date of issuance. The funds raised from the PIPE were used to fund the operations of the combined company. Net proceeds of $15.7 million were received in the private placement, allocable between shares of common stock and warrants.
(1)
| All of the May Acquisition Warrants expired during January 2021. |
TABLE OF CONTENTS PursuantSeries F Warrant Liability
During October 2020, the Company issued 43,403,130 warrants to the employment agreement of an officer with Bona Vida dated October 29, 2018; the officer was entitled to a $500,000 change of control payment. The officer later agreed to receive 100,000 shares of Better Choice Company common stock. The 100,000 shares ofpurchase common stock were valued at $6.00 per share, which wasin connection with the market value asSeries F Private Placement (defined below) with an exercise price of $0.75. The warrants are exercisable commencing on the date of the May Acquisitions. On December 19, 2019, the Company completed the Halo Acquisition for $38.2 million. At the closing of the transaction, in addition to cashissuance and other consideration, Better Choice Company issued 2,134,390 shares of the Company’s common stock, par value $0.001 per share in exchange for 100% of the outstanding ownership units of Halo. The 2,134,390 shares of common stock were valued at $1.82 per share, which was the market value as ofexpire 72 months after the date of issuance. These warrants include a reset feature if the Halo Acquisition.Company issues common stock, options, or convertible securities with a strike price below the exercise price of the warrants. 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. See “Note 9 - Convertible preferred stock” for more information on Series F.
AsThe warrant liability is remeasured at fair value each reporting period and represents 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 Series F 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 March 31, 2021 and December 31, 2019, the Company has reserved approximately 31.0 million shares of common stock for future issuance as follows:2020 (in thousands): ConversionIssuance of Series EF warrants
| | | 1,760,903$14,952
| ExerciseChange in fair value of options to purchase common stockwarrant liability
| | | 7,791,83324,898
| Warrants to purchase common stockBalance as of December 31, 2020
| | | 16,981,854$39,850
| Notes payableChange in fair value of warrant liability
| | | 4,437,5006,483
| TotalBalance as of March 31, 2021
| | | 30,972,090$46,333
|
The Company did not reserve any shares for future issuances duringfollowing schedule shows the year ended December 31, 2018. Share-based compensation
Duringinputs used to measure the period from November 1, 2018 through May 5, 2019, incentive units for the equivalent of 1.3 million shares were awarded to employees and consultants. The incentive units were measured at fair value onof the datewarrant liability:
Stock Price | | | $1.44 | | | $1.27 | Exercise Price | | | $0.75 | | | $0.75 | Expected remaining term (in years) | | | 5.50 - 5.56 | | | 5.75 - 5.81 | Volatility | | | 67.5% | | | 67.5% | Risk-free interest rate | | | 1.1% | | | 0.5% |
The valuation of each respective award with a weighted average value per equivalent share of $2.47. The awards werethe warrants is subject to vest over a period of two to three years. On May 6, 2019, all outstanding incentive unit awards issued prior to May 6, 2019 immediately vested. Asuncertainty as a result of the immediate vesting of these incentive units, share-based compensation expense equalunobservable inputs. If the volatility rate or risk-free interest rate were to $2.2 million was recorded inchange, the consolidated statements of operations and comprehensive loss on May 6, 2019. Options in Better Choice Company Inc. which had been granted in December 2018 to purchase an aggregate of 38,462 shares of common stock at an exercise price of $6.76 per share were outstanding on May 6, 2019 (the “legacy options”). As a resultvalue of the May Acquisitions, those legacy options immediately vested. The accelerated vesting expense of $0.1 million was recognized as part of the purchase price of Better Choice Company.warrants would be impacted.
Equity-Classified Warrants On May 6, 2019, the Company acquiredissued 5,744,991 warrants to purchase common stock with an exercise price of $4.25 (the “May 2019 PIPE Warrants”). Additionally, in connection with the Better ChoiceMay 2019 PIPE transaction, the Company Inc.issued 220,539 warrants to brokers with an exercise price of $3.00. The warrants were exercisable commencing on the issuance date and expire 24 months after the date of issuance. 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 $1.25 per share. The Company received exercise notices for a total of 1,047,609 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 11,000 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 a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. TABLE OF CONTENTS On December 19, 2019 the Company issued 6,500,000 warrants with an exercise price of $1.82 in conjunction with the term loan (the “Guarantor Warrants”), which are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of a future IPO. The Guarantor Warrants had a fair value of $4.2 million on the date of issuance. On December 19, 2019, the Company issued 937,500 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 a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. On 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 (as defined in the ABG Warrants) and carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock was sold in the IPO. 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 $5.00 to $4.25 per share. The decrease in the exercise price resulted in an increase to the fair value of the warrants of $0.1 million which the Company recognized in general and administrative expense. On June 24, 2020, the Company issued 1,000,000 warrants to a member of the board of directors with an exercise price of $1.25 per share in connection with the June 2020 Notes (the “June 2020 Warrants”), which are exercisable commencing on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company issued 300,000 warrants to a member of the board of directors with an exercise price of $1.05 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 on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On January 22, 2021, the Company issued 3,288,400 warrants in connection with the January 2021 PIPE transaction. The warrants are exercisable at an exercise price per share of $1.45 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 $1.25 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 2,500,000 warrants with an exercise price of $0.10 per share and 1,500,000 warrants with an exercise price of $10.00 per share; 1,250,000 of the $0.10 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 1,250,000 of the $0.10 exercise price warrants (the “Tranche 2 Warrants”) and the 1,500,000 warrants with the $10.00 exercise price (the “Tranche 3 Warrants”) were exercisable on the earlier of 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 1,041,666 shares, and the Tranche 2 Warrants and Tranche 3 Warrants were cancelled. The Tranche 1 Warrants (as amended pursuant to the Termination Agreement) were fully vested as of the date of the termination of the agreement and will remain exercisable until September 17, 2029. Furthermore, if the Company engages in any restricted business line as defined in the Termination Agreement, the Company will issue to the former advisor additional shares of common stock based on formulas intended to compensate the former advisor for the warrants that were reduced or terminated. In connection with the Termination Agreement, the Company recorded expense of $5.7 million during the year ended December 31, 2020 in general and administrative expense. During the first quarter of 2021, the former advisor exercised 791,666 of his remaining warrants outstanding in a cashless exercise resulting in 736,689 shares of common stock issued. TABLE OF CONTENTS On June 24, 2020, the Company issued 1,000,000 warrants with an exercise price of $1.25 per share to two non-employee directors, which are exercisable commencing on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company issued 200,000 warrants two non-employee directors at a price of $1.05 per share (the “July 2020 Director Warrants”), which are exercisable commencing on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. The warrants issued to 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 400,000 warrants to a third-party for services with an exercise price of $1.00 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 12 - Share-based compensation During the three months ended March 31, 2021 and March 31, 2020, the Company recognized $2.5 million and $2.5 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 “2019“Amended 2019 Plan”) which became effective as of April 29, 2019.. The Amended 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash-based awards or a dividend equivalent award (each an “Award”). Nonemployee directors of the Company and employees and consultants of the Company or any of its subsidiaries are eligible to receive awards under the 2019 Plan.award. The Amended 2019 Plan authorizesauthorized the issuance of (i) 6,000,0006,500,000 shares of common stock plus (ii)which was increased to 9,000,000 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, 20202021 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. Options to purchase an aggregate of 5,250,000 shares of the Company’s common stock at an exercise price of $5.00 per share were granted to management and nonemployee directors of Better Choice Company on May 2, 2019. Subject to Holder’s continued status as an Employee, Director or Consultant through each vesting date, the Option shall vest and become exercisable with respect to 1/24th of the Shares subject thereto (rounded down to the next whole number of Shares) on the last day of each month, beginning with May 31, 2019, such that the Option shall be fully vested and exercisable on April 30, 2021.
On November 11, 2019, the Company received shareholder approval for the Amended and Restated 2019 Incentive Award Plan (the “Amended 2019 Plan”). Under the Amended 2019 Plan,January 1, 2021, the number of option awards availableshares authorized for issuance increased from 6,000,000 to 9,000,000 on December 19, 2019. 13,500,000, as approved by the Board. Stock Options During the three months ended March 31, 2021 and March 31, 2020, the Company granted 5,579,000 and 100,000 stock options, respectively.Effective asIn March 2020, the Company issued 450,000 shares of December 19, 2019, the Board repriced all outstanding options under the Amended 2019 Plan As a result, the exercise price of all outstanding vested and unvested options was lowered to $1.82 per share, the closing price of the Company’srestricted common stock on December 19, 2019. No other termsto three non-employee directors in return for services provided in their capacity as directors and issued 5,956 restricted shares of the option agreements were changed. The change in exercise pricecommon stock to an officer of the outstanding options caused an increase in fair value of all vested options at date of repricing of $0.6 million which was expensed by the Company. The change in exercise price also caused an increase in fair value of all unvested options at date of repricing of $0.8 million.
As of December 31, 2019, 7,753,371 options were outstanding under the Amended 2019 Plan. As of December 31, 2018, incentive units for the equivalent of 164,356restricted shares were outstanding. These incentive units were awarded to a consultant.
After the May Acquisitions an additional 2,503,371 stock option awards were granted under the 2019 Planimmediately vested and Amended 2019 Plan. During the year ended December 31, 2019, 912,917 stock option awards vested due to severance agreements.
The following table provides detail of the options granted and outstanding:
Legacy options | | | 38,462 | | | $6.76 | | | 38,462 | | | — | | | $8.06 | Acquired on May 6, 2019 | | | 5,250,000 | | | 1.82 | | | — | | | 5,250,000 | | | 0.92 | Granted | | | 2,503,371 | | | 1.83 | | | — | | | 2,503,371 | | | 0.97 | Vested during period | | | — | | | 1.89 | | | 2,678,329 | | | (2,678,329) | | | 1.02 | Options outstanding at December 31, 2019 | | | 7,791,833 | | | $1.85 | | | 2,716,791 | | | 5,075,042 | | | $0.97 | Options expected to vest | | | | | | | | | | | | 5,075,042 | | | | Weighted average exercise price | | | | | | | | | $1.89 | | | $1.82 | | | | Weighted average remaining contractual term (years) | | | | | | | | | 9.3 | | | 9.6 | | | | Aggregate intrinsic value at December 31, 2019 (in thousands) | | | | | | | | | $2,357 | | | $4,448 | | | |
All vested options are exercisable and may be exercised through a five or ten-year anniversary of the grant date (oras such, earlier date described in the applicable award agreement).
At December 31, 2019 and 2018, 7,791,833 and 164,356 stock options or stock option equivalents remain outstanding with a remaining life of 9.5 and 1.8 years respectively.
Pursuant to ASC 718-10-35-8, the Company recognizes compensation cost for stock awards with only service conditions that have a graded vesting schedule on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. During the year ended December 31, 2019 and 2018, $10.3 million and $0.4 million, respectively, ofrecorded share-based compensation expense was recognized related to options or stock option equivalents issued. During the year ended December 31, 2019, the Company recorded incremental share-based compensation of $0.6 million as a result of the option repricing. The options were valued using the Black-Scholes method assuming the following:
Term: For executives and directors, the estimated term is equal to the mid-point between the average vesting date and the contractual term. For all others, the estimated term is equal to the average vesting date plus three years.
Dividend yield: 0%
Exercise Price: $1.82 to $2.70
Risk-free rate: 1.41% to 2.39%
Volatility: 55.0% to 62.1
TABLE OF CONTENTS
Warrants
On May 6, 2019, in connection with the May Acquisitions the Company acquired 712,823 warrants to purchase common stock with a weighted average exercise price of $3.90. The Company also issued 5,744,991 warrants with an exercise price of $4.25 on May 6, 2019 as part of the PIPE. Additionally, in connection with the PIPE transaction, the Company issued 220,539 warrants to brokers with an exercise price of $3.00. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO. On September 17, 2019, a Company advisor was issued 2,500,000 warrants with an exercise price of $0.10 and 1,500,000 warrants with an exercise price of $10.00. The warrants are exercisable as follows: 1,250,000 of the warrants with the $0.10 exercise price are exercisable on the earlier of the twelve-month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company; the remaining 1,250,000 of the warrants with the $0.10 exercise price and the 1,500,000 warrants with the $10.00 exercise price are exercisable on the earlier of the eighteen-month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company.
On November 4, 2019, the Company issued 11,000 warrants in connection with the November 2019 Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”) at an exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO.
On December 19, 2019, the Company issued 937,500 Seller Warrants in connection with the Seller Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future initial public offering (“IPO”) at an exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO.
On December 19, 2019 the Company issued 6,500,000 warrants with an exercise price of $1.82 in conjunction with the short term loan (Guarantor Warrants). The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO.
Warrants acquired on May 6, 2019 | | | 712,823 | | | $3.90 | Issued | | | 17,414,030 | | | 3.27 | Exercised | | | (1,144,999)(1) | | | 3.50 | Warrants outstanding at December 31, 2019 | | | 16,981,854 | | | $3.23 |
(1)
| Exercised warrants were converted at 1.1 shares per warrant for a total of 1,259,498 shares. |
The intrinsic value of outstanding warrants is $12.2 million as of December 31, 2019. No warrants were issued or outstanding at December 31, 2018.
Note 16 – Employee benefit plans
The Company maintains a qualified defined contribution 401(k) plan, which covers substantially all of our employees. Under the plan, participants are entitled to make pre-tax and/or Roth post-tax contributions up to the annual maximums established by the Internal Revenue Service. The Company matches 100% of up to 3% and 50% of up to 5% of participant contributions pursuant to the terms of the plan, which contributions are limited to a percentage of the participant’s eligible compensation. The Company made contributions related to the plan and recognized expense of $0.1 million during the year ended December 31, 2019 and zero for the year ended December 31, 2018.
Note 17 – Related party transactions
Management services
During the years ended December 31, 2019 and 2018, the company paid less than $0.2 million and $0.5 million respectively, for management services provided by an entity owned by a member of the board of directors.
TABLE OF CONTENTS
Marketing services
A company controlled by a member of the board of directors provides online traffic acquisition marketing services for the Company. The Company incurred a total of $0.2 million and $0.1 million for their services during the years ended December 31, 2019 and 2018, respectively. The service contract has a 30-day termination clause. Outstanding balances were less than $0.1 million at December 31, 2019 and December 31, 2018. The outstanding balance is included in Accounts Payable.
Finder’s fee and other services
The Company paid a finders’ fee of $0.3 million and $0.4 million for other professional services during the year ended December 31, 2018 to an entity owned by one of its officers during the year ended December 31, 2018. The Company paid less than $0.1 million during the year ended December 31, 2019.
Notes payable
The Company issued $1.4 million of subordinated convertible notes to a member of the board of directors during the year ended December 31, 2019. Interest related to the subordinated convertible notes was less than $0.1 million.
Halo Transaction Bonus
An executive received a transaction bonus as per his employment agreement upon the close of the Halo Acquisition. The executive received $0.1 million in subordinated convertible notes.
Guarantor warrants
The Company issued a total of 6,500,000 warrants to three members of the board of directors as consideration for the Shareholder Guaranties related to the short term loan during the year ended December 31, 2019. The 6,500,000 warrants have a fair market value of $4.2 million as of the date of issuance.
Note 18 –13- Income taxes For the yearsthree months ended DecemberMarch 31, 20192021, and 2018,March 31, 2020, the Company recorded no current or deferred income tax expense. For the yearthree months ended DecemberMarch 31, 2018, the Company was a Limited Liability Company, taxed as a partnership. Thus, all of2021 and March 31, 2020, the Company’s income and losses flowed through to the owners. Furthermore, no deferredeffective tax assets and liabilities were recorded. Beginning in 2019 the Company converted to a C-Corporation and is subject to tax at an entity level. rate was 0%. The Company’s effective tax rate of 0% differs from the United States federal statutory rate of 21% primarily because the Company’s losses have been fully offset by a valuation allowance due to uncertainty as to the realization of realizing the tax benefit of net operating losses (“NOLs”) for the three months ended March 31, 2021, and year ended December 31, 2019. The following table is a reconciliation of the components that caused our provision for income taxes to differ from amounts computed by applying the United States federal statutory rate of 21% for the year ended December 31, 2019: Statutory U.S. Federal income tax | | | $(38,760) | | | 21.0% | State income taxes, net | | | (818) | | | 0.4% | LLC income not taxed | | | 2,376 | | | (1.3)% | Loss on acquisitions | | | 29,051 | | | (15.7)% | Change in valuation allowance | | | 7,892 | | | (4.3)% | Other | | | 259 | | | 0.1% | Total provision | | | $— | | | 0% |
2020.TABLE OF CONTENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of theThe Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred income tax assets:
| | | | Net operating loss carryforwards
| | | 8,503
| Stock options
| | | 2,493
| Other assets
| | | 301
| Gross deferred tax assets
| | | 11,297
| Valuation allowance
| | | (7,913)
| Net deferred tax asset
| | | 3,384
| | | | | Deferred income liabilities:
| | | | Inventory
| | | (137)
| Intangibles
| | | (3,247)
| Deferred tax assets, net of valuation allowance
| | | —
|
As of December 31, 2019, the Company had a deferred tax asset (before valuation allowance) recorded on gross federal and stateattributed to net operating loss carryforwards of approximately $36.3 million and $32.7 million, respectively. These net operating losses will begin to expire in 2027.
The Internal Revenue Code, as amended (“IRC”), imposes restrictions on the utilizationultimate realization of NOLs and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change NOLs may be limited as prescribed under IRC Section 382. Events which may cause limitation in the amount of the NOLs and credits that can be utilized annually include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Under ASC 805, “Business Combinations”, an acquirer should recognize, and measure deferred taxes arising from assets acquired and liabilities assumed in a business combination in accordance with ASC 740. The financial statement loss includes losses that will not result in future deferred tax assets and therefore these losses are excluded.
Management assessesis dependent upon the available positive and negative evidence to estimate if sufficientgeneration of future taxable income will be generated to useduring the existing deferred tax assetsperiods in the future. A significant piece of objective negative evidence evaluated was the cumulative loss incurred through the year ended December 31, 2019 and 2018. Such objective evidence limits the ability to consider other subjective positive evidence such as current year taxable income and future income projections.which those temporary differences become deductible. On the basis of this evaluation, as of the year ended December 31, 2019,management’s assessment, a valuation allowance of $7.9 millionequal to the net deferred tax assets was recorded since it is more likely than not that the deferred tax assets will not be realized.
Valuation allowance, at beginning of year
| | | $—
| Increase in valuation allowance
| | | 7,892
| Halo Acquisition
| | | 21
| Valuation allowance, at end of year
| | | $7,913
|
As of December 31, 2019 and 2018, theThe Company hadhas no accrued interest and penalties related to uncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. As of March 31, 2021 and December 31, 2019 and 2018,2020, the Company doesdid not have any significant uncertain tax positions. If incurred, the Company would classify interest and penalties on uncertain tax positions as
The Company’s income tax expense.returns generally remain open for examination for three years from the date filed with each taxing jurisdiction. TABLE OF CONTENTS The Company is subject to taxation in the United States federal and various state jurisdictions. The Company is not currently under audit by any taxing authorities. The Company remains open to examination by tax jurisdictions for tax years beginning with the 2016 tax year for Federal and 2015 for states. Federal and state net operating losses are subject to review by taxing authorities in the year utilized.Note 14 - Concentrations
Note 19 – Major suppliersSuppliers
The Company sourced approximately 74% and 70%71% of its inventory purchases from one vendorthree vendors for the yearsthree months ended March 31, 2021. The Company sourced approximately 48% of its inventory purchases from two vendors for the three months ended March 31, 2020. Major Customers Accounts receivable from two customers represented 63% of accounts receivable as of March 31, 2021. Accounts receivable from two customers represented 72% of accounts receivable as of December 31, 20192020. Two customers represented 42% of gross sales for the three months ended March 31, 2021. Four customers represented 70% of gross sales for the three months ended March 31, 2020. Credit Risk At March 31, 2021 and 2018, respectively. Note 20 – Concentration of credit risk and off-balance sheet risk
Cash and cash equivalents and accounts receivable potentially subject the Company to concentrations of credit risk. At December 31, 2019 and 2018, all2020, the Company’s cash and cash equivalents were deposited in accounts at several financial institutions.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 may maintain balances with financial institutions in excess of federally insured limits. 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. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements. None of the Company’s customers had purchases that represented over 10% of total gross sales for the years ended December 31, 2019 and 2018. Accounts receivable from the largest customer represented 44% and 68% of accounts receivable at December 31, 2019 and 2018, respectively.
Note 21 –15 - Net loss per share Basic and diluted net loss per share attributable to common stockholders is presented using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares. Basic and diluted net loss per share is calculated by dividing net and comprehensive loss attributable to common stockholders by the weighted-average shares outstanding during the period. For the yearsthree months ended DecemberMarch 31, 20192021 and 2018,2020, the Company’s basic and diluted net and comprehensive loss per share attributable to common stockholders are the same because the Company has generated a net loss to common stockholders and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact. The following table sets forth basic and diluted net loss per share attributable to common stockholders for the yearsthree months ended DecemberMarch 31, 20192021 and 2018:2020 (in thousands, except share and per share amounts): | | | Years Ended
December 31, | | | Three Months Ended March 31, | Dollars in thousands except per share amounts | | | 2019 | | 2018 | | Common stockholders
| | | | | | 2021 | | 2020 | Numerator:
| | | | | | | | | Net and comprehensive loss | | $(184,462) | | $(6,026) | | $(12,850) | | $(9,454) | Less: Preferred stock dividends | | 109 | | — | | — | | 34 | Net and comprehensive loss available to common stockholders | | $(184,571) | | $(6,026) | | | | | | | | Less: Adjustment due to warrant modifications | | | 402 | | — | Adjusted Net and comprehensive loss available to common stockholders | | | $(13,252) | | $(9,488) | Denominator:
| | | | | | | | | Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted | | 33,238,600 | | 11,516,421 | | 57,525,054 | | 48,526,396 | Net loss per share attributable to common stockholders, basic and diluted | | $(5.55) | | $(0.52) | | $(0.23) | | $(0.20) |
TABLE OF CONTENTS
Note 22 – Subsequent events
Management has evaluated subsequent events through the date on which the consolidated financial statements were issued.
Stock and Warrant Issuance
On January 3, 2020, the Company issued 308,642 shares of common stock to an investor for net proceeds of $0.5 million, net of issuance costs of less than $0.1 million.
During January 2020, the Company issued shares below the exercise price of warrants acquired on May 6, 2019. Pursuant to the warrant agreement, the Company issued an additional 1,003,232 warrants on March 17, 2020 to its warrant holders at an exercise price of $1.62 and revised the existing warrants to an exercise price of $1.62.
Amended November 2019 Notes
The November 2019 Notes were amended on January 6, 2020. The amendment incorporates only the preferable terms of the Seller Notes and all other terms and provisions of the November 2019 Note remains in full force and effect. Pursuant to the amended November 2019 Notes, the interest shall be payable by increasing the aggregate principal amount of the November 2019 Notes. As amended, for so long as any event of default (as defined in the November 2019 Note) exists, interest shall accrue on the November 2019 Note principal at the default interest rate of 12.0% per annum, and such accrued interest shall be immediately due and payable.
ABG Termination
On January 13, 2020, the Company terminated the Houndog licensing agreement (“ABG Agreement”) with Associated Brands Group (ABG) and Elvis Presley Enterprises due to business judgment. As part of the termination, the Company agreed to the following: (1) paid ABG $0.1 million in cash upon the signing of this Agreement, (2) issue to ABG 72,720 shares of the Company’s common stock, (3) pay to ABG $0.1 million cash in four equal installments from July 31, 2020 through October 31, 2020, (4) issue to ABG $0.6 million in Subordinated Promissory Notes (the “ABG Notes”), (5) issue to ABG common stock purchase warrants (the “ABG Warrants”) equating to a value of $150,000. The terms of the ABG Notes, when issued, will match those of the Seller Notes. The Warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of an IPO (as defined in the ABG Warrants) at an exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock was sold in the IPO.
COVID-19
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. In January 2020, the World Health Organization declared the novel coronavirus outbreak a “Public Health Emergency of International Concern.” This world-wide outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses and facilities. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions and consumer confidence and spending, which could materially adversely affect the supply of as well as the demand for our products. Uncertainties regarding the economic impact of COVID-19 is likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows.
We source our products from suppliers and manufacturers located in the United States and New Zealand. The impact of COVID-19 on these suppliers, or any of our other suppliers, co-manufacturers, distributors or transportation or logistics providers, may negatively affect the price and availability of our ingredients and/or packaging materials and impact our supply chain. If the disruptions caused by COVID-19 continue for an extended period of time, our ability to meet the demands of our customers may be materially impacted. To date, we have not experienced any reduction in the available supply of our products. As of March 2020, the United States Department of Homeland Security has classified businesses that manufacture, produce and supply pet food as “Essential Critical Infrastructure Workers.”
We depend on a logistics partner and our warehouse facilities located in Tampa, Florida. If we are forced to scale back hours of operation or close these facilities in response to the pandemic, we expect our business, financial condition and results of operations would be materially adversely affected.
TABLE OF CONTENTS
Additionally, many of our employees, including members of our management team, have been reporting to work remotely due to the COVID-19 outbreak, which has resulted in the closure of our offices in Florida and New York. If our operations or productivity continue to be impacted throughout the duration of the COVID-19 outbreak and government-mandated closures, which may negatively impact our business, financial condition and cash flows. The extent to which COVID-19 pandemic will further impact our business will depend on future developments and, given the uncertainty around the extent and timing of the potential future spread or mitigation and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our business at this time.
The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impacts this CARES Act may have on our business 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 loan, which was in the form of a note dated April 6, 2020, issued by TruPet LLC, matures on April 6, 2022, and bears interest at a rate of 0.98% per annum, payable monthly commencing on November 6, 2020. The note may be prepaid by the TruPet LLC at any time prior to maturity with no prepayment penalties. Funds from the loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
TABLE OF CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors and Unitholders of TruPet LLC.Better Choice Company Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheetsheets of TruPet LLC.Better Choice Company Inc. (the “Company”)Company) as of December 31, 20182020 and 2017, and2019, the related consolidated statements of lossoperations and comprehensive loss, unitholders’ equity,stockholders' deficit and cash flows for each of the two years thenin the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the two years thenin the period ended December 31, 2020, in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles. Material Uncertainty RelatedThe Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced ongoingsuffered recurring losses negative cash flows from operations, accumulated a significant deficit, has a working capital deficitdeficiency, and the line of credit is approaching maturity. The Company is dependent upon future sources of debt or equity financing in order to fund its operations. These conditions raisehas stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. TABLE OF CONTENTS | | | Impairment analysis of goodwill | | | | | Description of the Matter | | | At December 31, 2020, the Company’s goodwill was $18.6 million related to its Halo reporting unit. As discussed in Note 1 and 9 to the consolidated financial statements, goodwill is tested for impairment annually as of October 1st or whenever events or circumstances indicate it is more likely than not that impairment may have occurred. The Company estimates the fair value of a reporting unit using a combination of the market approach and the income approach, using discounted cash flows. | | | | | | | | Auditing management’s annual goodwill impairment assessment for the reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the Halo reporting unit. In particular, the fair value estimate was sensitive to changes in significant assumptions, such as revenue growth rates, the terminal growth rate, EBITDA margin, the weighted average cost of capital, and market multiples which are affected by expectations about future market or economic conditions. | | | | | How We Addressed the Matter in Our Audit | | | To test the estimated fair value of the Company’s Halo reporting unit, we performed audit procedures that included, among others, evaluating valuation methodologies and testing the significant assumptions discussed above used by the Company in its analysis. We involved our specialist to assist in the evaluation of the valuation methodologies and testing certain significant assumptions, including the discount rate and market multiples. We compared the significant assumptions used by management to current industry and economic trends, recent historical performance and other factors. We specifically evaluated the Company’s forecasted growth rates and EBITDA margins by comparing these assumptions to those of the Company’s peers and industry reports. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We also tested the underlying data used by the Company in its analysis for completeness and accuracy. | | | | | | | | Issuance of convertible instruments and associated warrants | | | | | Description of the Matter | | | As described in Note 10 to the consolidated financial statements, on June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “Notes”). In connection with this issuance, each noteholder also received common stock purchase warrants (the “Warrants”) to purchase up to 500,000 shares of the Company’s common stock; 1,000,000 common stock purchase warrants were issued in total. The total cash proceeds received from the issuance of the Notes were allocated to the Notes and Warrants at the time of issuance. | | | | | | | | As described in Note 13 to the consolidated financial statements, during October 2020 the Company consummated a private placement in which the Company issued and sold units (the “Series F Units”) to the investors for a purchase price of $1,000 per Unit. Each Unit consisted of one share of the Company’s Series F convertible preferred stock (“Series F Preferred”) and a warrant (“Series F Warrants”) to purchase shares of common stock. The Company issued 18,202 Series F Units for a total of $18.2 million in gross cash proceeds. The total cash proceeds received were allocated to the Series F Unit components (preferred stock and warrant) at the time of issuance. | | | | Auditing the valuation of the Notes, Warrants, and Series F Units was complex |
TABLE OF CONTENTS | | | due to the judgmental nature of the assumptions, which included stock price volatility (Warrants and Series F Warrants), debt discount rate (Notes), probability of exit events (Notes, Warrants, Series F Preferred, Series F Warrants), and expected life (Warrants and Series F Warrants). These assumptions had a significant effect on the fair value measurement of the Notes, Warrants, and Series F Units. | | | | | How We Addressed the Matter in Our Audit | | | To test the estimated fair value of the Notes, Warrants, and Series F Units, our audit procedures included, among others, evaluation of the significant assumptions discussed above and consideration of the appropriateness of related methodologies utilized for estimation. This included evaluating the volatility rate by assessing the guideline public companies (“GPC”) selected and the weighting applied between the GPCs and the Company’s historical volatility, evaluating the Company’s specific risk premium incorporated into the debt discount assumption, assessing the reasonableness of the probability of various exit events based on information available as of the observable transaction dates, and evaluating the expected time to exercise for all Warrants and Series F Warrants outstanding. We involved our specialist to assist with the evaluation of the assumptions as used by management. |
/s/ Ernst & Young LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2019.
Toronto, Ontario
April 26, 2019Louisville, Kentucky
March 30, 2021 TABLE OF CONTENTS TRUPET LLCBetter Choice Company Inc.Consolidated Balance Sheets
As of December 31, 2018(Dollars in thousands, except share and 2017per share amounts)
Assets
| | | | | | | Current Assets
| | | | | | | Cash and cash equivalents | | | $3,946,261 | | | $157,138 | Accounts receivable, net (Note 2) | | | 275,560 | | | 79,270 | Inventories, net (Note 3) | | | 1,556,946 | | | 1,156,830 | Prepaid expenses and other current assets | | | 269,073 | | | 60,898 | Total Current Assets | | | 6,047,840 | | | 1,454,136 | Property and equipment, net (Note 4) | | | 71,295 | | | 54,481 | Other assets | | | 27,559 | | | 27,559 | Total Assets | | | $6,146,694 | | | $1,536,176 | | | | | | | | Liabilities and Members’ Deficit
| | | | | | | Current Liabilities
| | | | | | | Line of credit (Note 5) | | | $4,600,000 | | | $1,985,000 | Other liabilities (Note 7) | | | 1,898,759 | | | 58,407 | Long-term debt, current portion (Note 8) | | | 1,600,000 | | | — | Accounts payable | | | 764,715 | | | 676,884 | Due from related parties | | | — | | | 32,706 | Accrued liabilities | | | 244,593 | | | 889,069 | Deferred revenue (Note 6) | | | 65,965 | | | — | Total Current Liabilities | | | 9,174,032 | | | 3,642,066 | Deferred rent | | | 15,016 | | | 9,258 | Total Liabilities | | | 9,189,048 | | | 3,651,324 | | | | | | | | Members’ Deficit (Note 9)
| | | | | | | Common units, no par value, 13,651,461 and 10,396,808 units authorized 10,545,435 and 10,396,808 units issued and outstanding at December 31, 2018 and 2017, respectively | | | 8,913,647 | | | 8,556,943 | Series A Preferred Units, no par value, 5,000,000 units authorized, 2,162,536 units issued and outstanding December 31, 2018. | | | 4,668,000 | | | — | Units to be issued | | | 74,107 | | | — | Accumulated deficit | | | (16,698,108) | | | (10,672,091) | Total Members’ Deficit | | | (3,042,354) | | | (2,115,148) | Total Liabilities and Members’ Deficit | | | $6,146,694 | | | $1,536,176 |
Assets
| | | | | | | Cash and cash equivalents | | | $3,926 | | | $2,361 | Restricted cash | | | 63 | | | 173 | Accounts receivable, net | | | 4,631 | | | 5,824 | Inventories, net | | | 4,869 | | | 6,580 | Prepaid expenses and other current assets | | | 4,074 | | | 2,641 | Total Current Assets | | | 17,563 | | | 17,579 | Property and equipment, net | | | 252 | | | 417 | Right-of-use asset, operating lease | | | 345 | | | 951 | Intangible assets, net | | | 13,115 | | | 14,641 | Goodwill | | | 18,614 | | | 18,614 | Other assets | | | 1,364 | | | 1,330 | Total Assets | | | $51,253 | | | $53,532 | Liabilities & Stockholders’ Deficit
| | | | | | | Current Liabilities
| | | | | | | Short term loan, net | | | $7,826 | | | $16,061 | Line of credit, net | | | — | | | 4,819 | PPP loans | | | 190 | | | — | Other liabilities | | | 47 | | | 500 | Accounts payable | | | 3,137 | | | 4,049 | Accrued liabilities | | | 3,003 | | | 4,721 | Deferred revenue | | | 350 | | | 311 | Operating lease liability, current portion | | | 173 | | | 345 | Warrant liability | | | 39,850 | | | — | Warrant derivative liability | | | — | | | 2,220 | Total Current Liabilities | | | 54,576 | | | 33,026 | Noncurrent Liabilities
| | | | | | | Notes payable, net | | | 18,910 | | | 16,370 | Line of credit, net | | | 5,023 | | | — | PPP loans | | | 662 | | | — | Operating lease liability | | | 184 | | | 641 | Total Noncurrent Liabilities | | | 24,779 | | | 17,011 | Total Liabilities | | | 79,355 | | | 50,037 | Redeemable Series E Convertible Preferred Stock
| | | | | | | Redeemable Series E preferred stock, $0.001 par value, 2,900,000 shares authorized, 0 & 1,387,378 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | — | | | 10,566 | Stockholders’ Deficit
| | | | | | | Common stock, $0.001 par value, 200,000,000 and 88,000,000 shares authorized, 51,908,398 & 47,977,390 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | 52 | | | 48 | Redeemable Series F Preferred Stock, $0.001 par value, 30,000 & 0 shares authorized, 21,754 & 0 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | — | | | — | Additional paid-in capital | | | 232,487 | | | 194,150 | Accumulated deficit | | | (260,641) | | | (201,269) | Total Stockholders’ Deficit | | | (28,102) | | | (7,071) | Total Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit | | | $51,253 | | | $53,532 |
SeeThe accompanying notes.notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS TRUPET LLCBetter Choice Company Inc.Consolidated Statements of LossOperations and Comprehensive Loss
For the Years Ended December 31, 2018(Dollars in thousands, except share and 2017per share amounts)
Net Sales | | | $14,784,831 | | | $7,931,780 | Cost of Goods Sold | | | 7,488,641 | | | 4,309,602 | Gross Profit | | | 7,296,190 | | | 3,622,178 | Selling, General, and Administrative Expenses | | | 12,454,023 | | | 8,964,329 | Loss from Operations | | | (5,157,833) | | | (5,342,151) | Other Income (Expense)
| | | | | | | Interest expense | | | (868,184) | | | (42,109) | Other income | | | — | | | 12,421 | Net Loss and Comprehensive Loss | | | $(6,026,017) | | | $(5,371,839) | Weighted average number of units outstanding | | | 10,474,541 | | | 10,205,688 | Loss per unit, basic and diluted | | | (0.58) | | | (0.53) |
Net sales | | | $42,590 | | | $15,577 | Cost of goods sold | | | 26,491 | | | 9,717 | Gross profit | | | 16,099 | | | 5,860 | Operating expenses:
| | | | | | | General and administrative | | | 25,966 | | | 19,782 | Share-based compensation | | | 8,940 | | | 10,280 | Sales and marketing | | | 7,892 | | | 10,138 | Customer service and warehousing | | | 623 | | | 1,097 | Impairment of intangible asset | | | — | | | 889 | Total operating expenses | | | 43,421 | | | 42,186 | Loss from operations | | | (27,322) | | | (36,326) | Other expense (income):
| | | | | | | Interest expense, net | | | 9,247 | | | 670 | Loss on extinguishment of debt | | | 88 | | | — | Loss on acquisitions | | | — | | | 147,376 | Change in fair value of warrant liability | | | 24,898 | | | — | Change in fair value of warrant derivative liability | | | (2,220) | | | 90 | Total other expense, net | | | 32,013 | | | 148,136 | Net and comprehensive loss | | | (59,335) | | | (184,462) | Preferred dividends | | | 103 | | | 109 | Net and comprehensive loss available to common stockholders | | | $(59,438) | | | $(184,571) | Weighted average number of shares outstanding, basic and diluted | | | 49,084,432 | | | 33,238,600 | Loss per share, basic and diluted | | | $(1.21) | | | $(5.55) |
SeeThe accompanying notes.notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS TRUPET LLCBetter Choice Company Inc.Consolidated Statements of Changes in Members’Stockholders’ Deficit
For the Years Ended December 31, 2018 and 2017(Dollars in thousands, except shares)
Balance at January 1, 2017 | | | 5,208,354 | | | $1,471,000 | | | — | | | $— | | | $— | | | $(5,300,252) | | | $(3,829,252) | Units issued pursuant to private placement | | | 4,796,457 | | | 6,169,650 | | | — | | | — | | | — | | | — | | | 6,169,650 | Units issued pursuant to services provided | | | 391,997 | | | 916,293 | | | — | | | — | | | — | | | — | | | 916,293 | Net loss for the period | | | — | | | — | | | — | | | — | | | — | | | (5,371,839) | | | (5,371,839) | Balance at December 31, 2017 | | | 10,396,808 | | | 8,556,943 | | | — | | | — | | | — | | | (10,672,091) | | | (2,115,148) | Units issued pursuant to private placement | | | — | | | — | | | 2,162,536 | | | 4,668,000 | | | — | | | — | | | 4,668,000 | Units issued pursuant to services provided | | | 148,627 | | | 356,704 | | | — | | | — | | | 74,107 | | | — | | | 430,811 | Net loss | | | — | | | — | | | — | | | — | | | — | | | (6,026,017) | | | (6,026,017) | Balance at December 31, 2018 | | | 10,545,435 | | | $8,913,647 | | | 2,162,536 | | | $4,668,000 | | | $74,107 | | | $(16,698,108) | | | $(3,042,354) |
Balance at December 31, 2019 | | | 47,977,390 | | | $48 | | | — | | | $— | | | $194,150 | | | $(201,269) | | | $(7,071) | | | 1,387,378 | | | $10,566 | Shares issued pursuant to private placement | | | 308,642 | | | — | | | — | | | — | | | 500 | | | — | | | 500 | | | — | | | — | Share-based compensation | | | 455,956 | | | 1 | | | — | | | — | | | 8,939 | | | — | | | 8,940 | | | — | | | — | Shares and warrants issued to third party for contract termination | | | 72,720 | | | — | | | — | | | — | | | 198 | | | — | | | 198 | | | — | | | — | Shares issued to third parties for services | | | 1,160,000 | | | 1 | | | 100 | | | — | | | 1,371 | | | — | | | 1,372 | | | — | | | — | Warrants issued to third party for services | | | — | | | — | | | — | | | — | | | 10,132 | | | — | | | 10,132 | | | — | | | — | 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 | | | — | | | — | Shares issued pursuant to warrant exercise | | | 1,837,690 | | | 2 | | | — | | | — | | | 1,046 | | | — | | | 1,048 | | | — | | | — | Warrants issued in connection with ABL Facility | | | — | | | — | | | — | | | — | | | 230 | | | — | | | 230 | | | — | | | — | Net and comprehensive loss available to common stockholders | | | — | | | — | | | — | | | — | | | — | | | (59,438) | | | (59,438) | | | — | | | — | Shares issued pursuant to Series F Private Placement and Exchange Transaction | | | — | | | — | | | 21,702 | | | — | | | 8,501 | | | 5,415 | | | 13,916 | | | (1,387,378) | | | (10,566) | Conversion of Series F shares to common stock | | | 96,000 | | | — | | | (48) | | | — | | | — | | | — | | | — | | | — | | | — | Beneficial conversion feature of Series F shares | | | — | | | — | | | — | | | — | | | 5,349 | | | (5,349) | | | — | | | — | | | — | Balance at December 31, 2020 | | | 51,908,398 | | | $52 | | | 21,754 | | | $— | | | $232,487 | | | $(260,641) | | | $(28,102) | | | — | | | $— |
SeeThe accompanying notes.notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS TRUPET LLCBetter Choice Company Inc.Consolidated Statements of Cash FlowsStockholders’ Deficit
For the Years Ended December 31, 2018 and 2017(Dollars in thousands, except shares)
Cash Flows from Operating Activities:
| | | | | | | Net loss | | | $(6,026,017) | | | $(5,371,839) | Adjustments to reconcile net loss to net cash used in operating activities:
| | | | | | | Depreciation and amortization | | | 14,123 | | | 11,883 | Unit-based compensation expense | | | 430,811 | | | 916,293 | Change in operating assets and liabilities:
| | | | | | | Accounts receivable | | | (196,290) | | | (50,447) | Inventories | | | (400,116) | | | (373,323) | Prepaid expenses and other assets | | | (208,175) | | | (31,418) | Accounts payable | | | 55,125 | | | 479,946 | Accrued liabilities | | | (644,476) | | | 442,389 | Deferred revenue | | | 65,965 | | | — | Deferred rent | | | 5,758 | | | 9,258 | Net cash used in operating activities | | | (6,903,292) | | | (3,967,258) | Cash Flows from Investing Activities:
| | | | | | | Purchases of property and equipment | | | (30,937) | | | (8,686) | Cash Flows from Financing Activities:
| | | | | | | Other liabilities | | | 1,840,352 | | | 19,720 | Net borrowings on line of credit | | | 2,615,000 | | | 1,985,000 | Borrowings on long-term debt | | | 1,600,000 | | | — | Proceeds from shares issued pursuant to private placement, net | | | 4,668,000 | | | 1,836,450 | Net cash provided by financing activities | | | 10,723,352 | | | 3,841,170 | Net Increase (Decrease) in Cash | | | 3,789,123 | | | (134,774) | Cash, Beginning of Year | | | 157,138 | | | 291,912 | Cash, End of Year | | | $3,946,261 | | | $157,138 | Supplemental Cash Flow Disclosures:
| | | | | | | Interest paid | | | $868,184 | | | $42,109 | Non-Cash Financing Activities:
| | | | | | | Conversion of debt for equity | | | $0 | | | $4,333,200 |
TABLE OF CONTENTS
Notes to the Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 1 – Nature of Operations and Going Concern:
TruPet LLC (the Company), is a Delaware company, originally formed as an Ohio limited liability company on August 2, 2013. On December 20, 2018, the Company was converted to a Delaware limited liability company. The Company manufactures and markets freeze dry raw diet meals, treats, and supplements for dogs and cats in fulfillment of and to help pet owners understand the benefits of feeding a species an appropriate diet. The Company’s products are distributed throughout the United States online as well as pet specialty retail stores.
As of December 31, 2018, the Company incurred a loss from continuing operations of $6,026,017 and its balance sheet reflected an excess of current liabilities over current assets of approximately $3,126,000, while its cash flows showed a deficit in cash flows from operating activities of approximately $6,903,000. Additionally, the Company’s outstanding balance on the line of credit amounted to approximately $4,600,000 as of December, 31, 2018, and is due in May 2019.
The financial statements have been prepared on a going concern basis. In making this assessment, management conducted a comprehensive review of the Company’s affairs including, but not limited to:
The Company’s financial position for the year ended December 31, 2018;
Significant events and transactions the Company has entered into, including and through the date the financial statements were available to be issued;
Sales and profitability forecasts for the Company for the next financial year; and
The continued support of the Company’s members and lenders.
The refinancing of the line of credit with the same bank under similar terms.
To address the future additional funding requirements members have undertaken the following initiatives:
To continue to monitor the Company’s ongoing working capital requirements and minimum expenditure commitments;
Continue their focus on maintaining an appropriate level of corporate overhead in line with the Company’s available cash resources; and
The Company currently has an offer to sell its interest to Sport Endurance, Inc. (“SENZ”) in return for stock in the combined entity.
The members are confident that they will be able to complete additional rounds of a capital raising that will provide the Company with sufficient funding to meet its minimum expenditure commitments and support its planned level of overhead expenditures. Therefore, it is appropriate to prepare the financial statements on the going concern basis. In the event that the Company is not able to successfully complete any additional rounds of fundraising referred to above, complete the SENZ transaction, or control their overhead, there is substantial doubt as to whether the Company will continue as going concern, and therefore, whether they will realize their assets and extinguish their liabilities in the normal course of business, and at the amounts stated in the financial statements. As such, the financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts, nor to the amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
Note 2 – Summary of Significant Accounting Policies:
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as issued by the Financial Accounting Standards Board (“FASB”) in effect on December 31, 2018. The significant accounting policies applied by the Company are described below.
Basis of Measurement
The financial statements of the Company are presented using and have been prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value, as explained in
TABLE OF CONTENTS
the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goods and services. The Company’s functional and presentation currency is United States dollars (“USD”).
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits held with banks and highly liquid investments with remaining maturities of ninety days or less at acquisition date. 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.
Accounts Receivable
Accounts receivable represents amounts due from customers less the allowance for doubtful accounts. A provision is recorded for impairment when there is objective evidence (such as significant financial difficulties of the debtor) that the Company will not be able to collect all amounts due according to the original terms of the receivable. A provision is recorded as the difference between the carrying value of the receivable and the present value of future cash flows expected from the debtor, with an offsetting amount recorded as an allowance, reducing the carrying value of the receivable. The provision is included in selling, general and administrative expense in the statements of loss and comprehensive loss. As at December 31, 2018 and 2017, the Company considers accounts receivable to be fully collectible, accordingly, no allowance for doubtful accounts have been recorded.
Inventories
Inventories are recorded at the lower of cost and net realizable value. The net realizable value represents the estimated selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale.
Cost is determined on a standard cost basis and includes the purchase price and other costs, such as transportation costs. Inventory’s average cost is determined on a first-in, first-out (“FIFO”) basis and trade discounts are deducted from the purchase price.
Property and Equipment
Property and equipment are carried at cost and includes expenditures for new additions and those, which substantially increase the useful lives of existing assets. Depreciation is computed at various rates by use of the straight-line method. Depreciable lives are generally as follows:
Furniture and Fixtures
| | | 5 to 7 years
| Equipment
| | | 7 years
|
Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of property or equipment retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts in the year of disposal with the resulting gain or loss reflected in earnings.
The Company assesses potential impairments of its property and equipment whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. An impairment charge would be recognized when the carrying amount of property and equipment is not recoverable and exceeds its fair value. The carrying amount of property and equipment is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the property and equipment.
Income Taxes
No provision has been made for federal and state income taxes since the proportionate share of the Company’s income or loss is included in the personal tax returns of the members.
Accounting principles generally accepted in the United States of America require the Company to examine its tax positions for uncertain positions. Management is not aware of any tax positions that are more likely than not to change in the next twelve months or that would not sustain an examination by applicable taxing authorities.
The Company’s policy is to recognize penalties and interest as incurred in its statements of operations.
TABLE OF CONTENTS
Revenue
The Company recognizes revenue to depict the transfer of promised goods to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.
In order to recognize revenue, the Company applies the following five (5) steps:
Identify a customer along with a corresponding contract;
Identify the performance obligation(s) in the contract to transfer goods to a customer;
Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods to a customer;
Allocate the transaction price to the performance obligation(s) in the contract;
Recognize revenue when or as the Company satisfies the performance obligation(s).
Revenue is recognized upon the satisfaction of the performance obligation. The Company satisfies its performance obligation and transfers control upon shipment to the customer.
Advertising
The Company charges advertising costs to expense as incurred and such charges are included in selling, general and administrative expenses. Advertising costs, consisting primarily of media ads, amounted to approximately $3,900,000 and $3,700,000 for the years ended December 31, 2018 and 2017, respectively.
Shipping and Handling / Freight Out
The Company recognizes shipping and handling costs as a fulfillment cost, included in selling, general and administrative expenses as they are incurred prior to the customer obtaining control of the products. Shipping and handling costs primarily consist of costs associated with moving finished products to customers through third-party carriers. Shipping and handling costs amounted to $2,464,873 and $561,682 for the years ended December 30, 2018 and 2017, respectively. Additionally, the Company may recover such costs by passing them onto the customer. In these instances, the Company includes the freight charges billed to customers in total revenue. The amount included in revenue related to such recoveries was $883,398 and $430,457 for the years ended December 31, 2018 and 2017, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments recognized in the balance sheet and included in working capital consist of cash and cash equivalents, accounts receivable, accounts payable, line of credit, due to related party, accrued and other liabilities and long-term debt. Cash and cash equivalents are measured at fair value each reporting period. The fair values of the remaining financial instruments approximate their carrying values.
The Company’s financial instruments exposed to credit risk include cash and cash equivalents and accounts receivable (Note 13).
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements.
All financial instruments recognized at fair value in the balance sheet are classified into one of three levels in the fair value hierarchy as follows:
Level 1 – valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Cash is measured based on Level 1 inputs.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means.
Level 3 – valuation techniques with significant unobservable market inputs.
TABLE OF CONTENTS
Basic and Diluted Loss Per Unit
Basic and diluted loss per unit has been determined by dividing the net loss available to members for the applicable period by the basic and diluted weighted average number of units outstanding, respectively. Common unit equivalents and incentive units are excluded from the computation of diluted loss per unit when their effect is anti-dilutive.
Stock-Based Compensation
The Company follows the fair value method of accounting for stock awards granted to employees, directors, officers and consultants. Stock-based awards to employees are measured at the fair value of the related stock-based awards. Stock-based payments to others are valued based on the related services rendered or goods received or if this cannot be reliably measured, on the fair value of the instruments issued. Issuances of such awards are valued using the fair value of the awards at the time of grant. The Company recognizes stock-based payment expenses over the vesting period based on expectations of the number of awards expected to vest over that period on a straight-line basis.
Balance at December 31, 2018 | | | 11,661,485 | | | $12 | | | 2,391,403 | | | $2 | | | $13,642 | | | $(16,698) | | | $(3,042) | | | — | | | $— | Shares issued pursuant to a private placement – net proceeds | | | — | | | — | | | 69,115 | | | — | | | 150 | | | — | | | 150 | | | — | | | — | Shares and warrants issued pursuant to private issuance of public equity (PIPE)- net proceeds | | | 5,744,991 | | | 6 | | | — | | | — | | | 15,670 | | | — | | | 15,676 | | | — | | | — | Share-based compensation | | | 1,118,786 | | | 1 | | | — | | | — | | | 10,280 | | | — | | | 10,281 | | | — | | | — | Stock issued to third parties for services | | | 1,008,500 | | | 1 | | | — | | | — | | | 3,476 | | | — | | | 3,477 | | | — | | | — | Warrants issued to third parties for services | | | — | | | — | | | — | | | — | | | 2,968 | | | — | | | 2,968 | | | — | | | — | Conversion of Series A shares to common stock | | | 2,460,518 | | | 2 | | | (2,460,518) | | | (2) | | | — | | | — | | | — | | | — | | | — | Acquisition of treasury shares | | | (1,011,748) | | | (1) | | | — | | | — | | | (6,070) | | | — | | | (6,071) | | | — | | | — | Acquisition of Better Choice | | | 3,915,856 | | | 4 | | | — | | | — | | | 23,560 | | | — | | | 23,564 | | | 2,633,678 | | | 20,058 | Acquisition of Bona Vida | | | 18,103,273 | | | 18 | | | — | | | — | | | 108,602 | | | — | | | 108,620 | | | — | | | — | Guarantor warrants | | | — | | | — | | | — | | | — | | | 4,180 | | | — | | | 4,180 | | | | | | | Warrants issued in connection with the Notes | | | — | | | — | | | — | | | — | | | 313 | | | — | | | 313 | | | — | | | — | Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of expenses during the reporting periods.
The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting estimates are reviewed and discussed with the Board of Directors. The Company considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, if changes in the estimate or if different estimates that could have been selected would have a material impact on the Company’s results of operations or financial condition.
Significant estimates and assumptions that have the most significant effect on the amounts recognized in the financial statements relate to, but are not limited to going concern and liquidity assumptions, allowance for doubtful accounts, inventory reserves, valuation of stock-based compensation, loyalty points rewards and return and refund provisions.
Recently Issued Accounting Pronouncements
The Company has reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncement and interpretations thereof that have effective dates during the reporting period and in future periods.
New standards and interpretations:
Early adoption of ASC606 “Revenue from Contracts with Customers”
As permitted, the Company elected to early-adopt ASC606 for the periods reported. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract.
The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods beginning after December 15, 2016. On July 9, 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before the
TABLE OF CONTENTS
annual periods beginning after December 15, 2016. There have also been various additional accounting standards updates issues by the FASB in 2016 that further amend this new revenue standard. The Company adopted ASC 606 on January 1, 2017 and there has been no impact on the financial statements as a result of the adoption of ASC 606.
Early adoption of ASU 2017-11 “Earnings Per Share”
As permitted, the Company elected to early-adopt ASU 2017-11. The FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities From Equity (Topic 480) Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments With Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception, allows a financial instrument with a down-round feature to no longer automatically be classified as a liability solely based on the existence of the down-round provision. The update also means the instrument would not have to be accounted for as a derivative and be subject to an updated fair value measurement each reporting period.
On consideration of the above factors, the Company elected to early adopt ASU 2017-11 on January 1, 2018, the ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
The early adoption allows the Company to reduce the cost and complexity of accounting for financial instruments that, due to down round provisions, would otherwise require fair value measurement each reporting period and eliminate the corresponding impact and unnecessary volatility in reported earnings created by the revaluation when the Company’s share value changes.
The Company has applied the change in accounting policy retrospectively to all prior periods, as described in ASU No. 250-10-45-5, Accounting Changes and Error Corrections; however, there was no impact on the comparative period.
New standards and interpretations:
Early adoption of ASU 2017-01 “Business Combinations”
The FASB issued ASU No. 2017-01 which clarifies the definition of business. If substantially all of the fair value of the gross assets acquired is a single identifiable asset or group of similar identifiable assets, the set is not considered a business. The Company elected to early adopt ASU 2017-01 on January 1, 2018, the ASU is effective for public business entities for fiscal years beginning after December 15, 2017. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
The Company has applied the change in accounting policy retrospectively to all prior periods, as described in ASU No. 250-10-45-5, Accounting Changes and Error Corrections; however, there was no impact on the comparative period.
New and revised standards not yet adopted:
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update will require organizations that lease assets to recognize on the balance sheets the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. The provisions of this update are effective for annual and interim periods beginning after December 15, 2018. The Company is currently assessing the impact of the standard on its lease commitments disclosed in Note 10. Recognizing the present value of the remaining lease payments as a right of use asset and lease liability is expected to have a material impact, which is currently still under assessment.
In June 2018, the FASB issued ASU 2018-07- Stock Compensation (Topic 718). The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The requirements of Topic 718 should be applied to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specific that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does
TABLE OF CONTENTS
not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. These amendments are effective for public companies for fiscal years beginning after December 15, 2018.
In June 2016 the FASB issued Topic ASU No. 2016-13 “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018.
The Company has carefully considered other new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the Company’s reported balance sheet or operations in 2019.
Note 3 – Inventories:
Inventories reflected on the accompanying balance sheets are summarized as follows:
Food, treats and supplements | | | $1,301,274 | | | $709,561 | Other products and accessories | | | 191,292 | | | 283,132 | Inventory packaging and supplies | | | 132,681 | | | 164,137 | | | | 1,625,247 | | | 1,156,830 | Inventory reserve | | | (68,301) | | | — | | | | $1,556,946 | | | $1,156,830 |
Note 4 – Property and Equipment:
Property and equipment consists of the following at December 31, 2018 and 2017:
Warehouse equipment | | | 49,431 | | | 49,431 | Computer equipment | | | 13,913 | | | 13,913 | Furniture and fixtures | | | 45,944 | | | 14,556 | | | | 109,288 | | | 77,900 | Accumulated depreciation | | | (37,993) | | | (23,419) | | | | $71,295 | | | $54,481 |
Depreciation amounted to $14,123 and $11,883 for the years ended December 31, 2018 and 2017, respectively, and is included as a component of selling, general, and administrative expenses.
Note 5 – Line of Credit:
The Company, along with the majority owners serving as co-borrowers, had a $2,000,000 line of credit executed in May 2017. Through various amendments, the maximum borrowings under the line increased to $4,600,000 with a maturity of May 2019. Borrowings bear interest at the Libor rate plus 3% (5.3% and 4.3% at December 31, 2018 and 2017, respectively). At December 31, 2018 and 2017, outstanding borrowings amounted to $4,600,000 and $1,985,000, respectively.
The line of credit is secured by certain investment holdings of one of the co-borrowers. Covenants under the line of credit require the Company to be within a certain quarterly and annual loss limitation threshold, and certain other restrictions. As of December 31, 2018, the Company was in compliance with their covenants. As of December 31, 2017, the Company was not in compliance with certain covenants; however, the bank granted a waiver of default remedies with respect to noncompliance as of that date and the credit agreement was modified to remove the annual loss limitation threshold.
TABLE OF CONTENTS
For the years ended December 31, 2018 and 2017, the Company recorded approximately $169,000 and $38,000, respectively, of interest expense in its statements of loss and comprehensive loss related to the line of credit.
Note 6 – Loyalty Program Provision:
The TruDog Love Club is a loyalty program designed to increase customer visits and spending. The Club allows members instant access to select perks not offered to the general public, like auto-shipments and free shipping over $47. The program also enables customers to accumulate points based on their spending. For every $1 spent, customers receive twelve points, and for every five hundred points earned, customers will receive a $5 gift card which can be redeemed for goods purchased on-line. As of December 31, 2018 and 2017, earned, but not redeemed, loyalty program awards amounted to $65,965 and $0, respectively, as reflected in the balance sheets.
Note 7 – Other Liabilities:
Other liabilities include outstanding amounts on bank issued revolving credit cards. Interest rates on the issued credit cards was 19.24% for purchases and 24.24% for cash advances for the year ended December 31, 2018.
Under the terms of a Business Cash Advance Agreement, the Company has sold $2,005,794 of future receivables for proceeds of $1,879,794. Future receivables are defined as all future payments made by cash, check, ACH, direct or pre-authorized debit, wire transfer, credit card, debit card, charge card or other form of payment related to the business of the Company. The creditor has the right to decline to purchase any future receivables and/or adjust the amount of the advance. In the event of a sale, disposition, assignment, transfer or otherwise of all or substantially all of the business assets, the creditor’s consent is required or repayment in full of the amount of future receivables remaining. The transactions under the Business Cash Advance Agreement are as follows:
Opening balance - January 1, 2018
| | | | | | | | | | | | | Initial cash advance | | | $— | | | $— | | | $— | | | $— | Advance of outstanding amounts | | | 398,909 | | | 965,308 | | | 1,050,000 | | | 2,414,217 | Total initial advances | | | — | | | — | | | 824,486 | | | 824,486 | Payments | | | (429,432) | | | (1,080,180) | | | (101,727) | | | (1,611,339) | Advance fixed fee | | | 30,523 | | | 114,872 | | | 126,000 | | | 271,395 | Closing balance - December 31, 2018 | | | $— | | | $— | | | $1,898,759 | | | $1,898,759 |
For the years ended December 31, 2018 and 2017, the Company recorded approximately $271,000 and $0, respectively, of interest expense in its statements of loss and comprehensive loss related to the credit cards.
Note 8 – Long-term Debt:
Long-term debt consists of a note payable to a director of the Company bearing 26.6% interest, unsecured, with principal and interest due within 30 days to the Company being sold. At December 31, 2018 and 2017, outstanding borrowings amounted to $1,600,000 and $0, respectively. As a result of the likelihood of a transaction resulting in a sale of the Company (Note 15), this has been classified as a current liability on the accompanying balance sheets.
For the years ended December 31, 2018 and 2017, the Company recorded approximately $426,000 and $0, respectively, of interest expense in its statements of loss and comprehensive loss related to its related party term debt.
Note 9 – Members’ Equity:
Common Units
The Company had the following transactions in its common units during the year ended December 31, 2018:
The Company issued 148,627 shares of the Company’s common units to employees and consultants of the Company as compensation under the Equity Incentive Plan. The value of the units amounted to $430,811 and has been recorded as a component of selling, general and administrative expenses for the year ended December 31, 2017.
The Company had the following transactions in its common units during the year ended December 31, 2017:
The Company issued an aggregate of 4,796,457 shares of the Company’s common units at a purchase price of $1.29 per share. The proceeds were approximately $6,170,000.
TABLE OF CONTENTS
The Company issued 391,997 shares of the Company’s common units to an employee and a service provider of the Company as compensation. The value of the units amounted to $916,293 and has been recorded as a component of selling, general and administrative expenses for the year ended December 31, 2017.
Series A Preferred Units
In December 2018, the Company completed a private placement and issued Series A Preferred Units to unrelated parties for $2.40 per unit.
Until a Qualified Public Offering (as defined in the Company Operating Agreement, “Agreement”), any holder of Series A Preferred Units may, at any time prior to or simultaneously with a Deemed Liquidation Event (as defined in the Agreement), without the payment of additional consideration by the Series A Preferred Member, convert all or any portion of the Series A Preferred Units (including any fraction of a Unit) held by such Member into a number of Common Units based on a Series A Preferred Unit conversion price as defined in the Agreement.
The initial “Conversion Price” shall be the Original Purchase Price per Series A Preferred Unit. In order to prevent dilution of the conversion rights granted under this Agreement, the Conversion Price shall be adjusted for any unit splits, unit combinations, unit “dividends”, recapitalizations or similar transactions with respect to such Series A Preferred Units after the issuance of such Series A Preferred Units and also shall be subject to adjustment from time to time pursuant to the Agreement.
All of the outstanding Series A Preferred Units shall be automatically converted into a number of Common Units equal to (i) the total number of outstanding Series A Preferred Units multiplied by the Adjusted Original Purchase Price, divided by (ii) the Conversion Price then in effect without any further action on the part of the Company or any holder of Series A Preferred Units, upon (i) the closing of a Qualified Public Offering or (ii) the date and time, or the occurrence of an event, specified by the vote or written consent of the Unanimous Consent of the Series A Managers.
As detailed above, the Company early adopted ASU 2017-11 and accounted for Series A Preferred Units as an equity instrument.
The following summarizes the Company’s shares of common units as of December 31, 2018:
The Company issued an aggregate of 2,162,536 shares of the Company’s Series A Preferred Units at a purchase price of $2.29 per unit. The proceeds were approximately $4,668,000, net of $532,000 of share issuance costs.
No transactions were consummated during the year ended December 31, 2017 related to the Series A Preferred Units.
Equity Incentive Plan
In December 2018, the Company executed a limited liability company agreement by and among its members. As part of the agreement, an equity incentive plan was created whereby common units are or may be granted to an employee, consultant, officer, director, manager or other service provider of the Company. The aggregate number of common units issued pursuant to the plan, together with the aggregate number of profits interest units issued pursuant to any profits interest plan shall not exceed eight percent 8% of the total units outstanding. Therefore, the Company has 1,097,552 available units to issue under the plan as of December 31, 2018. The value of these units are estimated at the common unit fair market value of $2.40 per unit.
In November 2018, the Company awarded an affiliate of the managing member 274,388 available units under the Equity Incentive Plan in connection with its performance of services to the Company. Fifty percent of these incentive units shall vest immediately, and then subject to continuous service being rendered, the remaining incentive units shall vest in 24 equal monthly installments beginning on the effective date of the Plan which is December 2018.
Note 10 – Operating Lease Commitments:
The Company leases its office and warehouse facilities under an agreement, which originally expired in November 2018. This agreement was modified in January 2016 for additional space leased. With this modification, the rent term was also revised and extended for an additional 72 months beginning June 2016, at a base price of $12.15 per square foot, with a 3.5% annual escalation clause and a one-time option to renew the lease for an additional 5 year term. In addition to base monthly rent, the agreement requires the Company to pay its proportionate share of real estate taxes, insurance, and common area maintenance expenses.
TABLE OF CONTENTS
Rent expense under this arrangement amounted to $219,262 and $128,457 for the years ended December 31, 2018 and 2017, respectively.
Future minimum commitments under this agreement is as follows at December 31, 2018:
2019 | | | $257,296 | 2020 | | | 295,740 | 2021 | | | 295,740 | 2022 | | | 123,075 | 2023 | | | — | | | | $971,850 |
Note 11 – Material Service Agreements:
Material service agreements consummated with related parties:
Financial and Accounting Personnel
The Company entered into an agreement in December 2018 for assistance and support regarding its financial operation and capital raise efforts, and can be terminated at any time by either party with a 60 day notice with an affiliate of the managing member. The agreement requires payments amounting to $21,160 every 4 weeks through December 2020. Payments related to this agreement amounted to $48,312 for the year ended December 31, 2018.
Management Services
The Company pays an entity owned by one of its members for management services that can be terminated at any time by either party. Payments related to this arrangement amounted to approximately $477,000 and $0 for the years ended December 31, 2018 and 2017, respectively.
Finder’s Fee and Other Services
The Company paid a finders’ fee of $300,000 during the year ended December 31, 2018 to an entity owned by one of its members. Additionally, the Company paid approximately $437,000 to this entity for other professional services rendered. No such fees were paid to this entity in 2017.
Material service agreements consummated with third parties:
Financial and Accounting Personnel
The Company entered into an agreement in December 2018 for accounting management services for a fee of $5,770 to be paid every 2 weeks. Prior to this, the same company was performing similar services in 2018 for $3,600 every 2 weeks. Payments related to this agreement amounted to $37,710 for the year ended December 31, 2018.
Supply Chain and Inventory Control Management
The Company entered into an agreement with an independent contractor for supply chain and inventory control services in March 2017 for $1,100 per month. Payments related to this agreement amounted to $57,200 and $29,950 for the years ended December 31, 2018 and 2017, respectively.
Marketing Services
The Company entered into an agreement with an independent contractor for dedicated marketing measurement management in March 2018 for $2,995 per week. The contract can be terminated by either party with a 30 day written notice. Payments related to this agreement amounted to $26,955 for the year ended December 31, 2018.
The Company entered into an agreement with an independent contractor for e-mail marketing services and related maintenance in November 2017 for $4,000 per month. The contract can be terminated by either party with a 30 day written notice. Payments related to this agreement amounted to $48,000 and $8,000 for the years ended December 31, 2018 and 2017, respectively.
TABLE OF CONTENTS
The Company entered into an agreement with an independent contractor for marketing services in March 2018 for $3,500 per month. The contract can be terminated by either party with a 30 day written notice. Payments related to this agreement amounted to $35,000 for the year ended December 31, 2018.
Material service agreements consummated with third parties:
Placement and Selling Agent
In December 2018, the Company executed an agreement with a third party to assist them in identifying and negotiating with potential investors, assisting in due diligence, and other capital market functions for a term of 6 months. The agreement calls for a $0 base fee, but a 5% commission on cash proceeds obtained in exchange for shares or equity interest in the Company. The commissions can be paid in cash or equity in the Company. This agreement has an initial six month term, and subsequent to that, with a sixty day notice prior to the end of the initial term, the Company at its option may elect to extend this agreement for one successive twelve month term. Payments related to this agreement amounted to $110,000 for the year ended December 31, 2018, and is capitalized to related private placement as costs of issuance.
Consulting and Business Advisory Services
In September 2018, the Company executed an agreement with two third parties to assist them in brand alignment, introductions to potential investors as well as introductions to others who could provide assistance to the Company. The agreement calls for a referral fee paid of the following:
6% of any deal completed with a person or entity that was referred by the third parties up to $10,000,000.
3% of $10,000,001 – $20,000,000.
1.5% above $20,000,001
This agreement has an initial term of one year with automatic renewal for successive one year terms. Either party can terminate the agreement with a thirty day written notice. Payments related to this agreement amounted to $132,000 for the year ended December 31, 2018, and is capitalized to related private placement as costs of issuance.
Note 12 – Royalties:
The Company entered into an agreement for the payment of royalties related to sales of the Orapup brand dental system in November 2015. The agreement calls for a 10% royalty to be paid on the first $2.5 million of related sales for a term of 3 years. Subsequent to this, commencing on the earlier of the 3 year term, or the sales ceiling of $2.5 million has been reached, a 2% royalty will be paid thereafter on the sales of the Orapup brand. In November 2018, the parties reached a settlement whereby the Company paid $100,000 to fulfill all of their present and future obligations related to this agreement. As such, in addition to this payment, royalty expense amounted to $3,091 and $15,011 for the years ended December 31, 2018 and 2017, respectively, all of which are included in selling, general and administrative expenses.
Note 13 – Concentration of Credit Risk:
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. The Company places its cash and cash equivalents with primarily one financial institution. At times, such amounts may be in excess of the FDIC insured limit. The Company has never experienced any losses related to these balances.
The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited.
Note 14 – Major Suppliers:
The Company purchased approximately 70% and 54% of its inventories from one vendor for the years ended December 31, 2018 and 2017, respectively. Additionally, the Company primarily utilized one vendor for outsourced manufacturing of their meals for the years ended December 31, 2018 and 2017.
TABLE OF CONTENTS
Note 15 – Subsequent Events:
Management has evaluated subsequent events through the date on which the financial statements were issued.
Award of Incentive Units
In January 2019, the Company awarded the following individuals or entities available units of the Equity Incentive Plan:
Anthony Santarsiero – 397,862 units
Michelle Ruble, supply chain and inventory control management (see Note 10) – 137,194 units
Will Mullis – 137,194 units
Provisions under these award agreements call for continuous service to the Company and will vest over a 3 year period unless a deemed liquidation or business combination event occurs, whereby the units will become 100% vested prior to consummation of such event.
Plan and Exchange Agreement
In February 2019, the Company entered into a securities and exchange agreement with Better Choice Company Inc. (“BCC”) (formerly Sports Endurance, Inc.), a Delaware corporation, TruPet LLC, a Delaware limited liability company (“TruPet”), and the holders of the Membership Interests of TruPet. The TruPet Members will sell, convey, transfer and assign to BCC, free and clear of all Encumbrances or known claims of any kind, nature or description, all of the issued and outstanding Membership Interests of TruPet on a fully diluted basis (the “TruPet Exchange Consideration”). The agreement is subject to certain conditions to close disclosed in article 6 of the agreement. Immediately after the consummation of the transaction the TruPet Members, in the aggregate, shall own 38.2% of the voting power and 38.2% of the economic interests in BCC.
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of Bona Vida, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Bona Vida Inc. (the “Company”) as of December 31, 2018, and the related statements of loss and comprehensive loss, shareholders’ equity, and cash flows for the period from the date of incorporation, March 29, 2018 to December 31, 2018, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is dependent upon future sources of equity financing in order to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2019.
Toronto, Ontario
April 9, 2019
TABLE OF CONTENTS
Balance Sheet
As at December 31, 2018
Assets
| | | | | | | Cash and cash equivalents | | | | | | $1,123,968 | Prepaid expenses and deposits | | | 3 | | | 540,686 | Total current assets | | | | | | 1,664,654 | Intangible assets | | | | | | 9,270 | Total assets | | | | | | $1,673,924 | Liabilities
| | | | | | | Accrued liabilities | | | 6 | | | $115,946 | Warrants | | | 4 | | | 1,125,861 | Total liabilities | | | | | | 1,241,807 | Shareholders’ equity
| | | | | | | Capital Stock | | | 4 | | | 2,889 | Preferred shares, 10,000,000 authorized, nil issued and outstanding;
| | | | | | | Common stock, 75,000,000 authorized, par value $0.0001, 46,687,200 issued and outstanding
| | | | | | | Additional paid in capital | | | 4 | | | 3,594,915 | Shares to be issued | | | 5 | | | 9,546 | Contributed surplus | | | 5 | | | 94,172 | Deficit | | | | | | (3,269,405) | Total shareholders’ equity | | | | | | 432,117 | Total liabilities and shareholders’ equity | | | | | | $1,673,924 |
The accompanying notes are an integral part of these financial statements
TABLE OF CONTENTS
Statement of Loss and Comprehensive Loss
From the date of incorporation, March 29, 2018 to December 31, 2018
For the period ended December 31,
| | | | | | | Expenses
| | | | | | | Finance placement fees | | | 4 | | | $12,526 | Salary and benefits | | | | | | 153,241 | Selling, general and administrative | | | | | | 277,028 | Loss on advanced royalties | | | 7 | | | 500,000 | Stock based compensation | | | 5 | | | 1,390,718 | Fair value adjustment on warrants | | | 4 | | | 935,892 | | | | | | | 3,269,405 | Net loss and comprehensive loss | | | | | | $3,269,405 | Weighted average number of shares outstanding | | | | | | 32,597,423 | Loss per share basic and diluted | | | | | | $0.10 |
The accompanying notes are an integral part of these financial statements
TABLE OF CONTENTS
Statement of Changes in Equity
From the date of incorporation, March 29, 2018 to December 31, 2018
Balance as at March 29, 2018 | | | | | | — | | | $— | | | $— | | | $— | | | — | | | — | | | — | Shares issued to founders | | | 4 | | | 17,800,000 | | | — | | | — | | | — | | | — | | | — | | | — | Shares issued pursuant to private placement | | | 4 | | | 10,600,000 | | | 1,060 | | | 316,940 | | | — | | | — | | | — | | | 318,000 | Shares issued pursuant to units offering | | | 4 | | | 12,287,200 | | | 1,229 | | | 1,991,575 | | | — | | | — | | | — | | | 1,992,804 | Shares issued pursuant to services provided | | | 5 | | | 6,000,000 | | | 600 | | | 1,286,400 | | | 9,546 | | | — | | | — | | | 1,296,546 | Share-Based payments | | | | | | — | | | — | | | — | | | — | | | 94,172 | | | — | | | 94,172 | Net loss for the period | | | | | | — | | | — | | | — | | | — | | | — | | | (3,269,405) | | | (3,269,405) | Balance as at December 31, 2018 | | | | | | 46,687,200 | | | 2,889 | | | 3,594,915 | | | 9,546 | | | 94,172 | | | (3,269,405) | | | 432,117 |
The accompanying notes are an integral part of these financial statements
TABLE OF CONTENTS
Statement of Cash Flows
From the date of incorporation, March 29, 2018 to December 31, 2018
Cash flows from (used in) operating activities
| | | | | | | Net loss and comprehensive loss | | | | | | $(3,269,405) | Adjustments for non-cash items and others
| | | | | | | Stock based compensation | | | 5 | | | 1,390,718 | Change in FV of Warrants | | | 4 | | | 935,892 | | | | | | | (942,795) | Adjustments for net changes in non-cash operating assets and liabilities
| | | | | | | Prepaid expenses and deposits | | | 3 | | | (540,686) | Accrued liabilities | | | | | | 115,946 | Net cash used in operating activities | | | | | | (1,367,535) | Cash flows from investing activities
| | | | | | | Purchase of intangible assets | | | | | | (9,270) | Net cash used in investing activities | | | | | | (9,270) | Cash flows from financing activities
| | | | | | | Shares/warrants issued pursuant to units offering, net of transaction costs | | | | | | 2,182,773 | Shares issued pursuant to private placement | | | | | | 318,000 | Net cash from financing activities | | | | �� | | 2,500,773 | Net change in cash during the period | | | | | | 1,123,968 | Cash and cash equivalents at beginning of period | | | | | | — | Cash, end of period | | | | | | $1,123,968 |
The accompanying notes are an integral part of these financial statements
TABLE OF CONTENTS
Notes to the Financial Statements
From the date of incorporation, March 29, 2018 to December 31, 2018
Note 1 – Nature Of Operations And Going Concern
Bona Vida, Inc. (“Bona Vida,” or the “Company”) was originally formed as a Limited Liability Company (LLC) under the laws of the State of California on March 29, 2018. On October 4, 2018, Bona Vida was converted to a Corporation under the laws of the State of Delaware. Bona Vida is developing a portfolio of brand and product verticals within the animal and adult CBD supplement space. The Company is currently working on launching several hemp-derived CBD products within the canine supplements space.
The Company entered into a Trademark License Agreement (the “Agreement”), dated December 21, 2018, with a Company’s shareholder (the “shareholder”) who is the owner of the trademark application for “Bonavida”. Under the Agreement, the shareholder agrees for the nominal consideration to establish the Company’s right to use the trademark for the Business Purpose. Furthermore, the shareholder shall assign the trademark application to the Company once a lawful statement of use or declaration of use is filed at the United States Patent and Trademark Office such that the Company becomes the Assignee and owner of the mark. The Company is the owner and assignee of a US trademark application for “Bona Vida” in international class 005 for animal feed additives for use as nutritional supplements and international class 031 for foodstuffs for animals and pet treats.
Going Concern
There is no certainty that the Company will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the future to enable it to meet its obligations as they come due and consequently continue as a going concern. The Company will require additional financing to fund its operations and it is currently working on securing this funding through corporate collaborations, public or private equity offerings, as described in Note 8. Sales of additional equity securities by the Company would result in the dilution of the interests of existing shareholders. There can be no assurance that financing will be available when required.
The Company expects the forgoing, or a combination thereof, to meet the Company’s anticipated cash requirements for the next 12 months; however, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
These financial statements have been prepared on the basis that the Company will continue as a going concern, which presumes that it will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
Note 2 – Summary Of Significant Accounting Policies
Statement of compliance
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as issued by the Financial Accounting Standards Board (“FASB”) in effect on December 31, 2018. The significant accounting policies applied by the Company are described below.
Basis of measurement
The financial statements of the Company are presented using and have been prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is measured as the fair value of the consideration provided in exchange for goods and services. The Company’s functional and presentation currency is United States dollars (“USD”).
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits held with banks and highly liquid investments with remaining maturities of ninety days or less at acquisition date. 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.
TABLE OF CONTENTS
Intangible Assets
Definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for recoverability whenever events or changes in circumstances indicate that carrying amounts of the asset group may not be recoverable. The estimated useful lives and amortization methods are reviewed at the end of each reporting year, with the effect of any changes in the estimate being accounted for on a prospective basis. In the reporting period, the Company purchased a website domain which is still under development and not available for use as of December 31, 2018 and thus has not been amortized.
Derivative Warrant Liability
The Company’s derivative warrant instruments are measured at fair value using the Black-Scholes Model which takes into account, as of the valuation date, factors including the current exercise price, the expected life of the warrant, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the warrant. The liability is revalued at each reporting period and changes in fair value are recognized in the statements of loss and comprehensive loss.
Basic and diluted loss per share
Basic and diluted loss per share has been determined by dividing the net loss available to shareholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. The diluted weighted average number of shares outstanding is calculated as if all dilutive options had been exercised or vested at the later of the beginning of the reporting period or date of grant, using the treasury stock method. Common share equivalents, options and warrants are excluded from the computation of diluted loss per share when their effect is anti-dilutive.
Income Taxes
Deferred taxation is recognized using the asset and liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, the deferred taxation is not recognized if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred taxation is determined using tax rates (and laws) that have been enacted by the reporting date and are expected to apply when the related deferred taxation asset is realized, or the deferred taxation liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Share-Based Payment Expense
The Company follows the fair value method of accounting for stock awards granted to employees, directors, officers and consultants. Share-based awards to employees are measured at the fair value of the related share-based awards. Share-based payments to others are valued based on the related services rendered or goods received or if this cannot be reliably measured, on the fair value of the instruments issued. Issuances of shares are valued using the fair value of the shares at the time of grant; issuances of options are valued using the Black-Scholes model with assumptions based on historical experience and future expectations. The Company recognizes share-based payment expenses over the vesting period based on expectations of the number of awards expected to vest over that period on a straight-line basis.
Financial Instruments
The Company’s financial instruments recognized in the balance sheet and included in working capital consist of cash and cash equivalents, prepaid expenses and deposits, accrued liabilities and warrants. Cash and cash equivalents, and warrants are measured at fair value each reporting period. The fair values of the remaining financial instruments approximate their carrying values due to their short-term maturities.
TABLE OF CONTENTS
The Company’s financial instruments exposed to credit risk include cash and cash equivalents. The Company places its cash and cash equivalents with institutions of high creditworthiness.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements.
All financial instruments recognized at fair value in the balance sheet are classified into one of three levels in the fair value hierarchy as follows:
Level 1 – valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means.
Level 3 – valuation techniques with significant unobservable market inputs.
All of the Company’s financial instruments, except warrants, were determined to be Level 1 fair value measurement. The warrants were determined to be Level 3 fair value.
Use of Estimates The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the datesdate of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that are believedthe Company believes to be reasonable under the circumstances,circumstances. On an ongoing basis, the results of which form the basis for makingCompany evaluates these assumptions, judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.estimates. Actual results may differ from these estimates under different assumptions or conditions.estimates.
Critical accounting estimates are reviewed and discussed withIn the Boardopinion of Directors. The Company considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain atmanagement, the timecondensed consolidated financial statements contain all adjustments necessary for a fair statement of the estimate was made, if changes in the estimate or if different estimates that could have been selected would have a material impact on the Company’s results of operations orand comprehensive loss for the periods ended March 31, 2021 and 2020, the financial condition.position as of March 31, 2021 and December 31, 2020 and the cash flows for the periods ended March 31, 2021 and 2020.
Significant estimates and assumptions that have the most significant effect on the amounts recognizedGoing Concern Considerations
The Company is subject to risks common in the financial statements relate to,pet wellness consumer market including, but are not limited to, dependence on key personnel, competitive forces, successful marketing and sale of its products, the following: Share-based payments
Valuationsuccessful protection of stock-based compensation requires managementits proprietary technologies, ability to make estimates regarding the inputs for option pricing models, such as the share price, expected life of the option, the volatility of the Company’s stock price, the vesting period of the optiongrow into new markets, and the risk-free interest rate are used. Actual results could differ from those estimates. The estimates are considered for each new grant of stock options.
Fair value of financial instruments
The individual fair values attributed to the different components of a financing transaction, and/or derivative financial instruments, are determined using valuation techniques. The Company uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
Effects of Recent Accounting Pronouncements
The Company has reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncement and interpretations thereof that have effective dates during the reporting period and in future periods. The Company hascompliance with government
TABLE OF CONTENTS carefully consideredregulations. As of March 31, 2021, the new pronouncementsCompany has not experienced a significant adverse impact to its business, financial condition or cash flows resulting from the COVID-19 pandemic. However, uncertainties regarding the continued economic impact of COVID-19 are likely to result in sustained market turmoil which could also negatively impact the Company's business, financial condition, and cash flows in the future. The Company has continually incurred losses and has an accumulated deficit. The Company continues to rely on current investors and the public markets to finance these losses through debt and/or equity issuances. These operating losses, working capital deficit and the outstanding debt create substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date these condensed consolidated financial statements are issued.
The Company is implementing plans to achieve cost savings and other strategic objectives to address these conditions. The Company expects cost savings from consolidation of third-party manufacturers, optimizing shipping and warehousing as well as overhead cost reductions. The business is focused on successful completion of capital raises and growing the most profitable channels while reducing investments in areas that alter previous generally acceptedare not expected to have long-term benefits. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and payments of liabilities in the ordinary course of business. Accordingly, the condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that may result should the Company be unable to continue as a going concern. Summary of Significant Accounting Policies For additional information, please refer to our most recently filed Annual Report regarding the Company's summary of significant accounting principlespolicies. 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 doesclarifies 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 believe that any new or modified principles will have a material impact on the Company’s reported balance sheet or operations in 2019.condensed consolidated financial statements. On February 25, 2016,ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
In December 2019, the FASB issued ASU 2016-02, LeasesNo. 2019-12, “Income Taxes (Topic 842).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 update will require organizations that lease assets to recognizenew guidance was effective for the Company beginning on January 1, 2021 and did not have an impact on the balance sheets the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. The provisions of this update are effective for annual and interim periods beginning after December 15, 2018.Company’s condensed consolidated financial statements. Issued but not yet adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326)” In June 2016, the FASB issued Topic ASU No. 2016-13 “Financial Instruments—Credit Losses: Measurement ofInstruments - Credit Losses on Financial Instruments (Topic 326),” (“ASU 2016-13”). ASU 2016-13 changesa new standard to replace the incurred loss impairment model for most financial assets.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 new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13standard is effective for annual and interim periods beginning after December 15, 2019the Company on January 1, 2023, and early adoption is permitted for annual and interim periods beginning after December 15, 2018.permitted. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements. ASU 2020-04 “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” In January 2017,March 2020, the FASB issued ASU 2017-04, Intangibles—Goodwill2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and Other (Topic 350): Simplifying the Testexceptions for Goodwill Impairment (“ASU 2017-04”). The standard provides for the elimination of Step 2 from the goodwill impairment test. If impairment charges are recognized, the amount recorded will be the amountapplying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by which the carrying amount exceeds the reporting unit’s fair value with certain limitations. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2020, and early adoption is permitted. In June 2018, the FASB issued ASU 2018-07—Stock Compensation (Topic 718). The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The requirements of Topic 718 should be applied to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specific that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. These amendments are effective for public companies for fiscal years beginning after December 15, 2018.
Note 3 – Prepaid Expenses And Deposits
Prepaid expenses and deposits comprised the following as at December 31:
Other deposits
| | | $34,436
| Inventory deposit
| | | 506,250
| | | | $540,686
|
The inventory deposit constitutes deposit with one supplier for pet related food products.
Note 4 – Common Stock And Common Share Purchase Warrants
Common Stock
In October 2018, upon Company’s conversion from LLC to Corporation as detailed in Note 1, 73,500 LLC units were converted to 29,400,000 common shares. 2,500 LLC units (1,000,000 common shares) were issued in April 2018 to a third-party consultant for services provided, as detailed in Note 5.
The Company is authorized to issue 75,000,000 common stock and 10,000,000 preferred stock, each with a par value of $0.0001.
There were no issued and outstanding preferred shares as of December 31, 2018.
TABLE OF CONTENTS Commonreference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The ASU can be adopted no later than December 1, 2022 with early adoption permitted. The Company is currently evaluating the impact the standard will have on its consolidated financial statements and related disclosures.
ASU 2020-06 “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU reduces the number of accounting models for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares as at December 31, 2018 are detailedto be classified in the table below: Opening balance - March 29, 2018 | | | — | | | — | | | — | Shares issued during the period | | | 28,400,000 | | | 1,060 | | | 316,940 | Shares issued pursuant to services | | | 6,000,000 | | | 600 | | | 1,286,400 | Units private placement on October 5, 2018 | | | 12,287,200 | | | 1,229 | | | 1,991,575 | Balance- December 31, 2018 | | | 46,687,200 | | | 2,889 | | | 3,594,915 |
Units private placement
On October 5, 2018,equity. This standard is effective for the Company completed a private placement offeringbeginning on January 1, 2024 with early adoption permitted. The Company is currently evaluating the impact of units for aggregate gross proceeds of $3,071,800 Canadian Dollars (CAD) ($2,326,820). A total of 12,287,200 units were issued. Each unit was sold at a price of CAD $0.25 ($0.19) per unit. Each unit was comprised of one common sharethis standard on its consolidated financial statements and one half of one common share purchase warrant, each whole warrant being exercisable to purchase one common share at an exercise price of CAD $0.75 ($0.57) for a period of 18 months following the date of issuance.related disclosures.
Since the warrants’ exercise price is denominated in a currency other than the Company’s functional currency, the warrants are not considered indexed to the Company’s own stock and thus meet the definition of a financial liability.Note 2 - Revenue
The Company estimated a fair valuerecords revenue net of the warrants as $189,969 on issuance date, October 5, 2018,discounts, which primarily consist of early pay discounts, general percentage allowances and $1,125,861 as remeasured at December 31, 2018. The fair value adjustment of $935,892 was recorded in the statement of loss and comprehensive loss. The fair value of the warrants was estimated using the Black-Scholes valuation model based on the following assumptions:
Share price
| | | $0.178 - $0.45
| Stock price volatility
| | | 107% - 108%
| Expected life of the warrants
| | | 1.25 - 1.5 years
| Risk free rate
| | | 1.86% - 2.32%
|
Inter-relationship between key unobservable inputs and fair value measurement at December 31, 2018:
If the share price was lower (higher) by 10%, the fair value would decrease (increase) by $163,954 ($205,025).
If the volatility was lower (higher) by 10%, the fair value would decrease (increase) by $90,069 ($135,103).
Total units’ issuance cost was $156,572, $12,525 of which was assigned to warrants which are accounted for as a derivative liability and is recorded in the reporting period in the statement of loss and comprehensive loss.contractual trade promotions.
The Company hadexcludes 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 following warrants outstanding attime of sale when points are earned and recognized when the loyalty points are redeemed. As of March 31, 2021 and December 31, 2018 October 5, 2018 | | | 6,143,600 | | | 0.57 | | | April 4, 2020 |
Note 5 – Share-Based Payments2020, customers held unredeemed loyalty program awards of $0.3 million and $0.4 million, respectively.
DuringShipping Costs
Shipping costs associated with moving finished products to customers were $0.5 million and $0.4 million for the periodthree months ended DecemberMarch 31, 2018,2021 and 2020, respectively. Such shipping costs are recorded as part of general and administrative expenses. Revenue Channels The Company groups its revenue channels into four distinct categories: E-Commerce, which includes the Company issued 3,300,000 stock purchase optionssale of product to online retailers such as Amazon and 6,000,000 common sharesChewy; Brick & Mortar, which includes the sale of product to directors, officerspet specialty chains such as Petco, PetSmart, select grocery chains, and service providersneighborhood pet stores; DTC which includes the sale of product through the Company's online web platform to more than 20,000 unique customers; and International, which includes the sale of product to foreign distribution partners (transacted in U.S. dollars) and to select international retailers. Information about the Company’s net sales by revenue channel is as share based compensation. The value of the shares given was based on recent financing transactions, the fair value of options was estimated using Black-Scholes valuation model based on the assumptions as detailed below.follows (in thousands): Common shares:
In April 2018 the Company issued 1,000,000 common shares, which were estimated at $0.125 per share, to a third-party consultant for legal services provided.
E-commerce | | | $4,010 | | | 37% | | | $4,481 | | | 37% | Brick & Mortar | | | 1,894 | | | 18% | | | 2,897 | | | 23% | DTC | | | 2,436 | | | 22% | | | 2,804 | | | 23% | International | | | 2,490 | | | 23% | | | 2,044 | | | 17% | Net Sales | | | $10,830 | | | 100% | | | $12,226 | | | 100% |
TABLE OF CONTENTS
In October 2018 the Company issued 1,000,000 common shares, which were estimated at $0.178 per share, to original founders for services provided.
On October 5, 2018, the Board of Directors for the Company authorized the employment agreement for a Chief Executive Officer and awarded 3,000,000 shares of common stock, which were estimated at $0.178 per share, as compensation.
On December 21, 2018, the Board of Directors of the Company authorized and issued 1,000,000 common shares, which were estimated at $0.45 per share, to the Bona Vida management team in consideration of the management team joining the Company.
On October 5, 2018, the Company allocated 300,000 shares of common stock to management which will be issued in equal portions over two years (50% end of year 1 and 50% end of year 2). The shares were estimated at $0.178 per share and the Company recorded stock-based compensation expense $9,546 in its statement of loss and comprehensive loss in the reporting period.
Stock purchase options:
On October 5, 2018, the Company issued 1,700,000 stock purchase options at an exercise price of $1.00 to its management. 1,000,000 stock purchase options vests after a one-year period and 700,000 stock purchase options vests after a two-year period; all 1,700,000 stock purchase options are exercisable for ten years from the grant date.
On October 29, 2018, the Company issued 600,000 stock purchase option at an exercise price of $0.45 to its directors. These options vest after a one-year period and are exercisable for ten years from the grant date.
On November 21, 2018, the Company issued 600,000 stock purchase option at an exercise price of $1.00 to third party consultants. These options vest after a one-year period and are exercisable for ten years from the grant date.
On December 21, 2018, the Company issued 400,000 stock purchase option at an exercise price of $0.45 to its directors. These options vest after a one-year period and are exercisable for ten years from the grant date.
The components of stock purchase options are detailed in the table below.
Option grant | | | 10/05/18 | | | 1 | | | 1,000,000 | | | 1.00 | | | 35,141 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 10/05/18 | | | 2 | | | 700,000 | | | 1.00 | | | 12,299 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 10/29/18 | | | 1 | | | 600,000 | | | 0.45 | | | 16,197 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 11/21/18 | | | 1 | | | 600,000 | | | 1.00 | | | 26,008 | | | 0.45 | | | 1.86 | | | 107% | | | Nil | | | 10 | Option grant | | | 12/21/18 | | | 1 | | | 400,000 | | | 0.45 | | | 4,527 | | | 0.45 | | | 1.86 | | | 107% | | | Nil | | | 10 | Total options grant | | | | | | | | | 3,300,000 | | | | | | 94,172 | | | | | | | | | | | | | | | |
As at December 31, 2018, all stock options granted remained outstanding and not exercisable.
Note 6 – Related Party Transactions And Balances
As at December 31, 2018, the Company had an amount owing to the officers of the Company of $57,177 for salary and bonus which is recorded in accrued liabilities.
A total of $1,049,410 was recognized during the period ended December 31, 2018, for share-based payments expense to directors and officers of the Company.
Note 7 – Loss On Advanced Royalties
In May 2018, the Company advanced $500,000 as well as the rights to purchase common stock to a celebrity endorser in order to obtain the rights to use the name, likeness and endorsement services of said celebrity. In December 2018 the deal was terminated, after the advances were already paid out. Bona Vida waived the right to claim the $500,000 advance, and the celebrity waived the rights to Bona Vida’s shares.
TABLE OF CONTENTS Note 8 – Income Taxes3 - Inventories Inventories are summarized as follows (in thousands): Food, treats and supplements | | | $4,439 | | | $4,987 | Inventory packaging and supplies | | | 503 | | | 596 | Total Inventories | | | 4,942 | | | 5,583 | Inventory reserve | | | (360) | | | (714) | Inventories, net | | | $4,582 | | | $4,869 |
Note 4 - Prepaid expenses and other current assets Prepaid advertising contract with iHeart (1) | | | $2,500 | | | $1,788 | Other prepaid expenses and other current assets (2) | | | 1,758 | | | 2,286 | Total Prepaid expenses and other current assets | | | $4,258 | | | $4,074 |
(1)
| On August 28, 2019, the Company entered into a radio advertising agreement with iHeart Media + Entertainment, Inc. and issued 1,000,000 shares of common stock valued at $3.4 million for future advertising services. The Company issued an additional 125,000 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 are required to be utilized within the next twelve months, unless the term is extended. The long-term portion of the remaining value of $0.5 million and $1.2 million was recorded in other non-current assets as of March 31, 2021 and December 31, 2020, respectively. |
(2)
| As of March 31, 2021, this amount includes various other prepaid contracts. During the fourth quarter of 2020, the Company entered into an agreement for access to an investment platform in exchange for 500,000 shares of common stock valued at $0.5 million and also entered into an agreement for marketing services in exchange for 500,000 shares of common stock valued at $0.5 million. |
Note 5 - Accrued liabilities Accrued liabilities consist of the following (in thousands): Accrued professional fees | | | $225 | | | $704 | Accrued sales tax | | | 412 | | | 1,009 | Accrued payroll and benefits | | | 1,147 | | | 913 | Accrued trade promotions | | | 112 | | | 106 | Accrued interest | | | 24 | | | 86 | Other | | | 170 | | | 185 | Total accrued liabilities | | | $2,090 | | | $3,003 |
Note 6 - Intangible assets, royalties, and goodwill Intangible assets The reconciliationCompany’s intangible assets (in thousands) and related useful lives (in years) are as follows: Customer relationships | | | 7 | | | $7,190 | | | $(1,317) | | | $5,873 | | | $(1,059) | | | $6,131 | Trade name | | | 15 | | | 7,500 | | | (641) | | | 6,859 | | | (516) | | | 6,984 | Total intangible assets | | | | | | $14,690 | | | $(1,958) | | | $12,732 | | | $(1,575) | | | $13,115 |
Amortization expense was $0.4 million for the three months ended March 31, 2021 and 2020, respectively. TABLE OF CONTENTS The estimated future amortization of intangible assets over the remaining weighted average useful life of 10.0 years is as follows (in thousands): Remainder of 2021 | | | $1,145 | 2022 | | | 1,527 | 2023 | | | 1,527 | 2024 | | | 1,527 | 2025 | | | 1,527 | Thereafter | | | 5,479 | | | | $12,732 |
There were no indicators or impairment of the combined U.S. federalintangible assets as of March 31, 2021. Goodwill Goodwill was $18.6 million as of March 31, 2021 and state statutory income taxDecember 31, 2020, respectfully. The Company performed a quantitative assessment for its annual impairment test as of October 1, 2020. 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 guideline public companies. As of March 31, 2021, there was no accumulated impairment loss and no impairment expense related to goodwill. Note 7 - Debt The components of the Company’s debt consist of the following (in thousands): Term loan, net | | | $5,847 | | | (1) | | | 1/6/2024 | | | $7,826 | | | (2) | | | 1/15/2021 | Line of credit, net | | | 4,781 | | | (1) | | | 1/6/2024 | | | 5,023 | | | (3) | | | 7/5/2022 | November 2019 notes payable, net
(November 2019 Notes) | | | 2,927 | | | 10.00% | | | 6/30/2023 | | | 2,830 | | | 10.00% | | | 6/30/2023 | December 2019 senior notes payable, net
(Senior Seller Notes) | | | 10,679 | | | 10.00% | | | 6/30/2023 | | | 10,332 | | | 10.00% | | | 6/30/2023 | December 2019 junior notes payable, net
(Junior Seller Notes) | | | 5,153 | | | 10.00% | | | 6/30/2023 | | | 4,973 | | | 10.00% | | | 6/30/2023 | ABG Notes | | | 702 | | | 10.00% | | | 6/30/2023 | | | 687 | | | 10.00% | | | 6/30/2023 | June 2020 notes payable, net
(June 2020 Notes) | | | 148 | | | 10.00% | | | 6/30/2023 | | | 88 | | | 10.00% | | | 6/30/2023 | Halo PPP Loan | | | 431 | | | 1.00% | | | 5/3/2022 | | | 431 | | | 1.00% | | | 5/3/2022 | TruPet PPP Loan | | | 421 | | | 0.98% | | | 4/6/2022 | | | 421 | | | 0.98% | | | 4/6/2022 | Total debt | | | 31,089 | | | | | | | | | 32,611 | | | | | | | Less current portion | | | 943 | | | | | | | | | 8,016 | | | | | | | Total long term debt | | | $30,146 | | | | | | | | | $24,595 | | | | | | |
(1)
| 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 |
Term loans and lines of credit On December 19, 2019, the Company entered into a Loan Facilities Agreement (the “Facilities Agreement”) by and among the Company, as the borrower, the several lenders from time to time parties thereto (collectively, the “Lenders”) and a private debt lender, as agent (the “Agent”). The Facilities Agreement provided for (i) a term loan facility of $20.5 million and (ii) a revolving loan facility not to exceed $7.5 million. The term loan was scheduled to mature on December 19, 2020 or such earlier date on which a demand was made by the Agent or any Lender, and was extended as discussed below. The remaining revolving credit facility balance of $5.1 million was repaid in full with a portion of the proceeds from the ABL Facility, discussed below, and resulted in a loss on debt extinguishment of $0.1 million. TABLE OF CONTENTS Certain directors and shareholders of the Company (“Shareholder Guarantors”) agreed to guarantee the Company’s obligations under the Facilities Agreement up to an aggregate amount of $20.0 million pursuant to a Continuing Guarantee between the Shareholder Guarantors and the lender under the Facilities Agreement (the “Shareholder Guaranties”). As consideration for the Shareholder Guaranties, the Company issued common stock purchase warrants to the Shareholder Guarantors in an amount equal to 0.325 warrants for each dollar of debt guaranteed by such Shareholder Guarantors (the “Guarantor Warrants”). 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 proceeds of the ABL Facility were used (i) to repay all principal, interest and fees outstanding under the Company’s previous revolving credit facility and (ii) for general corporate purposes. Debt issuance costs of less than $0.1 million were incurred related to the Company entering into this revolving line of credit. The ABL Facility was scheduled to mature on July 5, 2022 and bore interest at a variable rate of 27.98%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 Company prepaid all of the outstanding principal under the ABL Facility in full and did not incur any prepayment charges. 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. On October 5, 2020, the Company paid down the term loan by $11.0 million using proceeds from the Series F Private Placement. On October 29, 2020, the Company made an additional pay down on the term loan of $1.0 million using additional proceeds from the Series F Private Placement. On November 25, 2020, the Company entered into the fifth amendment to the Facilities Agreement, extending the maturity date of the term loan to January 15, 2021. 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 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”). Accrued interest on the Wintrust Facility is payable monthly commencing on February 1, 2021. Principal payments are required to be made monthly on the term loan commencing February 2021 with a balloon payment upon maturity. The proceeds from the Wintrust Credit Facility were used (i) to repay the principal, interest and fees outstanding under the ABL Facility and (ii) for general corporate purposes. We applied extinguishment accounting to the outstanding balances of the ABL Facility and term loan 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. The Wintrust Credit Facility subjects 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 is the operating cash flow of Halo, defined as Halo EBITDA less cash paid for unfinanced Halo capital expenditures, income taxes and dividends. The denominator is fixed charges such as interest expense and principal payments paid or payable on other indebtedness attributable to Halo. 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 is supported by a collateral pledge by a member of the Company’s board of directors. As of March 31, 2021, the term loan and line of credit outstanding under the Wintrust Credit Facility were $5.8 million and $4.8 million, respectively, net of debt issuance costs of less than $0.1 million, respectively. As of December 31, 2020, the previous term loan and line of credit outstanding were $7.8 million and $5.0 million, respectively, net of debt issuance costs and discounts of less than $0.2 million and $0.2 million, respectively. The debt issuance costs and discounts are amortized using the effective interest method. TABLE OF CONTENTS As of March 31, 2021 and December 31, 2020, the Company was in compliance with its debt covenants. Notes payable On November 4, 2019, the Company issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carry a 10% interest rate and mature on November 4, 2021. The interest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. Payment in kind (“PIK”) interest is payable by increasing the aggregate principal amount of the November 2019 Notes. The November 2019 Notes are convertible any time from the date of issuance and carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price (defined as the price at which the Company’s stock will be sold in a future IPO). The November 2019 Notes were amended on January 6, 2020. The amendment incorporates only the preferable terms of the Seller Notes as noted below, and all other terms and provisions of the November 2019 Notes remain in full force and effect. As amended, for so long as any event of default (as defined in the November 2019 Notes) exists, interest shall accrue on the November 2019 Notes principal at the default interest rate of 12.0% per annum, and such accrued interest shall be immediately due and payable. The November 2019 Notes were amended for the second time on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share and extends the maturity date from November 4, 2021 to June 30, 2023. Under the applicable accounting guidance, the Company accounted for the change in conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of $0.3 million as a reduction to the carrying amount of the debt instrument by increasing the associated debt discount with a corresponding increase in additional paid-in capital. As of March 31, 2021 and December 31, 2020, the November 2019 Notes outstanding were $2.9 million and $2.8 million, respectively, net of discounts of $0.2 million and less than $0.3 million, respectively. The discounts are being amortized over the life of the November 2019 Notes using the effective interest method. On December 19, 2019, the Company issued $10.0 million and $5.0 million in senior subordinated convertible notes (the “Senior Seller Notes”) and junior subordinated convertible notes (the “Junior Seller Notes” and together with the Senior Seller Notes, the “Seller Notes”), respectively, to the sellers of Halo. The Seller Notes are convertible any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. Interest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the Seller Notes. The Seller Notes carried a conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The Seller Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than of $0.3 million as a reduction to the carrying amounts of the debt instruments by increasing the associated debt discounts with a corresponding increase in additional paid-in capital. As of March 31, 2021, the Senior Seller Notes outstanding were $10.7 million, net of discounts of $0.7 million, and the Junior Seller Notes outstanding were $5.2 million, net of discounts of $0.5 million. As of December 31, 2020, the Senior Seller Notes outstanding were $10.3 million, net of discounts of $0.8 million, and the Junior Seller Notes outstanding were $5.0 million, net of discounts of $0.5 million. The discounts are being amortized over the life of the Seller Notes using the effective interest method. On January 13, 2020, the Company issued $0.6 million in senior subordinated convertible notes to 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 match those of the Seller Notes, including conversion features convertible any time after the date of issuance, a 10% interest rate and maturity date of June 30, 2023. The interest is payable in kind, in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the ABG Notes. The ABG Notes carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. 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 72,720 shares of the Company’s common stock, agreed to pay ABG $0.1 million TABLE OF CONTENTS 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 ABG Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than $0.1 million as a reduction to the carrying amount of the debt instrument by decreasing the associated debt premium with a corresponding increase in additional paid-in capital. As of March 31, 2021 and December 31, 2020, the ABG Notes outstanding were $0.7 million, including a debt premium of less than $0.1 million, respectively. The debt premium is being amortized over the life of the ABG Notes using the effective interest method. On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “June 2020 Notes”) which carry a 10% interest rate and mature on June 30, 2023. The interest is payable quarterly in kind, in arrears on March 31, June 30, September 30, and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the June 2020 Notes. The June 2020 Notes are convertible any time from the date of issuance and carry a conversion price $0.75 per share. The June 2020 Notes are also convertible automatically upon the Company’s consummation of an initial public offering or change in control (each as defined in the June 2020 Notes). The Company evaluated the conversion option within the June 2020 Notes to determine whether the conversion price was beneficial to the note holders. The Company recorded a beneficial conversion feature (“BCF”) related to the issuance of the June 2020 Notes. The BCF for the June 2020 Notes was recognized and measured by allocating a portion of the proceeds to the beneficial conversion feature, based on relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature limited to the proceeds amount allocated to the instrument. The discount recorded in connection with the BCF valuation is being accreted as interest expense over the term of the June 2020 Notes, using the effective interest rate method. As of March 31, 2021 and December 31, 2020, the June 2020 Notes outstanding were $0.1 million, net of discounts of $1.5 million, respectively. The discounts are being amortized over the life of the June 2020 Notes using the effective interest method. The exercise, conversion or exchange of convertible securities, including for other securities, will dilute the percentage ownership of the Company’s stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect the Company’s ability to obtain additional capital. The Company previously issued $0.1 million of Seller Notes to an executive in satisfaction of a transaction bonus pursuant to his employment agreement. These convertible notes remained outstanding as of March 31, 2021 and December 31, 2020. Additionally, the Company previously issued $2.2 million of subordinated convertible notes to a member of the board of directors, which remain outstanding as of March 31, 2021 and December 31, 2020. Interest expense related to the subordinated convertible notes was less than $0.1 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all covenant requirements and there were no events of default. All notes payable are subordinated to the term loan and line of credit. PPP loans On April 10, 2020, TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc., was granted a loan from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.4 million, pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act (the “TruPet PPP Loan”). The loan matures on April 6, 2022 and bears interest at a rate of 0.98% per annum, with interest and principal payable monthly, commencing on November 6, 2020. As of March 31, 2021 and December 31, 2020, the TruPet PPP Loan outstanding was $0.4 million. TABLE OF CONTENTS 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 matures on May 3, 2022 and bears interest at a rate of 1.00% per annum, with interest and principal payable monthly, commencing on November 1, 2020. As of March 31, 2021 and December 31, 2020, the Halo PPP Loan outstanding was $0.4 million. Under the terms of the PPP, certain amounts of the loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company has used all of the proceeds from the TruPet PPP Loan and the Halo PPP Loan for qualifying expenses and during April 2021, the Company applied for forgiveness for both of these loans. The Company recorded interest expense related to its outstanding indebtedness of $0.8 million and $2.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. Fair Value The fair value of the November 2019, Senior Seller Notes and Junior Seller Notes, ABG Notes and June 2020 Notes were approximately $2.6 million, $9.5 million, $4.7 million, $0.6 million and $1.3 million, respectively, as of March 31, 2021. Fair value was determined by applying the income approach using a discounted cash flow model which primarily uses unobservable inputs (Level 3). The carrying amounts of the Company's PPP loans approximate fair value due to the short term nature. 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. Note 8 - Commitments and contingencies The Company had no material purchase obligations as of March 31, 2021 or December 31, 2020. The Company may be involved in legal proceedings, claims, and regulatory, tax, rateor government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. 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 and comprehensive loss. We do not accrue for contingent losses that are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed. 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 consists of: (i) one 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 $0.50; 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 $0.75. 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 TABLE OF CONTENTS 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 conjunction with money received for 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 Consolidated Balance Sheets. On October 12, 2020 and October 23, 2020, the Company issued 1,106 and 2,832 Series F Units, respectively, in conjunction 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 Consolidated Balance Sheets limited to the proceeds amount allocated to the instrument. The rights, preferences and privileges of Series F are as follows: Ranking Except to the extent the holders of the Series F Preferred Stock consent to the creation of a class of equity securities ranking senior to, or pari passu with, the Series F Preferred Stock, the Series F Preferred Stock shall rank senior to all shares of capital stock of the Company with respect to preferences as to dividends, distributions and payments upon liquidation, dissolution or winding up of the Company. Voting As to matters submitted to the holders of the Common Stock, each holder of the Series F Preferred Stock will be entitled to such number of votes equal to the number of shares of Common stock issuable upon conversion of such holder’s Series F Preferred Stock and shall vote, or provide consent, together with the Common Stock as if they were a single class. The holders of the Series F Preferred Stock shall vote as a separate class on matter affecting the terms of the Series F Preferred Stock, such as the authorization of a class of equity securities ranking senior to, or pari passu with, the Series F Preferred Stock. Dividends Holders of Series F Preferred Stock will not be entitled to receive dividends except to the extent that dividends are declared on the Series F Preferred Stock by the Company in its sole discretion or declared and made by the Company to holders of the Common Stock. In addition, if the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then each holder of Series F Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Series F Preferred Stock (without taking into account any limitations or restrictions on the convertibility of the Series F Preferred Stock) held by such holder. Liquidation If the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of Series F Preferred Stock shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available TABLE OF CONTENTS for distribution to its stockholders, before any amount shall be paid to the holders of any of shares of Common Stock or other capital stock of the Company ranking junior to the Series F Preferred Stock, an amount per share of Series F Preferred Stock equal to the sum of $1,000 (subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the initial issuance date with respect to the Series F Preferred Stock, the “Stated Value”)) plus any accrued and unpaid dividends and late charges (such sum, the “Conversion Amount”). The rights of holders of Series F Preferred Stock to receive their liquidation preference also will be subject to the proportionate rights of capital stock, if any, ranking senior to or in parity with the Series F Preferred Stock as to liquidation. Optional Conversion Subject to certain beneficial ownership limitations contained in the Certificate of Designations, holders of the Series F Preferred Stock shall be entitled to convert each share of outstanding Series F Preferred Stock held by such holder into such number of validly issued, fully paid and non-assessable shares of Common Stock equal to the Conversion Amount of such share of Series F Preferred Stock divided by $0.50 (subject to adjustment, the “Conversion Price”). Automatic Conversion Each share of Series F Preferred Stock not previously converted into shares of Common Stock shall automatically, without any further action by the holders of such Series F Preferred Stock, be converted into such number of fully paid and non-assessable shares of Common Stock determined by dividing the Stated Value of such share of Series F Preferred Stock by the then applicable Conversion Price upon the closing of a firm commitment underwritten public offering of shares of Common Stock which results in the Common Stock being traded on any of The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market or any successor market thereto. Any such conversion shall be subject to the beneficial ownership limitations set forth in the Certificate of Designations. Anti-dilution Holders of the Series F Preferred Stock are entitled to a “full rachet” anti-dilution adjustment to the Conversion Price in the event the Company issues, sells or grants any shares of Common Stock (or securities convertible, exercisable or exchangeable for Common Stock) for no consideration or for consideration or purchase price per share (or, in the case of securities convertible, exercisable or exchangeable for Common Stock, with a conversion, exercise or exchange price) less than the Conversion Price then in effect. Note 10 - Stockholders’ 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 $1.25 and consisted of (i) one 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, we 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. The Company has reserved common stock for future issuance as follows: Conversion of Series F Preferred Stock | | | 34,611,100 | | | 43,507,130 | Exercise of options to purchase common stock | | | 13,150,872 | | | 7,815,442 | Exercise of warrants to purchase common stock | | | 60,874,177 | | | 59,501,978 | Conversion of Notes payable | | | 7,718,488 | | | 7,530,232 | Total | | | 116,354,637 | | | 118,354,782 |
TABLE OF CONTENTS Note 11 - Warrants The following summarizes the Company's outstanding warrants to purchase shares of the Company's common stock as of and for the periods ending March 31, 2021 and December 31, 2020: Warrants outstanding as of December 31, 2019 | | | 16,981,854 | | | $3.23 | Issued | | | 49,928,469 | | | $0.77 | Exercised | | | (1,937,690) | | | $0.58 | Terminated/Expired | | | (5,470,655) | | | $3.07 | Warrants outstanding as of December 31, 2020 | | | 59,501,978 | | | $1.22 | Issued | | | 3,288,400 | | | $1.45 | Exercised | | | (1,839,275) | | | $0.76 | Terminated/Expired | | | (76,926) | | | $0.65 | Warrants outstanding as of March 31, 2021 | | | 60,874,177 | | | $1.18 |
The intrinsic value of outstanding warrants was $31.3 million and $23.8 million as of March 31, 2021 and December 31, 2020, 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 712,823 warrants with a weighted average exercise price of $3.90 (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 1,003,232 warrants on March 17, 2020 to certain of its warrant holders at an exercise price of $1.62 and modified the exercise price of the existing May Acquisitions Warrants to $1.62. 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 1,990,624 warrants to certain of its warrant holders at an exercise price of $0.75 and modified the exercise price of the existing warrants to $0.75. 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 $0.65 per share. As such, the Company issued an additional 570,258 warrants to certain of its warrant holders at an exercise price of $0.65. During the fourth quarter of 2020, holders exercised a total 1,687,690 warrants for which the Company issued shares of common stock. During December 2020, 2,512,321 of these warrants expired and an immaterial amount remained outstanding as of December 31, 2020, all of which expired during January 2021. The following schedule shows the fair value of the warrant derivative liability as of March 31, 2021 and December 31, 2020, and the change in fair value during the periods ended March 31, 2021 and year ended December 31, 2020 (in thousands): Expected income tax (recovery)Balance as of December 31, 2019
| | | $(914,897)2,220 | Other non-deductible expensesChange in fair value of warrant derivative liability
| | | 4,716(2,220)
| Fair value adjustment on warrants
| | | 261,896
| Change in tax benefits not recognized
| | | 648,285
| Income tax (recovery) expenseBalance as of December 31, 2020
| | | $— | The Company’s income tax (recovery) is allocated as follows:
| | | | Current tax (recovery) expense
| | | $—
| Deferred tax (recovery) expenseChange in fair value of warrant derivative liability(1)
| | | — | Balance as of March 31, 2021 | | | $— |
Unrecognized deferred tax assets(1)
| All of the May Acquisition Warrants expired during January 2021. |
TABLE OF CONTENTS Series F Warrant Liability During October 2020, the Company issued 43,403,130 warrants to purchase common stock in connection with the Series F Private Placement (defined below) with an exercise price of $0.75. The warrants are providedexercisable commencing on the date of issuance and expire 72 months after the date of issuance. These warrants include a reset feature if the Company issues common stock, options, or convertible securities with a strike price below the exercise price of the warrants. 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 resultliability. See “Note 9 - Convertible preferred stock” for more information on Series F. The warrant liability is remeasured at fair value each reporting period and represents a Level 3 financial instrument. The Company calculates the fair value of temporary differences that arise duethe 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 differences betweenwarrant liability at fair value, with the income tax valuesremainder 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 Series F Additional Paid-in Capital. The following schedule shows the fair value of the warrant liability upon issuance, and the carrying amount of assetschange in fair value during the periods ended March 31, 2021 and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:December 31, 2020 (in thousands): Issuance of Series F warrants | | | $1,390,71814,952 | Capitalized start-up costChange in fair value of warrant liability
| | | 925,94324,898
| Balance as of December 31, 2020 | | | $39,850 | Change in fair value of warrant liability | | | 6,483 | Balance as of March 31, 2021 | | | $46,333 |
Note 9 – Subsequent EventsThe following schedule shows the inputs used to measure the fair value of the warrant liability:
Stock Price | | | $1.44 | | | $1.27 | Exercise Price | | | $0.75 | | | $0.75 | Expected remaining term (in years) | | | 5.50 - 5.56 | | | 5.75 - 5.81 | Volatility | | | 67.5% | | | 67.5% | Risk-free interest rate | | | 1.1% | | | 0.5% |
The valuation of the warrants is 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 5,744,991 warrants to purchase common stock with an exercise price of $4.25 (the “May 2019 PIPE Warrants”). Additionally, in connection with the May 2019 PIPE transaction, the Company issued 220,539 warrants to brokers with an exercise price of $3.00. The warrants were exercisable commencing on the issuance date and expire 24 months after the date of issuance. 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 $1.25 per share. The Company has evaluated subsequent events occurring afterreceived exercise notices for a total of 1,047,609 warrants, resulting in the balance sheet date throughCompany’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 consolidated financial statements were issued.outstanding and unexercised May 2019 PIPE Warrants expired during May 2021. On November 4, 2019, the Company issued 11,000 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 a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. TABLE OF CONTENTS On December 19, 2019 the Company issued 6,500,000 warrants with an exercise price of $1.82 in conjunction with the term loan (the “Guarantor Warrants”), which are exercisable commencing on the date of issuance and expire 24 months from the date of the consummation of a future IPO. The Guarantor Warrants had a fair value of $4.2 million on the date of issuance. On December 19, 2019, the Company issued 937,500 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 a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. On January 9,13, 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 (as defined in the ABG Warrants) and carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock was sold in the IPO. 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 $5.00 to $4.25 per share. The decrease in the exercise price resulted in an increase to the fair value of the warrants of $0.1 million which the Company recognized in general and administrative expense. On June 24, 2020, the Company issued 1,000,000 warrants to a member of the board of directors with an exercise price of $1.25 per share in connection with the June 2020 Notes (the “June 2020 Warrants”), which are exercisable commencing on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company issued 300,000 warrants to a member of the board of directors with an exercise price of $1.05 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 on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On January 22, 2021, the Company issued 3,288,400 warrants in connection with the January 2021 PIPE transaction. The warrants are exercisable at an exercise price per share of $1.45 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 $1.25 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 2,500,000 warrants with an exercise price of $0.10 per share and 1,500,000 warrants with an exercise price of $10.00 per share; 1,250,000 of the $0.10 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 1,250,000 of the $0.10 exercise price warrants (the “Tranche 2 Warrants”) and the 1,500,000 warrants with the $10.00 exercise price (the “Tranche 3 Warrants”) were exercisable on the earlier of 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 Share Purchase Agreementtermination agreement (the “Agreement”“Termination Agreement”) to acquire GBX Labs Ltd. (“GBX”), a BVI business company incorporated underwith the laws of the British Virgin Islands.advisor. Pursuant to the terms of the Termination Agreement, the Tranche 1 Warrants were amended to reduce the number of shares of common stock purchasable thereunder to 1,041,666 shares, and the Tranche 2 Warrants and Tranche 3 Warrants were cancelled. The Tranche 1 Warrants (as amended pursuant to the Termination Agreement) were fully vested as of the date of the termination of the agreement and will remain exercisable until September 17, 2029. Furthermore, if the Company engages in any restricted business line as defined in the Termination Agreement, the Company will issue to the former advisor additional shares of common stock based on formulas intended to compensate the former advisor for the warrants that were reduced or terminated. In connection with the Termination Agreement, the Company recorded expense of $5.7 million during the year ended December 31, 2020 in general and administrative expense. During the first quarter of 2021, the former advisor exercised 791,666 of his remaining warrants outstanding in a cashless exercise resulting in 736,689 shares of common stock issued. TABLE OF CONTENTS On June 24, 2020, the Company issued a total1,000,000 warrants with an exercise price of 10,000,000 common shares in consideration for a 100% ownership interest in GBX. On a pro-forma basis (unaudited), since GBX had no revenue$1.25 per share to two non-employee directors, which are exercisable commencing on the date of issuance and expenses in 2018, had this acquisition been completedexpire on March 29, 2018 (datethe earlier of incorporation),(i) 84 months from the net lossdate of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company would not have changed.issued 200,000 warrants two non-employee directors at a price of $1.05 per share (the “July 2020 Director Warrants”), which are exercisable commencing on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. The warrants issued to non-employee directors were immediately vested and as such, the Company recorded $1.0 million of share-based compensation expense upon issuance. On January 29,November 30, 2020, the Company issued 400,000 warrants to a third-party for services with an exercise price of $1.00 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 12 - Share-based compensation During the three months ended March 31, 2021 and March 31, 2020, the Company recognized $2.5 million and $2.5 million, respectively, of share-based compensation expense. On November 11, 2019, the Company finalizedreceived 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, restricted stock units, other stock or cash-based awards or a share buy-back (“Buy-Back”) whereby it acquired 13,407,200dividend equivalent award. The Amended 2019 Plan authorized the issuance 6,500,000 shares of common stock which was increased to 9,000,000 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 303,600 warrants(B) such smaller number of shares of common stock as determined by the Board. On January 1, 2021, the number of shares authorized for issuance increased to 13,500,000, as approved by the Board. Stock Options During the three months ended March 31, 2021 and March 31, 2020, the Company granted 5,579,000 and 100,000 stock options, respectively. Restricted Stock In March 2020, the Company issued 450,000 shares of restricted common stock to three non-employee directors in return for services provided in their capacity as directors and issued 5,956 restricted shares of common stock to an officer of the Company. The restricted shares were immediately vested and as such, the Company recorded share-based compensation expense of $0.5 million upon issuance. Note 13- Income taxes For the three months ended March 31, 2021, and March 31, 2020, the Company recorded no income tax expense. For the three months ended March 31, 2021 and March 31, 2020, the Company’s effective tax rate was 0%. The Company’s effective tax rate of 0% differs from existing shareholders for a total considerationthe United States federal statutory rate of $625,000. All common shares and warrants under21% primarily because the Buy-BackCompany’s losses have been cancelledfully offset by a valuation allowance due to uncertainty of realizing the tax benefit of net operating losses (“NOLs”) for the three months ended March 31, 2021, and year ended December 31, 2020. The Company’s deferred tax assets attributed to net operating loss carryforwards begin to expire in 2027. The ultimate realization of deferred taxes is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. On the basis of management’s assessment, a valuation allowance equal to the net deferred tax assets was recorded since it is more likely than not that the deferred tax assets will not be realized. The Company has no accrued interest and penalties related to uncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. As of March 31, 2021 and December 31, 2020, the Company did not have any significant uncertain tax positions. The Company’s income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction. TABLE OF CONTENTS Note 14 - Concentrations Major Suppliers The Company sourced approximately 71% of its inventory purchases from three vendors for the three months ended March 31, 2021. The Company sourced approximately 48% of its inventory purchases from two vendors for the three months ended March 31, 2020. Major Customers Accounts receivable from two customers represented 63% of accounts receivable as of March 31, 2021. Accounts receivable from two customers represented 72% of accounts receivable as of December 31, 2020. Two customers represented 42% of gross sales for the three months ended March 31, 2021. Four customers represented 70% of gross sales for the three months ended March 31, 2020. Credit Risk At March 31, 2021 and December 31, 2020, the Company’s cash and cash equivalents were deposited in accounts at several 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 15 - Net loss per share Basic and diluted net loss per share attributable to common stockholders is presented using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares. Basic and diluted net loss per share is calculated by dividing net and comprehensive loss attributable to common stockholders by the Company. On February 6, 2019,weighted-average shares outstanding during the period. For the three months ended March 31, 2021 and 2020, the Company’s basic and diluted net and comprehensive loss per share attributable to common stockholders are the same because the Company signedhas generated a non-binding letter of intent with Sports Endurance, Inc. (“SENZ”),net loss to be renamed Better Choice Company, Inc., to acquire 100% of Bona Vida. SENZ is prepared to complete the acquisition by purchasing the 100% of Bona Vida issuedcommon stockholders and outstanding common stock for $55,000,000 (the “Purchase Price”) equalequivalents are excluded from diluted net loss per share as they have an antidilutive impact.
The following table sets forth basic and diluted net loss per share attributable to approximately USD $0.97 per Share. The Purchase Price is based on the assumption that 56,942,222 Shares (on fully diluted basis) are issued and outstanding on the closing date of the Transaction. The Purchase Price would be satisfied in SENZ common stock (the “SENZ Shares”) issued at an exchange ratio of 26 SENZ Shares for each Share held. Immediately following the closing (the “Closing”) of the Transaction, Bona Vida shareholders will own 468,085,106 (or 46%) of the issued and outstanding SENZ Shares (on a fully diluted basis) based on the assumption that 1,018,668,131 SENZ Shares will be issued and outstanding at Closing. Subsequent to December 31, 2018, the Company completed several subscription agreementsstockholders for the issuance of common shares for gross proceeds of $1,999,970 through the issuance of 4,444,440 common shares.three months ended March 31, 2021 and 2020 (in thousands, except share and per share amounts):
Numerator:
| | | | | | | Net and comprehensive loss | | | $(12,850) | | | $(9,454) | Less: Preferred stock dividends | | | — | | | 34 | Less: Adjustment due to warrant modifications | | | 402 | | | — | Adjusted Net and comprehensive loss available to common stockholders | | | $(13,252) | | | $(9,488) | Denominator:
| | | | | | | Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted | | | 57,525,054 | | | 48,526,396 | Net loss per share attributable to common stockholders, basic and diluted | | | $(0.23) | | | $(0.20) |
TABLE OF CONTENTS Bona Vida,Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Better Choice Company Inc.
Unaudited Interim Condensed Consolidated Balance Sheet Opinion on the Financial Statements
AsWe have audited the accompanying consolidated balance sheets of Better Choice Company Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at MarchDecember 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018
Assets
| | | | | | | | | | Cash and cash equivalents | | | | | | $1,488,794 | | | $1,123,968 | Inventories | | | 3 | | | 351,402 | | | — | Prepaid expenses and deposits | | | 4 | | | 471,709 | | | 540,686 | Total current assets | | | | | | 2,311,905 | | | 1,664,654 | Intangible assets | | | | | | 8,575 | | | 9,270 | Total assets | | | | | | $2,320,480 | | | $1,673,924 | | | | | | | | | | | Liabilities
| | | | | | | | | | Accounts Payable | | | | | | $105,287 | | | $— | Accrued liabilities | | | | | | 33,707 | | | 115,946 | Other Liabilities | | | | | | 19,298 | | | — | Warrants | | | 5 | | | 927,926 | | | 1,125,861 | Total liabilities
| | | | | | 1,086,218 | | | 1,241,807 | | | | | | | | | | | Shareholders’ equity
| | | | | | | | | | Capital Stock | | | 5 | | | 4,172 | | | 2,889 | Preferred shares, 10,000,000 authorized, nil issued and outstanding as at March 31, 2019 and December 31, 2018;
| | | | | | | | | | Common stock, 75,000,000 authorized, par value $0.0001, 47,724,440 and 46,687,200 issued and outstanding as at March 31, 2019 and December 31,2018 accordingly
| | | | | | | | | | Additional paid in capital | | | 5 | | | 9,784,220 | | | 3,594,915 | Shares to be issued | | | 6 | | | 19,531 | | | 9,546 | Contributed surplus | | | | | | 267,552 | | | 94,172 | Accumulated Deficit | | | | | | (8,841,213) | | | (3,269,405) | Total shareholders’ equity | | | | | | 1,234,262 | | | 432,117 | Total liabilities and shareholders’ equity | | | | | | $2,320,480 | | | $1,673,924 |
2020, in conformity with U.S. generally accepted accounting principles.The Company's Ability to Continue as a Going Concern The accompanying notesconsolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an integralopinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of these unaudited interim condensedour audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. TABLE OF CONTENTS | | | Impairment analysis of goodwill | | | | | Description of the Matter | | | At December 31, 2020, the Company’s goodwill was $18.6 million related to its Halo reporting unit. As discussed in Note 1 and 9 to the consolidated financial statements, goodwill is tested for impairment annually as of October 1st or whenever events or circumstances indicate it is more likely than not that impairment may have occurred. The Company estimates the fair value of a reporting unit using a combination of the market approach and the income approach, using discounted cash flows. | | | | | | | | Auditing management’s annual goodwill impairment assessment for the reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the Halo reporting unit. In particular, the fair value estimate was sensitive to changes in significant assumptions, such as revenue growth rates, the terminal growth rate, EBITDA margin, the weighted average cost of capital, and market multiples which are affected by expectations about future market or economic conditions. | | | | | How We Addressed the Matter in Our Audit | | | To test the estimated fair value of the Company’s Halo reporting unit, we performed audit procedures that included, among others, evaluating valuation methodologies and testing the significant assumptions discussed above used by the Company in its analysis. We involved our specialist to assist in the evaluation of the valuation methodologies and testing certain significant assumptions, including the discount rate and market multiples. We compared the significant assumptions used by management to current industry and economic trends, recent historical performance and other factors. We specifically evaluated the Company’s forecasted growth rates and EBITDA margins by comparing these assumptions to those of the Company’s peers and industry reports. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We also tested the underlying data used by the Company in its analysis for completeness and accuracy. | | | | | | | | Issuance of convertible instruments and associated warrants | | | | | Description of the Matter | | | As described in Note 10 to the consolidated financial statements, on June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “Notes”). In connection with this issuance, each noteholder also received common stock purchase warrants (the “Warrants”) to purchase up to 500,000 shares of the Company’s common stock; 1,000,000 common stock purchase warrants were issued in total. The total cash proceeds received from the issuance of the Notes were allocated to the Notes and Warrants at the time of issuance. | | | | | | | | As described in Note 13 to the consolidated financial statements, during October 2020 the Company consummated a private placement in which the Company issued and sold units (the “Series F Units”) to the investors for a purchase price of $1,000 per Unit. Each Unit consisted of one share of the Company’s Series F convertible preferred stock (“Series F Preferred”) and a warrant (“Series F Warrants”) to purchase shares of common stock. The Company issued 18,202 Series F Units for a total of $18.2 million in gross cash proceeds. The total cash proceeds received were allocated to the Series F Unit components (preferred stock and warrant) at the time of issuance. | | | | Auditing the valuation of the Notes, Warrants, and Series F Units was complex |
TABLE OF CONTENTS | | | due to the judgmental nature of the assumptions, which included stock price volatility (Warrants and Series F Warrants), debt discount rate (Notes), probability of exit events (Notes, Warrants, Series F Preferred, Series F Warrants), and expected life (Warrants and Series F Warrants). These assumptions had a significant effect on the fair value measurement of the Notes, Warrants, and Series F Units. | | | | | How We Addressed the Matter in Our Audit | | | To test the estimated fair value of the Notes, Warrants, and Series F Units, our audit procedures included, among others, evaluation of the significant assumptions discussed above and consideration of the appropriateness of related methodologies utilized for estimation. This included evaluating the volatility rate by assessing the guideline public companies (“GPC”) selected and the weighting applied between the GPCs and the Company’s historical volatility, evaluating the Company’s specific risk premium incorporated into the debt discount assumption, assessing the reasonableness of the probability of various exit events based on information available as of the observable transaction dates, and evaluating the expected time to exercise for all Warrants and Series F Warrants outstanding. We involved our specialist to assist with the evaluation of the assumptions as used by management. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Louisville, Kentucky
March 30, 2021 TABLE OF CONTENTS Bona Vida,Better Choice Company Inc. Unaudited Interim Condensed Consolidated Statement of Loss and Comprehensive LossBalance Sheets
For the Three Months Ended March 31, 2019(Dollars in thousands, except share and per share amounts)
Net Sales | | | | | | $17,547 | Cost of Goods Sold | | | | | | 17,763 | Gross Loss | | | | | | (216) | Selling, general and administrative | | | | | | 5,159,654 | Other Income (Expense)
| | | | | | | Fair Value Adjustments | | | 5 | | | (144,782) | Share Based Compensation | | | 6 | | | 183,365 | Net Loss and Comprehensive Loss | | | | | | $(5,198,453) | Weighted average number of shares outstanding | | | | | | 48,215,560 | Loss per share basic and diluted | | | | | | (0.11) |
Assets
| | | | | | | Cash and cash equivalents | | | $3,926 | | | $2,361 | Restricted cash | | | 63 | | | 173 | Accounts receivable, net | | | 4,631 | | | 5,824 | Inventories, net | | | 4,869 | | | 6,580 | Prepaid expenses and other current assets | | | 4,074 | | | 2,641 | Total Current Assets | | | 17,563 | | | 17,579 | Property and equipment, net | | | 252 | | | 417 | Right-of-use asset, operating lease | | | 345 | | | 951 | Intangible assets, net | | | 13,115 | | | 14,641 | Goodwill | | | 18,614 | | | 18,614 | Other assets | | | 1,364 | | | 1,330 | Total Assets | | | $51,253 | | | $53,532 | Liabilities & Stockholders’ Deficit
| | | | | | | Current Liabilities
| | | | | | | Short term loan, net | | | $7,826 | | | $16,061 | Line of credit, net | | | — | | | 4,819 | PPP loans | | | 190 | | | — | Other liabilities | | | 47 | | | 500 | Accounts payable | | | 3,137 | | | 4,049 | Accrued liabilities | | | 3,003 | | | 4,721 | Deferred revenue | | | 350 | | | 311 | Operating lease liability, current portion | | | 173 | | | 345 | Warrant liability | | | 39,850 | | | — | Warrant derivative liability | | | — | | | 2,220 | Total Current Liabilities | | | 54,576 | | | 33,026 | Noncurrent Liabilities
| | | | | | | Notes payable, net | | | 18,910 | | | 16,370 | Line of credit, net | | | 5,023 | | | — | PPP loans | | | 662 | | | — | Operating lease liability | | | 184 | | | 641 | Total Noncurrent Liabilities | | | 24,779 | | | 17,011 | Total Liabilities | | | 79,355 | | | 50,037 | Redeemable Series E Convertible Preferred Stock
| | | | | | | Redeemable Series E preferred stock, $0.001 par value, 2,900,000 shares authorized, 0 & 1,387,378 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | — | | | 10,566 | Stockholders’ Deficit
| | | | | | | Common stock, $0.001 par value, 200,000,000 and 88,000,000 shares authorized, 51,908,398 & 47,977,390 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | 52 | | | 48 | Redeemable Series F Preferred Stock, $0.001 par value, 30,000 & 0 shares authorized, 21,754 & 0 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | — | | | — | Additional paid-in capital | | | 232,487 | | | 194,150 | Accumulated deficit | | | (260,641) | | | (201,269) | Total Stockholders’ Deficit | | | (28,102) | | | (7,071) | Total Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit | | | $51,253 | | | $53,532 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statementsstatements.
TABLE OF CONTENTS Bona Vida,Better Choice Company Inc. Unaudited Interim Condensed Consolidated StatementStatements of Changes in EquityOperations and Comprehensive Loss
For the Three Months Ended March 31, 2019(Dollars in thousands, except share and per share amounts)
From the Date of Incorporation March 29, 2018 to December 31, 2018
Balance as at March 29, 2018
| | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to founders | | | | | | 17,800,000 | | | $— | | | $— | | | — | | | $— | | | $— | | | $— | Shares issued pursuant to private placement | | | | | | 10,600,000 | | | 1,060 | | | 316,940 | | | | | | | | | | | | 318,000 | Shares issued pursuant to units offering | | | | | | 12,287,200 | | | 1,229 | | | 1,991,575 | | | | | | | | | | | | 1,992,804 | Shares issued pursuant to services provided | | | | | | 6,000,000 | | | 600 | | | 1,286,400 | | | 9,546 | | | | | | | | | 1,296,546 | Share-Based payments | | | | | | — | | | — | | | — | | | — | | | 94,172 | | | — | | | 94,172 | Net loss for the period | | | | | | — | | | — | | | — | | | — | | | — | | | (3,269,405) | | | (3,269,405) | Balance as at December 31, 2018 (Audited) | | | | | | 46,687,200 | | | 2,889 | | | 3,594,915 | | | 9,546 | | | 94,172 | | | (3,269,405) | | | 432,117 | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued pursuant to investment | | | 5 | | | 10,000,000 | | | 1,000 | | | 4,499,000 | | | — | | | — | | | — | | | 4,500,000 | Share Buy-Back | | | 5 | | | (13,407,200) | | | (141) | | | (198,351) | | | — | | | — | | | (373,355) | | | (571,847) | Shares issued pursuant to private placement, net of transaction cost | | | 5 | | | 4,444,440 | | | 424 | | | 1,888,656 | | | — | | | — | | | — | | | 1,889,080 | Shares issued pursuant to services provided | | | 6 | | | — | | | — | | | | | | 9,985 | | | — | | | — | | | 9,985 | Share-Based payments | | | 6 | | | — | | | — | | | — | | | — | | | 173,380 | | | — | | | 173,380 | Net loss for the period | | | | | | — | | | — | | | — | | | — | | | — | | | (5,198,453) | | | (5,198,453) | Balance as at March 31, 2019 | | | | | | 47,724,440 | | | $4,172 | | | $9,784,220 | | | 19,531 | | | $267,552 | | | $(8,841,213) | | | $1,234,262 |
Net sales | | | $42,590 | | | $15,577 | Cost of goods sold | | | 26,491 | | | 9,717 | Gross profit | | | 16,099 | | | 5,860 | Operating expenses:
| | | | | | | General and administrative | | | 25,966 | | | 19,782 | Share-based compensation | | | 8,940 | | | 10,280 | Sales and marketing | | | 7,892 | | | 10,138 | Customer service and warehousing | | | 623 | | | 1,097 | Impairment of intangible asset | | | — | | | 889 | Total operating expenses | | | 43,421 | | | 42,186 | Loss from operations | | | (27,322) | | | (36,326) | Other expense (income):
| | | | | | | Interest expense, net | | | 9,247 | | | 670 | Loss on extinguishment of debt | | | 88 | | | — | Loss on acquisitions | | | — | | | 147,376 | Change in fair value of warrant liability | | | 24,898 | | | — | Change in fair value of warrant derivative liability | | | (2,220) | | | 90 | Total other expense, net | | | 32,013 | | | 148,136 | Net and comprehensive loss | | | (59,335) | | | (184,462) | Preferred dividends | | | 103 | | | 109 | Net and comprehensive loss available to common stockholders | | | $(59,438) | | | $(184,571) | Weighted average number of shares outstanding, basic and diluted | | | 49,084,432 | | | 33,238,600 | Loss per share, basic and diluted | | | $(1.21) | | | $(5.55) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statementsstatements.
TABLE OF CONTENTS Bona Vida,Better Choice Company Inc. Unaudited Interim Condensed Consolidated StatementStatements of Cash FlowStockholders’ Deficit
For the Three Months Ended March 31, 2019(Dollars in thousands, except shares)
Cash flows from (used in) operating activities
| | | | | | | Net loss and comprehensive loss | | | | | | $(5,198,453) | Adjustments for non-cash items and others
| | | | | | | Depreciation and amortization | | | | | | 696 | Stock based compensation | | | 6 | | | 183,365 | Change in FV of Warrants | | | 5 | | | (144,782) | Adjustments for net changes in non-cash operating assets and liabilities
| | | | | | | Inventory | | | 3 | | | (351,402) | Prepaid expenses and deposits | | | 4 | | | 68,977 | Other Liabilities | | | | | | 19,298 | Accrued liabilities | | | | | | (82,239) | Accounts Payable | | | | | | 105,286 | Net cash used in operating activities | | | | | | (5,399,254) | | | | | | | | Cash flows from financing activities
| | | | | | | Shares issued pursuant to investments | | | 5 | | | 4,500,000 | Shares issued pursuant to private placement, net of transaction cost | | | 5 | | | 1,889,080 | Share buyback | | | 5 | | | (625,000) | Net cash from financing activities | | | | | | 5,764,080 | Net change in cash during the period | | | | | | 364,826 | | | | | | | | Cash and cash equivalents at beginning of period | | | | | | 1,123,968 | Cash, end of period | | | | | | $1,488,794 |
Balance at December 31, 2019 | | | 47,977,390 | | | $48 | | | — | | | $— | | | $194,150 | | | $(201,269) | | | $(7,071) | | | 1,387,378 | | | $10,566 | Shares issued pursuant to private placement | | | 308,642 | | | — | | | — | | | — | | | 500 | | | — | | | 500 | | | — | | | — | Share-based compensation | | | 455,956 | | | 1 | | | — | | | — | | | 8,939 | | | — | | | 8,940 | | | — | | | — | Shares and warrants issued to third party for contract termination | | | 72,720 | | | — | | | — | | | — | | | 198 | | | — | | | 198 | | | — | | | — | Shares issued to third parties for services | | | 1,160,000 | | | 1 | | | 100 | | | — | | | 1,371 | | | — | | | 1,372 | | | — | | | — | Warrants issued to third party for services | | | — | | | — | | | — | | | — | | | 10,132 | | | — | | | 10,132 | | | — | | | — | 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 | | | — | | | — | Shares issued pursuant to warrant exercise | | | 1,837,690 | | | 2 | | | — | | | — | | | 1,046 | | | — | | | 1,048 | | | — | | | — | Warrants issued in connection with ABL Facility | | | — | | | — | | | — | | | — | | | 230 | | | — | | | 230 | | | — | | | — | Net and comprehensive loss available to common stockholders | | | — | | | — | | | — | | | — | | | — | | | (59,438) | | | (59,438) | | | — | | | — | Shares issued pursuant to Series F Private Placement and Exchange Transaction | | | — | | | — | | | 21,702 | | | — | | | 8,501 | | | 5,415 | | | 13,916 | | | (1,387,378) | | | (10,566) | Conversion of Series F shares to common stock | | | 96,000 | | | — | | | (48) | | | — | | | — | | | — | | | — | | | — | | | — | Beneficial conversion feature of Series F shares | | | — | | | — | | | — | | | — | | | 5,349 | | | (5,349) | | | — | | | — | | | — | Balance at December 31, 2020 | | | 51,908,398 | | | $52 | | | 21,754 | | | $— | | | $232,487 | | | $(260,641) | | | $(28,102) | | | — | | | $— |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statementsstatements.
TABLE OF CONTENTS Better Choice Company Inc.
Consolidated Statements of Stockholders’ Deficit
(Dollars in thousands, except shares) Balance at December 31, 2018 | | | 11,661,485 | | | $12 | | | 2,391,403 | | | $2 | | | $13,642 | | | $(16,698) | | | $(3,042) | | | — | | | $— | Shares issued pursuant to a private placement – net proceeds | | | — | | | — | | | 69,115 | | | — | | | 150 | | | — | | | 150 | | | — | | | — | Shares and warrants issued pursuant to private issuance of public equity (PIPE)- net proceeds | | | 5,744,991 | | | 6 | | | — | | | — | | | 15,670 | | | — | | | 15,676 | | | — | | | — | Share-based compensation | | | 1,118,786 | | | 1 | | | — | | | — | | | 10,280 | | | — | | | 10,281 | | | — | | | — | Stock issued to third parties for services | | | 1,008,500 | | | 1 | | | — | | | — | | | 3,476 | | | — | | | 3,477 | | | — | | | — | Warrants issued to third parties for services | | | — | | | — | | | — | | | — | | | 2,968 | | | — | | | 2,968 | | | — | | | — | Conversion of Series A shares to common stock | | | 2,460,518 | | | 2 | | | (2,460,518) | | | (2) | | | — | | | — | | | — | | | — | | | — | Acquisition of treasury shares | | | (1,011,748) | | | (1) | | | — | | | — | | | (6,070) | | | — | | | (6,071) | | | — | | | — | Acquisition of Better Choice | | | 3,915,856 | | | 4 | | | — | | | — | | | 23,560 | | | — | | | 23,564 | | | 2,633,678 | | | 20,058 | Acquisition of Bona Vida | | | 18,103,273 | | | 18 | | | — | | | — | | | 108,602 | | | — | | | 108,620 | | | — | | | — | Guarantor warrants | | | — | | | — | | | — | | | — | | | 4,180 | | | — | | | 4,180 | | | | | | | Warrants issued in connection with the Notes | | | — | | | — | | | — | | | — | | | 313 | | | — | | | 313 | | | — | | | — | Acquisition of Halo | | | 2,134,390 | | | 2 | | | — | | | — | | | 3,883 | | | — | | | 3,885 | | | — | | | — | Conversion of Series E Preferred Stock | | | 1,581,841 | | | 2 | | | — | | | — | | | 9,490 | | | — | | | 9,492 | | | (1,246,300) | | | (9,492) | Warrant exercise | | | 1,259,498 | | | 1 | | | — | | | — | | | 4,006 | | | — | | | 4,007 | | | — | | | — | Net and comprehensive loss available to common stockholders | | | — | | | — | | | — | | | — | | | — | | | (184,571) | | | (184,571) | | | — | | | — | Balance at December 31, 2019 | | | 47,977,390 | | | $48 | | | — | | | $— | | | $194,150 | | | $(201,269) | | | $(7,071) | | | 1,387,378 | | | $10,566 |
The accompanying notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS Better Choice Company Inc. Consolidated Statements of Cash Flows
(Dollars in thousands) Cash Flow from Operating Activities:
| | | | | | | Net and comprehensive loss available to common stockholders | | | $(59,438) | | | $(184,571) | Adjustments to reconcile net and comprehensive loss to net cash used in operating activities:
| | | | | | | Shares and warrants issued to third parties | | | 10,330 | | | 3,548 | Contract termination costs | | | 649 | | | — | Impairment of intangible asset | | | — | | | 889 | Depreciation and amortization | | | 1,748 | | | 171 | Amortization of debt issuance costs and discounts | | | 4,875 | | | 346 | Share-based compensation | | | 8,940 | | | 10,280 | Change in fair value of warrant derivative liability | | | (2,220) | | | 90 | Change in fair value of warrant liability | | | 24,898 | | | — | Payment In Kind (PIK) interest expense on notes payable | | | 1,998 | | | — | Loss on acquisitions | | | — | | | 146,980 | Other | | | 540 | | | 41 | Changes in operating assets and liabilities, net of effects of business acquisition:
| | | | | | | Accounts receivable, net | | | 1,193 | | | (99) | Inventories, net | | | 1,454 | | | 232 | Prepaid expenses and other current assets | | | (186) | | | (241) | Accounts payable and accrued liabilities | | | (2,445) | | | 1,152 | Other | | | 159 | | | 213 | Cash Used in Operating Activities | | | $(7,505) | | | $(20,969) | | | | | | | | Cash Flow from Investing Activities:
| | | | | | | Acquisition of property and equipment | | | $(151) | | | $(110) | Cash acquired in the May Acquisitions | | | — | | | 416 | Acquisition of Halo | | | — | | | (20,513) | Cash Used in Investing Activities | | | $(151) | | | $(20,207) | | | | | | | | Cash Flow from Financing Activities:
| | | | | | | Cash advance, net | | | $— | | | $(1,899) | Proceeds from shares issued pursuant to private placement, net | | | 18,053 | | | 15,826 | Proceeds from warrant exercises | | | 1,048 | | | 4,007 | Proceeds from investor prepayment | | | — | | | 500 | Proceeds from revolving lines of credit | | | 6,624 | | | 11,200 | Payment on revolving lines of credit | | | (6,360) | | | (10,800) | Proceeds from PPP loans | | | 852 | | | — | Proceeds from notes payable | | | 1,500 | | | 2,750 | Payments on related party note | | | — | | | (1,600) | Proceeds from short term loan | | | — | | | 20,500 | Payments on short term loan | | | (12,521) | | | — | Debt issuance costs | | | (85) | | | (720) | | | | | | | | Cash Provided by Financing Activities | | | $9,111 | | | $39,764 | Net Increase (decrease) in Cash and cash equivalents and Restricted cash | | | $1,455 | | | $(1,412) | Total Cash and cash equivalents and Restricted cash, Beginning of Period | | | 2,534 | | | 3,946 | Total Cash and cash equivalents and Restricted cash, End of Period | | | $3,989 | | | $2,534 |
The accompanying notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS Supplemental cash flow information
| | | | | | | Cash paid during the year for:
| | | | | | | Income taxes | | | $— | | | $— | Interest, net | | | $2,309 | | | $265 | Non-cash financing and investing transactions:
| | | | | | | ABL guarantor warrants | | | $230 | | | $— | Stock issued for services | | | $1,372 | | | $— | Noncash acquisition of right-of-use asset for leases entered into during period | | | $— | | | $607 | Noncash acquisition of operating lease liability for leases entered into during the period | | | $— | | | $(594) |
The accompanying notes are an integral part of these consolidated financial statements.
TABLE OF CONTENTS Notes to Unauditedthe Consolidated Financial Statements Note 1 – Nature of Operationsbusiness and Going Concernsummary of significant accounting policies Nature of the Business Better Choice Company Inc. is a growing animal health and wellness company committed to leading the industry shift toward pet products and services that help dogs and cats live healthier, happier and longer lives. The Company sells the majority of its dog food, cat food and treats under the Halo and TruDog brands, which are focused, respectively, on providing sustainably sourced kibble and canned food derived from real whole meat, and minimally processed raw-diet dog food and treats. On May 6, 2019, the Company completed the reverse acquisition of TruPet LLC (“TruPet”) and Bona Vida Inc. (“Bona Vida,” orVida”) in a pair of all stock transactions (together referred to as the “Company”“May Acquisitions”) was originally formed as a Limited Liability Company (LLC) underthrough the lawsissuance of shares of common stock. Following the completion of the StateMay Acquisitions, the business conducted by the Company became primarily the businesses conducted by TruPet and Bona Vida. As a result, the consolidated financial statements for the year ended December 31, 2019 are comprised of Californiathe results of TruPet for the period between January 1, 2019 and December 31, 2019 and the results of Bona Vida beginning May 6, 2019 through December 31, 2019. The Company completed the acquisition of Halo on March 29, 2018. There wereDecember 19, 2019 (see “Note 2 - Acquisitions”). Accordingly, Halo's operations are included in the Company's consolidated financial statements beginning on December 19, 2019. Basis of Presentation The Company’s consolidated financial statements are prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission for annual financial reports and accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no operations frommaterial effect on the reported results. Consolidation The 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 consolidated financial statements in conformity with U.S. 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 incorporation, March 29, 2018the 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 March 31, 2018. Therefore,be reasonable under the Statementscircumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates. In the opinion of Lossmanagement, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and Comprehensive Loss, Changes in Equity and Cash Flowscomprehensive loss for the period fromyears ended December 31, 2020 and 2019, the datefinancial position as of incorporation, March 29, 2018 to MarchDecember 31, 2018, are not presented in these unaudited interim condensed consolidated financial statements. On October 4, 2018, Bona Vida was converted to a Corporation under2020 and 2019 and the laws ofcash flows for the State of Delaware. Bona Vida is developing a portfolio of brandyears ended December 31, 2020 and product verticals within the animal and adult CBD supplement space. 2019. Going Concern Considerations The Company is currently workingsubject to risks common in the pet wellness consumer market including, but not limited to, dependence on launching several hemp-derived CBDkey personnel, competitive forces, successful marketing and sale of its products, within the canine supplements space. successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government regulations. As of March 2021, the Company has not experienced a significant adverse impact to its business, financial condition or cash flows resulting from the COVID-19 pandemic. However, uncertainties regarding the continued economic impact of COVID-19 are likely to result in sustained market turmoil which could also negatively impact the Company's business, financial condition, and cash flows in the future. The Company entered into a Trademark License Agreement (the “Agreement”), dated December 21, 2018, with a Company’s shareholder (the “shareholder”) who is the owner of the trademark application for “Bonavida”. Under the Agreement, the shareholder agrees for the nominal consideration to establish the Company’s right to use the trademark for the Business Purpose. Furthermore, the shareholder shall assign the trademark application to the Company once a lawful statement of use or declaration of use is filed at the United States Patenthas continually incurred losses and Trademark Office such that the Company becomes the Assignee and owner of the mark.has an accumulated deficit. The Company iscontinues to rely on current investors and the ownerpublic markets to finance these losses through debt and/or equity issuances. These operating losses, working capital deficit and assignee of a US trademark application for “Bona Vida” in international class 005 for animal feed additives for use as nutritional supplements and international class 031 for foodstuffs for animals and pet treats. Going Concern
There is no certainty that the Company will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the future to enable it to meet its obligations as they come due and consequently continue as a going concern. The Company will require additional financing to fund its operations. Sales of additional equity securities by the Company would result in the dilution of the interests of existing shareholders. There can be no assurance that financing will be available when required.
The Company expects the forgoing, or a combination thereof, to meet the Company’s anticipated cash requirements for the next 12 months; however, these conditions raiseoutstanding debt create substantial doubt about the Company’s ability to continue as a going concern.concern for a period of twelve months from the date these consolidated financial statements are issued. The Company is
These unaudited interim condensedF-31
TABLE OF CONTENTS implementing plans to achieve cost savings and other strategic objectives to address these conditions. The Company expects cost savings from consolidation of third-party manufacturers, optimizing shipping and warehousing as well as overhead cost reductions. The business is focused on successful completion of capital raises and growing the most profitable channels while reducing investments in areas that are not expected to have long-term benefits. The accompanying consolidated financial statements have been prepared on the basis thatassuming the Company will continue as a going concern, which presumes that it will be able to realize itscontemplates the realization of assets and discharge itspayments of liabilities in the normalordinary course of business as they come due. These unaudited interim condensedbusiness. Accordingly, the consolidated financial statements do not reflect theinclude any adjustments relating to the recoverability and classification of asset carrying valuesamounts or the amount of and classification of liabilities that may result should the Company be unable to continue as a going concern. 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. 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 and $0.2 million as of December 31, 2020 and 2019, respectively, associated with a business credit card and credit card clearance operations. Accounts receivable and allowance for doubtful accounts Accounts receivable consist of unpaid buyer invoices from the Company’s Retail customers and credit card payments receivable from third-party credit card processing companies. Accounts receivable is stated at the amount billed to customers, net of point of sale and cash discounts. The Company assesses the collectability of all receivables on an ongoing basis by considering its historical credit loss experience, current economic conditions, and other relevant factors. Based on this analysis, an allowance for doubtful accounts is recorded. The provision for doubtful accounts is included in general and administrative expense in the consolidated statements of operations. The Company recorded a $0.1 million allowance for doubtful accounts for the year ended December 31, 2020 and 2019, respectively. Inventories Inventories, primarily consisting of products available for sale and supplies, are valued using the first-in first-out (“FIFO”) method and are recorded at the lower of cost or net realizable value. Cost is determined on a standard cost basis and includes the purchase price, as well as inbound freight costs and packaging costs. The Company regularly reviews inventory quantities on hand. Excess or obsolete reserves are established when inventory is estimated to not be sellable before expiration dates based on forecasted usage, product demand and product life cycle. Additionally, inventory valuation reflects adjustments for anticipated physical inventory losses, such as shrink, that have occurred since the last physical inventory. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of property or equipment retired or otherwise disposed of and the related accumulated depreciation are removed from the property and equipment accounts in the year of disposal with the resulting gain or loss reflected in general and administrative expenses. Depreciation expense is included as a component of general and administrative expenses. The Company assesses potential impairments of its property and equipment whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. An impairment charge would be recognized when the carrying amount of property and equipment is not recoverable and exceeds its fair value. The carrying amount of property and equipment is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the property and equipment. TABLE OF CONTENTS Goodwill Goodwill is evaluated for impairment either through a qualitative or quantitative approach annually, or more frequently if an event occurs or circumstances change that indicate the carrying value of a reporting unit may not be recoverable. If a quantitative assessment is performed that indicates the carrying amount of a reporting unit exceeds its fair market value, an impairment loss is recognized to reduce the carrying amount to its fair market value. The fair market value is determined based on a weighting of the present value of projected future cash flows (the “income approach”) and the use of comparative market approaches (“market approach”). Factors requiring significant judgment include, among others, the assumptions related to discount rates, forecasted operating results, long-term growth rates, the determination of comparable companies and market multiples. Changes in economic and operating conditions or changes in the Company's business strategies that occur after the annual impairment analysis may impact these assumptions and result in a future goodwill impairment charge, which could be material to our consolidated financial statements. Fair value measurements used in the impairment review of goodwill are Level 3 measurements. See further information about our policy for fair value measurements within this section below. See “Note 9 − Intangible assets, royalties, and goodwill” for additional information regarding the impairment test. Intangible assets Intangible assets acquired are carried at cost, less accumulated amortization. The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable and any not expected to be recovered through undiscounted future net cash flows are written down to current fair value. Amortization expense is included as a component of general and administrative expenses. Redeemable convertible preferred stock In accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 480, “Distinguishing Liabilities from Equity (ASC 480)”, preferred stock issued with redemption provisions that are outside of the control of the Company or that contain certain redemption rights in a deemed liquidation event is required to be presented outside of stockholders’ deficit on the face of the consolidated balance sheet. The Company’s Redeemable Series E Convertible Preferred Stock (the “Series E”) contained redemption provisions that required it to be presented outside of stockholders’ deficit. The Company's Redeemable Series F Preferred Stock (the “Series F”) contains redemption provisions that require it to be presented within stockholder's deficit. Common Stock Warrants Common stock warrants are recorded in accordance ASC 480 as either liabilities or as equity instruments, depending on the specific terms of the warrant agreement. 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 consolidated statement of operations as change in fair value of warrant liability. Upon exercise, the warrant is marked to fair value at the conversion date and the related fair value is reclassified to equity. Income taxes Income taxes are recorded in accordance with FASB ASC Topic 740, “Income Taxes (ASC 740)”, which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the reported expenses and balance sheet classificationsyear in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that wouldsome or all the deferred tax assets will not be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material. Note 2 – Summary of Significant Accounting Policiesrealized.
The consolidated financial statements have been preparedCompany accounts for uncertain tax positions in accordance with accounting principles generally accepted in the United Statesprovisions of America (“US GAAP”) as issued by the Financial Accounting Standards Board (“FASB”) in effect on March 31, 2019. The significant accounting policies applied byASC 740. When uncertain tax positions exist, the Company are described below. recognizes the tax benefit of tax positions to the extent that some or all the benefit will more likely than not be realized. The consolidated financial statementsdetermination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the Company are presented using and have been prepared on a going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value,tax position, as explained in the accounting policies below. Historical cost is measuredwell as the fair valueconsideration of the consideration provided in exchange for goodsavailable facts and services. The Company’s functionalcircumstances. As of December 31, 2020 and presentation currency is United States dollars (“USD”). The consolidated financial statements and notes thereto are unaudited. These consolidated statements include all adjustments (consisting of normal recurring accruals) that2019, the Company considered necessary to present a fair consolidated statement ofdoes not have any significant uncertain income tax positions. If incurred, the Company’s results of operations, balance sheetCompany would classify interest and cash flows. The results reported in these consolidated financial statements should not be regardedpenalties on uncertain tax positions as necessarily indicative of results that may be expected for the entire year. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and notes thereto for the period from the date of incorporation, March 29, 2018 to December 31, 2018.income tax expense.
TABLE OF CONTENTS The Company’s significant accounting policies are described in Note 2Company was incorporated on May 6, 2019. Prior to this date, the aforementioned audited financial statements.Company operated as a flow through entity for state and United States federal tax purposes. The Company includes herein certain updates to those policies.files a U.S. federal and state income tax return, including for its wholly owned subsidiaries. Inventories are recorded at the lower of cost and net realizable value. The net realizable value represents the estimated selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale. Cost is determined on a standard cost basis and includes the purchase price and other costs, such as transportation costs. Inventory’s average cost is determined on a first-in, first-out (“FIFO”) basis and trade discounts are deducted from the purchase price.
In June 2018, the FASB issued ASU 2018-07—Stock Compensation (Topic 718). The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The requirements of Topic 718 should be applied to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specific that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. These amendments are effective for public companies for fiscal years beginning after December 15, 2018. The Company adopted ASU 2018-07 on January 1, 2019 and there has been no impact on the Interim Condensed Consolidated Financial Statements as a result of adoption.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contract with Customers” (Topic 606) (“ASU2014-09”), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU No. 2014-09 is based on the principal that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgements and changes in judgements, and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted ASU 2014-09 on January 1, 2019. In the period ended December 31, 2018, no revenue was recognized in the Company’s statement of loss and comprehensive loss.
The Company recognizes revenue to depict the transfer of promised goods to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.goods in accordance with the provisions of FASB ASC Topic 606, “Revenue from Contracts with Customers (ASC 606).” In order to recognize revenue, the Company applies the following five (5) steps: Identify a customer along with a corresponding contract; Identify the performance obligation(s) in the contract to transfer goods to a customer; Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods to a customer; Allocate the transaction price to the performance obligation(s) in the contract; and Recognize revenue when or as the Company satisfies the performance obligation(s). RevenueGenerally, revenue is recognized uponwhen the satisfactionproduct is shipped as this is when it has been determined that control has been transferred. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis.
Cost of goods sold Cost of goods sold consists primarily of the performance obligation. The Company satisfies its performance obligationcost of product obtained from third-party contract manufacturing plants, packaging materials and transfers control upon shipment to the customer.inventory freight for shipping product. Note 3 – InventoryAdvertising
Inventories, consisting entirely of finished goods, reflected on the accompanying balance sheets are summarized as follows:
Treats & Supplements
| | | $351,402
| | | $—
|
The Company estimatedcharges advertising costs to expense as incurred and such charges are included in sales and marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss. Our advertising expenses consisting primarily of online advertising, search costs, email advertising, and radio advertising. In addition, with the acquisition of Halo, we reimburse our customers and third parties for in store activities and record these costs as sales and marketing expenses. Advertising costs were $5.8 million and $6.7 million for the years ended December 31, 2020 and 2019, respectively. Customer service and warehousing Customer service and warehousing include wages associated with customer service and fulfillment of DTC customer orders. Operating leases We determine if a contract or arrangement meets the definition of a lease at inception. The Company’s operating leases relate to real estate. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Lease renewal options are not included in the measurement of the right-of-use assets and right-of-use liabilities unless the Company is reasonably certain to exercise the optional renewal periods. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, the Company’s leases contain rent escalations over the lease term and the Company recognizes expense for these leases on a straight-line basis over the lease term. Some of the Company’s leases include rent escalations based on inflation indexes. The Company has elected to make the accounting policy election for short-term leases. Consequently, short-term leases are recorded as an inventory reserveexpense on a straight-line basis over the lease term. In addition to be nil as at March 31, 2019.base rent, certain of our operating leases require variable payments of property taxes, insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. TABLE OF CONTENTS Note 4 – Prepaid ExpensesThe Company’s leases do not provide a readily available implicit rate. Therefore, the Company estimates the incremental borrowing discount rate based on information available at lease commencement. The discount rates used are indicative of a synthetic credit rating based on quantitative and Depositsqualitative analysis.
Prepaid expensesFair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy uses a framework which requires categorizing assets and deposits comprisedliabilities into one of three levels based on the followinginputs used in valuing the asset or liability. Level 1 inputs are unadjusted, quoted market prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1, such as at March 31:quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Other deposits | | | $101,755 | | | $34,436 | Inventory deposit | | | 369,954 | | | 506,250 | | | | $471,709 | | | $540,686 |
Level 3 inputs include unobservable inputs that are supported by little, infrequent or no market activity and reflect management’s own assumptions about inputs used in pricing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The inventory deposit constitutesCompany’s financial instruments recognized on the Consolidated Balance Sheets consist of cash and cash equivalents, restricted cash, accounts receivable, prepaid deposits, accounts payable, short term loan, line of credit, subordinated convertible notes, accrued liabilities, other liabilities, and warrant liabilities. The warrant liability is remeasured at fair value each reporting period and represents a deposit with one supplierLevel 3 financial instrument. The fair values for pet related supplement products. Other deposits include credit cardshort term loan and merchant deposit and prepaid insurance. Note 5 – Common Stock and Common Share Purchase Warrants
Common Stock
In October 2018, uponPPP loans are deemed to be equivalent to their respective carrying values due to their relative short term nature. The fair value for the Company’s conversionline of credit approximates carrying value as the instrument has a variable interest rate that approximates market rates. The fair values for the Notes Payable are determined by applying the income approach using a discounted cash flow model which primarily using unobservable inputs (Level 3).
Fair value measurements of non-financial assets and non-financial liabilities reflect Level 3 inputs and are primarily used to measure the estimated fair values of assets acquired and liabilities assumed in business combinations, for goodwill, other intangible assets and long-lived assets impairment analyses and the valuation of acquired intangibles. Basic and diluted loss per share Basic and diluted loss per share has been determined by dividing the net and comprehensive loss available to common stockholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. Common stock equivalents and incentive shares are excluded from an LLC to a Corporation as detailed in Note 1, 73,500 LLC units were converted to 29,400,000 common shares. 2,500 LLC units (1,000,000 common shares) were issued in April 2018 to a third party consultant for services provided, as detailed in Note 6.the computation of diluted loss per share when their effect is anti-dilutive. Share-based compensation The Company is authorized to issue 75,000,000 common stock and 10,000,000 preferred stock, eachrecognizes compensation expense for all share–based payments in accordance with a par value of $0.0001. There were no issued and outstanding preferred shares as of March 31, 2019.
GBX Acquisition
On January 9, 2019, theFASB ASC Topic 718, “Compensation – Stock Compensation (ASC 718)”. The Company entered into a Share Purchase Agreement (the “Agreement”) to acquire GBX Labs Ltd. (“GBX”), a BVI business company incorporated under the laws of the British Virgin Islands. Pursuant to the Agreement, the Company issued a total of 10,000,000 common shares at estimated value of $0.45 per share in consideration for a 100% ownership interest in GBX. Refer to note 7.
Share Buyback
In January 2019, the Company finalized a share buy-back (“Buy-Back”) whereby it acquired 13,407,200 common shares and 303,600 common share purchase warrants which were part of the October 5, 2018 private placement, as detailed below, from existing shareholders for a total consideration of $626,500. The acquired common shares and warrants have been cancelled by the Company. The Buy-Back constitutes the repurchase of common shares and warrants, the total consideration was allocated first onfollows the fair value method of warrantsaccounting for awards granted to employees, directors, officers and consultants. Share-based awards are measured at their estimated fair value on each respective grant date. The Company recognizes share-based payment expenses over the Buy-Back date and subsequentlyvesting period. The Company’s share-based compensation awards are subject only to service based vesting conditions. Pursuant to ASC 718-10-35-8, the par value and APIC associatedCompany recognizes compensation cost for stock awards with only service conditions that have a graded vesting schedule on a straight-line basis over the cancelled shares. The accessservice period for each separately vesting portion of the considerationaward as if the award was, charged to a deficit.in-substance, multiple awards. Forfeitures are accounted for as they occur.
As a resultSegment information
Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has viewed its operations and manages its business as one segment. The Company’s CODM reviews operating results on an aggregated basis. All the assets and operations of the Buy-Back, the Company reduced the fair value of the warrants by $53,153, equity interest by $198,492, increased deficit by $373,355 and incurred legal fees of $1,500. In January 2019, the Company completed a private placement offering of shares for aggregate gross proceeds of $1,909,998. A total of 4,444,440 shares were issued, at a price of $0.45 per share. The total shares included 200,000 shares issued to a third party consultant for the services associated with the private placement. In addition, the Company incurred $20,918 legal fees associated with private placement.
Common shares as at March 31, 2019 and December 31, 2018 are detailed in the table below:United States.
Opening balance- March 29, 2018 | | | — | | | — | | | — | Shares issued during the period | | | 28,400,000 | | | 1,060 | | | 316,940 | Shares issued pursuant to services | | | 6,000,000 | | | 600 | | | 1,286,400 | Units private placement on October 5, 2018 | | | 12,287,200 | | | 1,229 | | | 1,991,575 | Balance- December 31, 2018 | | | 46,687,200 | | | 2,889 | | | 3,594,915 | GBX Acquisition | | | 10,000,000 | | | 1,000 | | | 4,499,000 | Share Buy-Back | | | (13,407,200) | | | (141) | | | (198,351) | Shares issued during the period | | | 4,444,440 | | | 424 | | | 1,888,656 | Balance – March 31, 2019 | | | 47,724,440 | | | 4,172 | | | 9,784,220 |
TABLE OF CONTENTS Units private placement
On October 5, 2018, the Company completed a private placement offering of units for aggregate gross proceeds of $3,071,800 Canadian Dollars (CAD) ($2,326,820). A total of 12,287,200 units were issued. Each unit was sold at a price of CAD $0.25 ($0.19) per unit. Each unit was comprised of one common share and one half of one common share purchase warrant, each whole warrant being exercisable to purchase one common share at an exercise price of CAD $0.75 ($0.57) for a period of 18 months following the date of issuance.
Since the warrants’ exercise price is denominated in a currency other than the Company’s functional currency, the warrants are not considered indexed to the Company’s own stock and thus meet the definition of a financial liability.Recently Issued Accounting Pronouncements
The Company estimated a fair value ofhas reviewed the warrants as $1,125,861 on December 31,Accounting Standards Updates (“ASU”), accounting pronouncements and interpretations thereof issued by the FASB that have effective dates during the reporting period and in future periods. Recently adopted In August 2018, and $927,926 as remeasured at March 31, 2019. The fair value of $53,153 of repurchased warrants was deducted from the warrants onFASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Buy-Back date, as detailed above, andDisclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value adjustmenthierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of $144,782the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance was effective for the Company beginning on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-15 “Intangibles − Goodwill and Other − Internal-Use Software (Subtopic 350-40)” to amend ASU 2015-5 in an effort to provide additional guidance on the accounting for costs implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update also require the entity to present the expense related to the remaining warrants was recordedcapitalized implementation costs in the Consolidated Statement of Loss and Comprehensive Loss. The fair value of the warrants as at March 31, 2019 and the warrants repurchased in a Buy-Back was estimated using the Black- Scholes valuation model based on the following assumptions:
Share price
| | | $0.45
| Stock price volatility
| | | 107%
| Remaining life of the warrants
| | | 1.01- 1.19 years
| Risk free rate
| | | 2.41%
|
Inter-relationship between key unobservable inputs and fair value measurement at March 31, 2019:
If the share price was lower (higher) by 10%, the fair value would decrease (increase) by $163,251 ($172,384).
If the volatility was lower (higher) by 10%, the fair value would decrease (increase) by $107,491 ($104,760).
The Company had the following warrants outstanding at March 31, 2019.
October 5, 2018 | | | 5,840,000 | | | 0.60 | | | April 4, 2020 |
Note 6 – Share-Based Payments
During the period ended December 31, 2018, the Company issued 3,300,000 stock purchase options and 6,000,000 common shares to directors, officers and service providers as share based compensation. The value of the shares given was based on recent financing transactions, the fair value of options was estimated using Black-Scholes valuation model based on the assumptions as detailed below.
Common shares:
In April 2018 the Company issued 1,000,000 common shares, which were estimated at $0.125 per share and vested immediately, to a third-party consultant for legal services provided.
In October 2018 the Company issued 1,000,000 common shares, which were estimated at $0.178 per share and vested immediately, to original founders for services provided.
On October 5, 2018, the Board of Directors for the Company authorized the employment agreement for a Chief Executive Officer and awarded 3,000,000 shares of common stock, which were estimated at $0.178 per share and vested immediately, as compensation.
On December 21, 2018, the Board of Directors of the Company authorized and issued 1,000,000 common shares, which were estimated at $0.45 per share and vested immediately, to the Bona Vida management team in consideration of the management team joining the Company.
On October 5, 2018, the Company allocated 300,000 shares of common stock to management which will be issued in equal portions over two years (50% end of year 1 and 50% end of year 2). The shares were estimated at $0.178 per share and the Company recorded stock-based compensation fair value adjustment expense of $9,985 in its consolidated statement of loss and comprehensive loss in the reporting period (Dec 31, 2018 - $9,546) and as shares to be issuedsame line item in the statement of changesincome as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalizing implementation costs in equity.
TABLE OF CONTENTS
Stock purchase options:
On October 5, 2018,the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The new standard was effective for the Company issued 1,700,000 stock purchase options at an exercise price of $1.00 to its management. 1,000,000 stock purchase options vests after a one-year period and 700,000 stock purchase options vests after a two-year period; all 1,700,000 stock purchase options are exercisable for ten years from the grant date.
On October 29, 2018, the Company issued 600,000 stock purchase option at an exercise price of $0.45 to its directors. These options vest after a one-year period and are exercisable for ten years from the grant date.
On November 21, 2018, the Company issued 600,000 stock purchase option at an exercise price of $1.00 to third party consultants. These options vest after a one-year period and are exercisable for ten years from the grant date.
On December 21, 2018, the Company issued 400,000 stock purchase option at an exercise price of $0.45 to its directors. These options vest after a one-year period and are exercisable for ten years from the grant date.
The components of stock purchase options are detailed in the table below.
Option grant | | | 10/05/18 | | | 1 | | | 1,000,000 | | | 1.00 | | | 35,141 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 10/05/18 | | | 2 | | | 700,000 | | | 1.00 | | | 12,299 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 10/29/18 | | | 1 | | | 600,000 | | | 0.45 | | | 16,197 | | | 0.178 | | | 2.32 | | | 108% | | | Nil | | | 10 | Option grant | | | 11/21/18 | | | 1 | | | 600,000 | | | 1.00 | | | 26,008 | | | 0.45 | | | 1.86 | | | 107% | | | Nil | | | 10 | Option grant | | | 12/21/18 | | | 1 | | | 400,000 | | | 0.45 | | | 4,527 | | | 0.45 | | | 1.86 | | | 107% | | | Nil | | | 10 |
The Company recorded stock-based compensation of stock purchase options expense of $173,380 in its consolidated statement of loss and comprehensive loss in the reporting period (Dec 31, 2018 – 94,172). As at March 31, 2019, all stock options granted remained outstanding and not exercisable.
Note 7 – GBX Acquisition
Onon January 9, 2019, the Company entered into a Share Purchase Agreement (the “Agreement”) to acquire GBX, a BVI business company incorporated under the laws of the British Virgin Islands. Pursuant to the Agreement, the Company issued a total of 10,000,000 common shares at estimated value of $0.45 per share in consideration for a 100% ownership interest in GBX.
The Company concluded GBX did not constitute a business and did not fulfill the definition of an asset and recorded an expense of $4,500,000 in its consolidated statement of loss and comprehensive loss in the reporting period.
Note 8 – Subsequent Events
1, 2020. The Company has evaluated subsequent events occurring after the balance sheet date through the date the consolidated financial statements were issued.no internal use software. On May 6, 2019, BCC Merger Sub, Inc., a Delaware Corporation and a wholly owned subsidiary of BCC, merged with and into the Company, with the Company being the surviving corporation (the “Bona Vida Merger”). The merger between BCC Merger Sub, Inc. and the Company was constituted as a reorganization under Code Section 368(a)(2)(E). Pursuant to the Bona Vida Merger, the Company Common Stock held by each Bona Vida Shareholder that are issued and outstanding as of immediately prior to the effective date converted into 468,085,106 shares, or 18,003,273 shares after adjusting for BCC’s 26 for 1 reverse stock split, of BCC Common Stock equal to 46% of the issued and outstanding shares of BCC’s voting stock and any other class of stock, on a fully diluted basis, subject to adjustment to reflect the effect of any BCC stock split, reverse stock split or stock dividend.
On May 14, 2019, the Company purchased Wamor Corporation S.A. in the Republic of Uruguay which it will utilize in the expansion of its operations into Latin America. On a pro-forma basis, since Wamor Corporation S.A. had no revenue and expenses in 2019, had this acquisition been completed on January 1, 2019, the net loss of the Company would not have changed.
TABLE OF CONTENTS
INDEPENDENT AUDITORS’ REPORTTo the Board of Directors Halo, Purely for Pets, Inc.
Report on the Financial Statements
We have audited the accompanying financial statements of Halo, Purely for Pets, Inc. (the “Company”), which comprise the balance sheets as of June 30, 2019 and 2018 and the related statements of operations, changes in stockholder’s equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,Issued but not for the purpose of an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinionyet adopted
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Tampa, Florida
August 21, 2019
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.BALANCE SHEETS
JUNE 30, 2019 AND 2018
ASSETS
| | | | | | | CURRENT ASSETS
| | | | | | | Cash | | | $2,364,436 | | | $1,226,489 | Accounts receivable, net of allowances of approximately $100,000 and $141,000 as of June 30, 2019 and 2018, respectively | | | 4,152,779 | | | 4,440,387 | Inventories | | | 3,194,880 | | | 7,065,994 | Prepaids and other current assets | | | 349,491 | | | 487,791 | Total current assets | | | 10,061,586 | | | 13,220,661 | PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION | | | 372,962 | | | 650,660 | OTHER ASSETS
| | | | | | | Goodwill | | | 4,730,655 | | | 4,730,655 | Other | | | 14,650 | | | 13,200 | Total other assets | | | 4,745,305 | | | 4,743,855 | | | | $15,179,853 | | | $18,615,176 | LIABILITIES AND STOCKHOLDERS' EQUITY
| | | | | | | CURRENT LIABILITIES
| | | | | | | Accounts payable | | | $2,529,480 | | | $3,757,667 | Accrued expenses | | | 417,199 | | | 618,611 | Accrued payroll liabilities | | | 520,125 | | | 196,025 | Total current liabilities | | | 3,466,804 | | | 4,572,303 | LONG-TERM LIABILITIES
| | | | | | | Due to related party | | | 60,391 | | | 146,898 | Loan payable, net of issuance costs | | | 3,829,521 | | | 5,247,316 | Total long-term liabilities | | | 3,889,912 | | | 5,394,214 | | | | | | | | STOCKHOLDERS' EQUITY
| | | | | | | Preferred Stock; no par value; 110 shares authorized:
| | | | | | | Series A-1; 36.67 shares issued and outstanding at June 30, 2019 | | | — | | | — | Series A; 73.33 shares issued and outstanding at June 30, 2019 and 2018 | | | — | | | — | Common Stock; no par value; 10,000 shares authorized;
890 and 100 shares issued and outstanding at June 30, 2019 and 2018, respectively | | | — | | | — | Additional paid-in capital - Series A-1 Preferred Stock, net of issuance costs | | | 2,403,125 | | | — | Additional paid-in capital - Series A Preferred Stock | | | 5,000,000 | | | 5,000,000 | Additional paid-in capital - Common Stock | | | 57,141,157 | | | 57,141,157 | Accumulated deficit | | | (56,721,145) | | | (53,492,498) | Total stockholders' equity | | | 7,823,137 | | | 8,648,659 | | | | $15,179,853 | | | $18,615,176 |
See notes to the financial statements.
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
SALES | | | $31,106,144 | | | $38,359,679 | COST OF SALES | | | 20,532,995 | | | 24,322,252 | GROSS PROFIT | | | 10,573,149 | | | 14,037,427 | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 13,378,974 | | | 20,297,838 | LOSS ON DISPOSAL OF EQUIPMENT | | | 73,975 | | | 25,929 | LOSS FROM OPERATIONS | | | (2,879,800) | | | (6,286,341) | OTHER (EXPENSE) INCOME
| | | | | | | Interest expense, related party | | | — | | | (2,106,059) | Interest expense, other | | | (348,997) | | | (278,406) | Interest income | | | 150 | | | 1,167 | Total other expense | | | (348,847) | | | (2,383,298) | NET LOSS | | | $(3,228,647) | | | $(8,669,639) |
See notes to the financial statements.
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
BALANCE, JUNE 30, 2017 | | | 100 | | | $— | | | — | | | $— | | | — | | | $— | | | $— | | | $— | | | $13,511,905 | | | $(44,822,859) | | | $(31,310,954) | Issuance of preferred stock | | | | | | | | | | | | | | | 73.33 | | | | | | | | | 5,000,000 | | | | | | | | | 5,000,000 | Conversion of debt to common stock | | | 790 | | | | | | | | | | | | | | | | | | | | | | | | 43,629,252 | | | | | | 43,629,252 | Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (8,669,639) | | | (8,669,639) | BALANCE, JUNE 30, 2018 | | | 890 | | | — | | | — | | | — | | | 73.33 | | | — | | | — | | | 5,000,000 | | | 57,141,157 | | | (53,492,498) | | | 8,648,659 | Issuance of preferred stock, net of stock issuance costs | | | | | | | | | 36.67 | | | | | | | | | | | | 2,403,125 | | | | | | | | | | | | 2,403,125 | Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (3,228,647) | | | (3,228,647) | BALANCE, JUNE 30, 2019 | | | 890 | | | $ — | | | 36.67 | | | $ — | | | 73.33 | | | $ — | | | $2,403,125 | | | $5,000,000 | | | $57,141,157 | | | $(56,721,145) | | | $7,823,137 |
See notes to the financial statements.
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
Net loss | | | $(3,228,647) | | | $(8,669,639) | Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
| | | | | | | Depreciation and amortization | | | 391,557 | | | 250,351 | Loss on disposal of equipment | | | 73,975 | | | 25,929 | (Increase) decrease in:
| | | | | | | Accounts receivable | | | 287,608 | | | (2,278,355) | Inventories | | | 3,871,114 | | | (4,995,647) | Prepaids and other assets | | | 136,848 | | | (60,070) | Increase (decrease) in:
| | | | | | | Accounts payable | | | (1,228,365) | | | 1,044,126 | Accrued expenses | | | 122,688 | | | 1,319,214 | Total adjustments | | | 3,655,425 | | | (4,694,452) | Net cash provided by (used in) operating activities | | | 426,778 | | | (13,364,091) | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES
| | | | | | | Purchases of property and equipment | | | (147,654) | | | (421,886) | Net cash used in investing activities | | | (147,654) | | | (421,886) | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES
| | | | | | | Due to related party | | | (86,507) | | | — | Proceeds from loan | | | 9,178,065 | | | 7,863,165 | Loan payments | | | (10,635,860) | | | (3,503,349) | Stock issuance costs | | | (96,875) | | | (112,500) | Proceeds from issuance of Series A-1 Preferred Stock | | | 2,500,000 | | | 5,000,000 | Net cash provided by financing activities | | | 858,823 | | | 9,247,316 | NET INCREASE (DECREASE) IN CASH | | | 1,137,947 | | | (4,538,661) | CASH AT BEGINNING OF YEAR | | | 1,226,489 | | | 5,765,150 | CASH AT END OF YEAR | | | $2,364,436 | | | $1,226,489 |
SUPPLEMENTAL DISCLOSURES OF NON CASH
INVESTING AND FINANCING ACTIVITIES
The Company paid $348,997 and $278,406 in interest on the revolving line of credit during the years ended June 30, 2019 and 2018, respectively.
During the year ended June 30, 2018, the Company reclassified accrued interest of $6,174,385 to principal on the note payable to a related party. Additionally, the note payable and accrued interest to the related party in the amount of $43,629,252 were converted to 790 shares of no par common stock in December 2017.
See notes to the financial statements.
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2019 AND 2018
1. DESCRIPTION OF BUSINESS
Halo, Purely for Pets, Inc. (the “Company”) was incorporated in the state of Delaware during June 2006. The Company is engaged in the production and distribution of holistic pet food, treats, and supplements derived from natural ingredients to distributors, retailers, and consumers throughout the United States of America, parts of Asia and Canada. The corporate headquarters is located in Tampa, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Company are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash
Cash is maintained at major financial institutions and, at times, balances may exceed federally insured limits of $250,000. The Company has never experienced any losses related to these balances. The Company’s deposits in excess of federally insured limits at June 30, 2019 and 2018 approximated $2,592,000 and $1,347,000, respectively.
Accounts Receivable
Accounts receivable consist of receivables from the sale of products. The Company records a provision for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Company’s prior collection experience, customer creditworthiness, and current economic trends. The Company also records an allowance against accounts receivable for potential sales returns. Consistent with industry practice, the Company maintains a return policy that allows certain customers to return products for either a credit against future receivables or a refund. The Company’s estimate of the provision for returns is based on current trends of actual customer returns. Management believes that an allowance for doubtful accounts and sales returns of approximately $100,000 and $141,000 is considered adequate at June 30, 2019 and 2018, respectively. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.
Inventories
Inventories are stated at the lower of cost, determined by the weighted average cost method (which approximates the first-in, first-out method), or net realizable value. The Company provides an allowance for loss as needed for inventories determined to be excessive or obsolete.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated over the estimated useful lives of the assets, ranging generally from 2 to 5 years. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in the statements of operations. For income tax purposes, the Company uses accelerated methods of depreciation for certain assets.
Long-Lived Assets
Long-lived assets that are subject to depreciation are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. During the years ended June 30, 2019 and 2018, the Company determined that its long-lived assets were not impaired.
TABLE OF CONTENTS
Goodwill
Goodwill represents the excess purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of an acquired business. Goodwill is not amortized but is reviewed for possible impairments at least annually or more frequently upon the occurrence of an event or when circumstances indicate that goodwill may be impaired. Goodwill impairment is identified by comparing the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value. During the years ended June 30, 2019 and 2018, the Company determined that its goodwill was not impaired.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
Income Taxes
The Company follows Accounting Standards Codification Topic 740, Income Taxes (“ASC Topic 740”). This standard prescribes a recognition and measurement of tax positions to be taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Based on management’s evaluation, there are no uncertain tax positions at June 30, 2019 or 2018.
Other Taxes
Amounts collected on behalf of and remitted to governmental authorities for sales taxes and other similar taxes are reported on a net basis.
Revenue
Revenue is recognized when product is shipped and title transfers to the customers, net of sales discounts. In 2019 and 2018, sales to 4 customers approximated 89% and 87% of total sales, respectively. Accounts receivable from these customers amounted to approximately $2,864,000 and $4,450,000 of total accounts receivable as of June 30, 2019 and 2018, respectively.
Shipping and Handling Costs
The Company records amounts billed to customers for shipping and handling costs as sales revenue. Costs incurred by the Company for shipping and handling are included in cost of sales.
Purchase Concentrations
Purchases of inventory for 2019 and 2018 from 2 major suppliers approximated 79% and 74% of total inventory purchases, respectively. Accounts payable to these suppliers totaled approximately $1,220,000 and $998,000 at June 30, 2019 and 2018, respectively.
Advertising Expenses
Advertising expenses are charged to operations as incurred. Advertising expenses for the years ended June 30, 2019 and 2018 amounted to approximately $5,088,000 and $10,526,000, respectively. These amounts represent primarily customer trade support (retailer advertising and merchandising).
Impact of Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
TABLE OF CONTENTS
recognition guidance in U.S. GAAP when it becomes effective. The revenue guidance is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted as of the original effective date. The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the impact of adoption of this ASU on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases2016-13 “Financial Instruments − Credit Losses (Topic 842). Under ASU No. 2016-02, an entity will be required326),” a new standard to recognize right-of-use assetsreplace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and lease liabilities on its balance sheetrequires consideration of a broader range of reasonable and disclose keysupportable information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU No. 2016-02inform credit loss estimates. The standard is effective for annual reporting periodsthe Company on January 1, 2023, and early adoption is permitted. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements and does not expect the impact to be material.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for the Company beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption,January 1, 2021 with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption of this ASUstandard on its financial statements. Subsequent Events
The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through August 21, 2019, the date on which the financial statements were available to be issued.
3. INVENTORIES
Inventories consist of:
Finished goods | | | $3,501,829 | | | $6,689,275 | Raw materials | | | 285,574 | | | 825,220 | | | | 3,787,403 | | | 7,514,495 | Less inventory reserve | | | (592,523) | | | (448,501) | | | | $3,194,880 | | | $7,065,994 |
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
Furniture and fixtures | | | $94,771 | | | $94,771 | Computer equipment | | | 80,666 | | | 78,898 | Computer software | | | 430,563 | | | 430,563 | Equipment | | | 380,650 | | | 483,980 | Assets not in service:
| | | | | | | Computer software | | | — | | | 80,123 | Equipment | | | — | | | 1,768 | | | | 986,650 | | | 1,170,102 | Less accumulated depreciation | | | (613,688) | | | (519,443) | | | | $372,962 | | | $650,660 |
Depreciation expense amounted to approximately $352,000 and $250,000 for the years ended June 30, 2019 and 2018, respectively.
5. LOAN PAYABLE
On May 5, 2017, the Company entered into a loan and security agreement. The loan and security agreement provided for a revolving line of credit, not to exceed an aggregate principal amount of $5,000,000 limited to qualifying receivables and inventories, as defined, and granted a security interest in and lien upon all of the assets of the
TABLE OF CONTENTS
Company. On October 31, 2017, the Company amended the loan and security agreement to increase the maximum revolving facility amount to $12,000,000. The outstanding principal under the loan and security agreement accrues interest at prime rate plus 2% (7.50%) as of June 30, 2019. The loan and security agreement contains a financial covenant, which requires the Company to maintain minimum liquidity of $500,000. The Company was compliant with its financial covenant as of June 30, 2019 and 2018, respectively. The loan and security agreement is secured by substantially all assets of the Company, is guaranteed by the stockholder, and expires on May 5, 2021. As of June 30, 2019 and 2018, there was approximately $3,903,000 (less issuance costs of approximately $73,000) and $5,361,000 (less issuance costs of approximately $113,000) outstanding on the revolving line of credit, respectively.
6. RELATED PARTY TRANSACTIONS
The Company has advances due to a related party totaling approximately $60,000 and $147,000 at June 30, 2019 and 2018, respectively. These advances are unsecured and non-interest bearing, with no specific repayment terms. The Company has reflected these advances as long-term in the accompanying balance sheets as repayment is not expected until one year after the respective balance sheet dates.
The Company had a related party note payable with a principal member of the Company’s parent with a balance of approximately $37,455,000 at June 30, 2017. Effective July 6, 2017, this note was amended to increase the principal balance to approximately $41,592,000, which represented the principal balance plus accrued interest as of that date and extended the maturity date to July 6, 2018. Interest expense related to this note amounted to $0 and approximately $2,106,000 for the years ended June 30, 2019 and 2018, respectively.
In December, 2017, the Company converted all of its $41,592,000 convertible subordinated note and accrued interest of $2,106,000 into approximately 790 shares of no-par common stock.
The terms and amounts of the note were not necessarily indicative of those that would have been incurred or agreed to had comparable transactions been entered into with independent parties.
7. RETIREMENT PLAN
The Company participates in a 401(k) plan (the “Plan”), which is available to all eligible employees. Employer contributions to the Plan are fixed and equal 3% of each qualified employee’s eligible compensation. Total employer contributions to the Plan were approximately $72,000 and $69,000 for the years ended June 30, 2019 and 2018, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company rents office space under a non-cancelable operating lease. The lease agreement calls for initial monthly payments averaging approximately $4,657, excluding taxes and common area maintenance charges, and expires in 2023.
The following is a schedule by year of the future minimum rental payments required under operating leases that have an initial or remaining non-cancelable lease term in excess of one year:
2020 | | | $62,916 | 2021 | | | $55,882 | 2022 | | | $55,882 | 2023 | | | $32,958 |
Rent expense was approximately $80,000 and $68,000 for the years ended June 30, 2019 and 2018, respectively.
Certain key employees are eligible to participate in bonus payments in the event of a sale of the Company, or the sale of all or substantially all of its assets, (the “Transaction”) under Transaction Bonus Plans (the “Plans”). The Plans automatically terminate on the earlier of (i) the satisfaction by all parties of any obligations relating to a consummated Transaction, regardless of whether the Transaction results in the payment of any bonus to an eligible key employee, or October 31, 2019.
From time to time, the Company may be involved in various claims or litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from any such claims or litigation proceedings would not be material to the Company’s financial position or results of operations.
TABLE OF CONTENTS
9. INCOME TAXES
The provision for income taxes consists of:
Deferred | | | $(799,800) | | | $3,656,900 | Change in valuation allowance | | | 799,800 | | | (3,656,900) | Total provision for income taxes | | | $— | | | $— |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
Deferred tax assets (liabilities):
| | | | | | | Net operating loss carryforward | | | $14,513,986 | | | $13,673,348 | Goodwill | | | (1,003,396) | | | (925,749) | Property and equipment | | | (73,366) | | | (100,655) | Charitable contributions | | | 64,793 | | | 114,854 | Other | | | 245,419 | | | 185,879 | | | | 13,747,437 | | | 12,947,677 | Less valuation allowance | | | (13,747,437) | | | (12,947,677) | Total provision for income taxes | | | $— | | | $— |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2019, and 2018, based upon the levels of historical taxable income and projections of future taxable income over which the deferred tax assets are deductible,
9. INCOME TAXES− CONTINUED
the Company believes that it is more likely than not that it will not be able to realize the benefits of a majority of these deductible differences. Accordingly, a valuation allowance of $13,747,437 and $12,947,677 has been provided in the accompanying financial statements as of June 30, 2019 and 2018, respectively. The 2019 and 2018 net change in the valuation allowance related to deferred tax assets was an increase and a decrease of approximately $799,800 and $3,656,900, respectively, which was primarily related to the changes in the operating loss carryforwards for those years.
At June 30, 2019 and 2018, the Company has federal tax net operating loss carryforwards of approximately $58,928,000 and $55,515,000, respectively. Federal tax loss carryforwards of approximately $46,160,000 will expire beginning in the year 2026 unless utilized earlier.
On December 22, 2017 H.R. 1, the Tax Cuts and Jobs Act (“TCJA”) was enacted, which, except for certain provisions is effective for tax years beginning on or after January 1st, 2018. The TCJA’s primary change affecting the Company in a material way was a reduction in the maximum federal statutory corporate tax rate from 35% to 21% and elimination of the corporate alternative minimum tax. As a result, the 21% rate was used in calculating the deferred tax assets and liabilities as of June 30, 2019 and 2018. The effect on the company’s income tax expense due to the rate reduction from 35% to 21% was $6,850,190 all of which was recognized in the third quarter of the year ending June 30, 2018. An adjustment to the company's valuation allowance was recorded in the third quarter of 2018 wholly offsetting the tax expense related to the effects of the rate change.
10. CUMULATIVE REDEEMABLE PREFERRED STOCK
The Company issued 36.67 shares of Series A-1 and 73.33 shares of Series A redeemable preferred stock with no par value for approximately $2,400,000 (net of issuance costs) and $5,000,000 in November 2018 and December 2017,
TABLE OF CONTENTS
respectively. The cumulative annual dividend rate of $15% per share (based on an original issue price per share equal to $68,184.92) shall be compounded annually and accrued for upon declaration of such dividends. At June 30, 2019 and 2018 no dividends were declared and the Company is under no obligation to pay such dividends.
The Corporation shall not declare, pay, or set aside any dividends on any other shares of capital stock unless the holders of the Series A-1 and Series A Preferred Stock then outstanding first receive payment in full in an amount equal to the stated value plus all accrued and unpaid dividends thereon to the date of redemption. The maximum amount the Company could be required to pay to redeem the shares is $1,373,716 as of June 30, 2019. Under the terms of the Series A and Series A-1 Preferred Stock the Company is not required to set aside funds for meeting preferred stock dividend requirements.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A-1 Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its stockholders, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Series A Preferred Stock or Common Stock.
Consistent with those of Common Stock, the holders of Series A-1 Preferred Stock and Series A Preferred Stock are entitled to one vote for each share of Preferred Stock held at all meetings of stockholders.
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.BALANCE SHEETS
As of September 30, 2019 (unaudited) and June 30, 2019
CURRENT ASSETS
| | | | | | | Cash | | | $1,611,147 | | | $2,364,436 | Accounts receivable, net of allowances of approximately $100,000 and $100,000 as of September 30, 2019 and June 30, 2019, respectively | | | 4,640,257 | | | 4,152,779 | Inventories | | | 3,433,099 | | | 3,194,880 | Prepaids and other current assets | | | 461,008 | | | 349,491 | Total current assets | | | 10,145,511 | | | 10,061,586 | Property and equipment, net of accumulated depreciation | | | 314,071 | | | 372,962 | Goodwill | | | 4,730,655 | | | 4,730,655 | Other | | | 14,650 | | | 14,650 | Total assets | | | $15,204,887 | | | $15,179,853 | CURRENT LIABILITIES
| | | | | | | Accounts payable | | | $1,900,140 | | | $2,529,480 | Accrued expenses | | | 691,710 | | | 417,199 | Accrued payroll liabilities | | | 197,247 | | | 520,125 | Total current liabilities | | | 2,789,097 | | | 3,466,804 | LONG-TERM LIABILITIES
| | | | | | | Due to related party | | | 60,391 | | | 60,391 | Loan payable, net of issuance costs | | | 4,043,255 | | | 3,829,521 | Total liabilities | | | 6,892,743 | | | 7,356,716 | STOCKHOLDERS' EQUITY
| | | | | | | Preferred Stock; no par value; 110 shares authorized:
| | | | | | | Series A-1; 36.67 shares issued and outstanding | | | — | | | — | Series A; 73.33 shares issued and outstanding Common stock; no par value; 10,000 shares authorized; 890 issued and outstanding | | | — | | | — | Additional paid-in capital - Series A-1 Preferred Stock, net of issuance costs | | | 2,403,125 | | | 2,403,125 | Additional paid-in capital - Series A Preferred Stock | | | 5,000,000 | | | 5,000,000 | Additional paid-in capital - Common Stock | | | 57,141,157 | | | 57,141,157 | Accumulated deficit | | | (56,232,138) | | | (56,721,145) | Total stockholders' equity | | | 8,312,144 | | | 7,823,137 | Total liabilities and stockholders' equity | | | $15,204,887 | | | $15,179,853 |
See notes to the financial statements
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
SALES | | | $8,442,822 | | | $7,607,605 | COST OF SALES | | | 5,128,392 | | | 4,686,922 | GROSS PROFIT | | | 3,314,430 | | | 2,920,683 | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 2,751,162 | | | 3,594,401 | LOSS ON DISPOSAL OF EQUIPMENT | | | — | | | 10,290 | INCOME (LOSS) FROM OPERATIONS | | | 563,268 | | | (684,008) | OTHER (EXPENSE) INCOME
| | | | | | | Interest expense, other | | | (74,299) | | | (101,554) | Interest income | | | 38 | | | 38 | Total other expense | | | (74,261) | | | (101,516) | NET INCOME (LOSS) | | | $489,007 | | | $(785,524) |
See notes to the financial statements
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
Balance, June 30, 2017 | | | 100 | | | $— | | | — | | | $— | | | — | | | $— | | | $— | | | $— | | | $13,511,905 | | | $(44,822,859) | | | $(31,310,954) | Issuance of preferred stock | | | — | | | — | | | — | | | — | | | 73.33 | | | — | | | — | | | 5,000,000 | | | — | | | — | | | 5,000,000 | Conversion of debt to common stock | | | 790 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 43,629,252 | | | — | | | 43,629,252 | Net Loss | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,669,639) | | | (8,669,639) | Balance, June 30, 2018 | | | 890 | | | — | | | — | | | — | | | 73.33 | | | — | | | — | | | $5,000,000 | | | $57,141,157 | | | $(53,492,498) | | | $8,648,659 | Net Loss (Unaudited) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | $(785,524) | | | $(785,524) | Balance, September 30, 2018 (Unaudited) | | | 890 | | | — | | | — | | | — | | | 73.33 | | | — | | | — | | | $5,000,000 | | | $57,141,157 | | | $(54,278,022) | | | 7,863,135 | Issuance of preferred stock, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | net of stock issuance costs | | | — | | | — | | | 36.67 | | | — | | | — | | | — | | | 2,403,125 | | | — | | | — | | | — | | | 2,403,125 | Net Loss | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,443,123) | | | (2,443,123) | Balance, June 30, 2019 | | | 890 | | | — | | | 36.67 | | | — | | | 73.33 | | | — | | | $2,403,125 | | | $5,000,000 | | | $57,141,157 | | | $(56,721,145) | | | $7,823,137 | Net Income (Unaudited) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 489,007 | | | 489,007 | Balance, September 30, 2019 (Unaudited) | | | 890 | | | — | | | 36.67 | | | — | | | 73.33 | | | — | | | $2,403,125 | | | $5,000,000 | | | $57,141,157 | | | $(56,232,138) | | | $8,312,144 |
See notes to the financial statements
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES
| | | | | | | Net Income (loss) | | | $489,007 | | | $(785,524) | Adjustments to reconcile net loss to net cash (used) provided by operating activities:
| | | | | | | Depreciation & Amortization | | | 61,386 | | | 84,266 | Loss on disposal of equipment | | | — | | | 10,290 | (Increase) decrease in:
| | | | | | | Accounts receivable | | | (487,478) | | | (107,096) | Inventories | | | (238,220) | | | 771,641 | Prepaids and other assets | | | (101,517) | | | (31,364) | Increase (decrease) in:
| | | | | | | Accounts payable | | | (629,342) | | | (679,703) | Accrued expenses | | | (48,366) | | | (146,588) | Total adjustments | | | (1,443,537) | | | (98,554) | Net cash provided (used) by operating activities | | | (954,530) | | | (884,078) | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES
| | | | | | | Purchases of property and equipment | | | (2,495) | | | (37,947) | Net cash used by investing activities | | | (2,495) | | | (37,947) | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES
| | | | | | | Proceeds from loan | | | — | | | 384,958 | Loan payments | | | 203,736 | | | — | Net cash provided by financing activities | | | 203,736 | | | 384,958 | | | | | | | | NET INCREASE (DECREASE) IN CASH | | | (753,289) | | | (537,067) | CASH AT BEGINNING OF PERIOD | | | 2,364,436 | | | 1,226,489 | CASH AT END OF PERIOD | | | $1,611,147 | | | $689,422 |
See notes to the financial statements
TABLE OF CONTENTS
HALO, PURELY FOR PETS, INC.NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
Halo, Purely for Pets, Inc. (the “Company”) was incorporated in the state of Delaware during June 2006. The Company is engaged in the production and distribution of holistic pet food, treats, and supplements derived from natural ingredients to distributors, retailers, and consumers throughout the United States of America, parts of Asia and Canada. The corporate headquarters is located in Tampa, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Company are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and related disclosures.
In March 2020, the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash
Cash is maintained at major financial institutions and, at times, balances may exceed federally insured limits of $250,000. The Company has never experienced any losses related to these balances. The Company’s deposits in excess of federally insured limits at September 30, 2019 and June 30, 2019 approximated $1,518,000 and $2,592,000, respectively.
Accounts Receivable
Accounts receivable consist of receivables from the sale of products. The Company records a provision for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysisFASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Company’s prior collection experience, customer creditworthiness,Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and current economic trends. The Company also records an allowance against accounts receivableexceptions for potential sales returns. Consistent with industry practice,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 Company maintains a return policy that allows certain customers to return products for either a credit against future receivables or a refund. The Company’s estimateconcerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the provision for returns is based on current trends of actual customer returns. Management believes that an allowance for doubtful accounts and sales returns of approximately $100,000 is considered adequate at both September 30, 2019 and June 30, 2019. The Company determines receivablesLondon Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.
Inventories
Inventories are stated at the lower of cost, determined by the weighted average cost method (which approximates the first-in, first-out method), or net realizable value. The Company provides an allowance for loss as needed for inventories determined to be excessive or obsolete.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated over the estimated useful lives of the assets, ranging generally from 2 to 5 years. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in the statements of operations. For income tax purposes, the Company uses accelerated methods of depreciation for certain assets.
Long-Lived Assets
Long-lived assetsidentify alternative reference rates that are subjectmore observable or transaction based and less susceptible to depreciation are reviewed formanipulation. Topic 848 provides companies with optional guidance to ease the potential impairment whenever events or circumstances indicateaccounting burden associated with transitioning away from reference rates that carrying amounts may not be recoverable. During the quarter ended September 30, 2019 and year ended June 30, 2019, the Company determined that its long-lived assets were not impaired.
TABLE OF CONTENTS
Goodwill
Goodwill represents the excess purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of an acquired business. Goodwill is not amortized but is reviewed for possible impairments at least annually or more frequently upon the occurrence of an event or when circumstances indicate that goodwill may be impaired. Goodwill impairment is identified by comparing the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value. During the year ended June 30, 2019, the Company determined that its goodwill was not impaired.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
Income Taxes
The Company follows Accounting Standards Codification Topic 740, Income Taxes (“ASC Topic 740”). This standard prescribes a recognition and measurement of tax positions to be taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Based on management’s evaluation, there are no uncertain tax positions at September 30, 2019 or June 30, 2019.
Other Taxes
Amounts collected on behalf of and remitted to governmental authorities for sales taxes and other similar taxes are reported on a net basis.
Revenue
Revenue is recognized when product is shipped and title transfers to the customers, net of sales discounts. For the three months ended September 30, 2019 and September 30, 2018, sales to four customers approximated 89% and 82% of total sales, respectively. Accounts receivable from these customers amounted to approximately $3,332,000 and $2,864,000 of total accounts receivable as of September 30, 2019 and June 30, 2019, respectively.
Shipping and Handling Costs
The Company records amounts billed to customers for shipping and handling costs as sales revenue. Costs incurred by the Company for shipping and handling are included in cost of sales.
Purchase Concentrations
Purchases of inventory for the quarter ended September 30, 2019 and year ended June 30, 2019 from two major suppliers approximated 74% and 79% of total inventory purchases, respectively. Accounts payable to these suppliers totaled approximately $1,182,000 and $1,220,000 at September 30, 2019 and June 30, 2019, respectively.
Advertising Expenses
Advertising expenses are charged to operations as incurred. Advertising expenses for the three months ended September 30, 2019 and September 30, 2018 amounted to approximately $1,216,000 and $1,051,000, respectively. These amounts represent primarily customer trade support (retailer advertising and merchandising).
Impact of Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.discontinued. The ASU will replace most existing revenue
TABLE OF CONTENTS
recognition guidance in U.S. GAAP when it becomes effective. The revenue guidance is effective for annual reporting periods beginning aftercan be adopted no later than December 15, 2018, with early adoption permitted as of the original effective date. The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the impact of adoption of this ASU on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption,1, 2022 with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption of this ASUthe standard will have on its financial statements.
Subsequent Events
The Company has evaluated events and transactions for potential recognition or disclosure in theconsolidated financial statements through February 18, 2020,and related disclosures, as well as the datepotential impact of reference rate reform on which the financial statements were available to be issued. Refer to Note 10 – Subsequent Events for additional information.
3. INVENTORIES
Inventories consist of:
Finished goods | | | $3,555,653 | | | $3,501,829 | Raw materials | | | 434,304 | | | 285,574 | | | | 3,989,957 | | | 3,787,403 | Less inventory reserve | | | (556,858) | | | (592,523) | | | | $3,433,099 | | | $3,194,880 |
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
Furniture and fixtures | | | $78,195 | | | $94,771 | Computer equipment | | | 80,666 | | | 80,666 | Computer software | | | 430,563 | | | 430,563 | Equipment | | | 397,226 | | | 380,650 | Assets not in service:
| | | | | | | Equipment | | | 2,495 | | | — | | | | 989,145 | | | 986,650 | Less accumulated depreciation | | | (675,074) | | | (613,688) | | | | $314,071 | | | $372,962 |
Depreciation expense amounted to approximately $84,000 and $61,000 for the three months ended September 30, 2019 and 2018, respectively.
5. LOAN PAYABLE
On May 5, 2017, the Company entered into a loan and security agreement. The loan and security agreement provided for a revolving line of credit, not to exceed an aggregate principal amount of $5,000,000 limited to qualifyingour debt instruments.
TABLE OF CONTENTS
receivables and inventories (as defined therein). On October 31, 2017, the Company amended the loan and security agreement to increase the maximum revolving facility amount to $12,000,000. The outstanding principal under the loan and security agreement accrues interest at prime rate plus 2% (7.00%) as of September 30, 2019. The loan and security agreement contains a financial covenant, which requires the Company to maintain minimum liquidity of $500,000. The Company was compliant with its financial covenant as of September 30, 2019 and June 30, 2019. The loan and security agreement is secured by substantially all assets of the Company, is guaranteed by the stockholder, and expires on May 5, 2021. As of September 30, 2019 and June 30, 2019, there was approximately $4,107,000 (less issuance costs of approximately $63,000), and approximately $3,903,000 (less issuance costs of approximately $73,000) of indebtedness outstanding, respectively.
6. RELATED PARTY TRANSACTIONS
The Company has advances due to a related party totaling approximately $60,000 at September 30, 2019 and June 30, 2019, respectively. These advances are unsecured and non-interest bearing, with no specific repayment terms. The Company has reflected these advances as long-term in the accompanying balance sheets as repayment is not expected until one year after the respective balance sheet dates.
7. RETIREMENT PLAN
The Company participates in a 401(k) plan (the “Plan”), which is available to all eligible employees. Employer contributions to the Plan are fixed and equal 3% of each qualified employee’s eligible compensation. Total employer contributions to the Plan were $14,000 and approximately $72,000 for the three month period ended September 30, 2019 and year ended June 30, 2019, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company rents office space under a non-cancelable operating lease. The lease agreement calls for initial monthly payments averaging approximately $4,657, excluding taxes and common area maintenance charges, and expires in 2023.
Rent expense was approximately $23,000 and $17,000 for the three months ended September 30, 2019, and 2018, respectively.
Certain key employees are eligible to participate in bonus payments in the event of a sale of the Company, or the sale of all or substantially all of its assets, (the “Transaction”) under Transaction Bonus Plans (the “Plans”). The Plans automatically terminate on the earlier of (i) the satisfaction by all parties of any obligations relating to a consummated Transaction, regardless of whether the Transaction results in the payment of any bonus to an eligible key employee, or October 31, 2019.
From time to time, the Company may be involved in various claims or litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from any such claims or litigation proceedings would not be material to the Company’s financial position or results of operations.
9. CUMULATIVE REDEEMABLE PREFERRED STOCK
The Company issued 36.67 shares of Series A-1 redeemable preferred stock and 73.33 shares of Series A redeemable preferred stock with no par value for approximately $2,400,000 (net of issuance costs) and $5,000,000 in November 2018 and December 2017, respectively. The cumulative annual dividend rate of 15% (based on an original issue price per share equal to $68,184.92) is compounded annually and accrued for upon declaration of such dividends. At September 30, 2019 and June 30, 2019 no dividends were declared and the Company is under no obligation to pay such dividends.
The Company shall not declare, pay, or set aside any dividends on any other shares of capital stock unless the holders of the Series A-1 redeemable preferred stock and Series A redeemable preferred stock then outstanding first receive payment in full in an amount equal to the stated value plus all accrued and unpaid dividends thereon to the date of redemption. The maximum amount the Company could be required to pay to redeem the shares is $2,217,466 and $1,373,716 as of September 30, 2019 and June 30, 2019, respectively. Under the terms of the Series A redeemable preferred stock and Series A-1 redeemable preferred stock the Company is not required to set aside funds for meeting preferred stock dividend requirements.
TABLE OF CONTENTS In March 2020, FASB issued ASU 2020-03, Codification Improvement to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the eventcurrent expected credit losses (CECL) standard issued in 2016. The ASU includes seven different issues that describe the areas of any voluntary or involuntary liquidation, dissolution or winding upimprovement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the impact the accounting guidance will have on its condensed consolidated financial statements and related disclosures. In August 2020, FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging − Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU reduces the number of accounting models for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity. This standard is effective for the Company beginning on January 1, 2024 with early adoption permitted. The Company is currently evaluating the holdersimpact of sharesthis standard on its condensed consolidated financial statements and related disclosures. Note 2 − Acquisitions Acquisition of Series A-1 redeemable preferred stock then outstanding shall be entitled to be paid out of the assets available for distribution to its stockholders, prior and in preference to any distribution of any of the assets of the Company to the holders of Series A redeemable preferred stock or common stock. Consistent with those of the common stock, the holders of Series A-1 redeemable preferred stock and Series A redeemable preferred stock are entitled to one vote for each share of preferred stock held at all meetings of stockholders.
10. SUBSEQUENT EVENTSHalo
On October 15, 2019, the Company (Thriving Paws, LLC, a Delaware limited liability company (“Thriving Paws”), HH-Halo LP, a Delaware limited partnership (“HH-Halo” and, together with Thriving Paws, the “Sellers”) with HH-Halo, in the capacity of the representative of the Sellers) entered into a Stock Purchase Agreement (“the Agreement”) with Better Choice Company Inc. (BTTR), a Delaware corporation (the “Buyer”). Pursuant to the terms and subject to the conditions of the Agreement, the Company agreed to sell one hundred percent (100%) of the issued and outstanding capital stock of Halo to the Buyer. On December 18, 2019,acquire Halo and the Sellers entered into an Amended and Restated Stock Purchase Agreement pursuant to which, among other things, a portion of the consideration for the Acquisitionacquisition (the “Halo Acquisition”) was paid to Werner von Pein, the chief executive officer of Halo.
Under the terms of the Amended Agreement, the Company completed the Acquisition on December 19, 2019 (the “Halo Acquisition Date”), for approximately $39.4 million pending final valuation of non-cash components issued to the Sellers.$38.2 million. The consideration was subject to customary adjustments for Halo’s net working capital, cash, and indebtedness, and consisted of a combination of (i) cash consideration (ii) a total of 2,134,390($20.5 million), shares of the Company’s common stock ($3.9 million), Seller Notes ($15 million), and Seller Warrants ($0.3 million). The Company incurred $0.9 million in transaction costs, which are included in general and administrative expenses.
The Halo Acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price was allocated to the identifiable assets and liabilities based on their estimated fair values at the Halo Acquisition Date. The purchase price allocation is summarized as follows (in thousands): Total purchase price | | | $38,244 | Assets and Liabilities Acquired:
| | | | Assets
| | | | Property and equipment | | | 260 | Accounts receivable | | | 5,540 | Inventories | | | 5,160 | Intangible assets | | | 14,690 | Other assets | | | 329 | Total assets | | | 25,979 | Liabilities
| | | | Accounts payable | | | 4,628 | Accrued liabilities | | | 1,553 | Long term liability | | | 168 | Total liabilities | | | 6,349 | Net assets acquired | | | 19,630 | Goodwill | | | $18,614 |
The excess of purchase price over the fair value amounts assigned to the identifiable assets acquired and liabilities assumed represents goodwill from the acquisition. The Company believes the factors that contributed to goodwill include the acquisition of a talented workforce and administrative cost synergies. The Company does not expect any portion of this goodwill to be deductible for tax purposes. See “Note 9 − Intangible assets, royalties, and goodwill” for more information. TABLE OF CONTENTS Reverse Acquisitions of Better Choice and Bona Vida by TruPet On May 6, 2019, Better Choice Company completed the reverse acquisitions of TruPet and Bona Vida whereby TruPet is considered the acquirer for accounting and financial reporting purposes. The acquisitions were accounted for as asset acquisitions. The purchase price for Better Choice Company was $37.9 million and has been allocated based on an estimate of the fair value of Better Choice Company’s assets acquired and liabilities assumed with the remainder recorded as an expense. The loss on acquisition of Better Choice Company’s net liabilities is $39.6 million. The purchase price for Bona Vida was $108.6 million and the estimated purchase price has been allocated based on an estimate of the fair value of assets acquired and liabilities assumed. The excess of the purchase price over the net assets acquired has been recorded as an expense. The loss on acquisition of Bona Vida’s net assets is $107.8 million. On May 6, 2019, the fair values of the assets and liabilities acquired were (in thousands): Total Purchase Price | | | $37,949 | | | $108,620 | | | $146,569 | Net Assets (Liabilities) Acquired:
| | | | | | | | | | Assets
| | | | | | | | | | Cash and cash equivalents | | | 7 | | | 384 | | | 391 | Restricted cash | | | — | | | 25 | | | 25 | Accounts receivable | | | — | | | 69 | | | 69 | Inventories | | | — | | | 95 | | | 95 | Prepaid expenses and other current assets | | | 32 | | | 348 | | | 380 | Intangible assets | | | 986 | | | — | | | 986 | Other assets | | | — | | | 74 | | | 74 | Total Assets | | | 1,025 | | | 995 | | | 2,020 | Liabilities
| | | | | | | | | | Warrant derivative liability | | | 2,130 | | | — | | | 2,130 | Accounts payable & accrued liabilities | | | 544 | | | 153 | | | 697 | Total Liabilities | | | 2,674 | | | 153 | | | 2,827 | Net Assets (Liabilities) Acquired | | | (1,649) | | | 842 | | | (807) | Loss on Acquisitions | | | $(39,598) | | | $(107,778) | | | $(147,376) |
Note 3 – Revenue The Company records revenue net of discounts. Discounts primarily consist of early pay discounts, general percentage allowances and contractual trade promotions such as auto-ship subscriptions. The Company excludes sales taxes collected from revenues. Retail-partner based customers are not subject to sales tax. Revenue is deferred for orders that have been paid for, but not shipped. Based on historical experience, the Company records an estimated liability for returns. Product returns were $0.3 million and less than $0.4 million in 2020 and 2019, respectively. The TLC 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. As of December 31, 2020 and 2019, customers held unredeemed loyalty program awards of $0.4 million and $0.2 million, respectively. The Company recognized revenue of $0.5 million and less than $0.2 million from the loyalty program for the years ended December 31, 2020 and 2019, respectively. Shipping costs associated with moving finished products to customers were $1.5 million and $2.3 million for the years ended December 31, 2020 and 2019, respectively. Such shipping costs are recorded as part of general and administrative expenses. TABLE OF CONTENTS We group our revenue channels into four distinct categories: E-Commerce, which includes the sale of product to online retailers such as Amazon and Chewy; Brick & Mortar, which includes the sale of product to pet specialty chains such as Petco, select grocery chains, and neighborhood pet stores; DTC which includes the sale of product through our online web platform; and International, which includes the sale of product to foreign distribution partners and to select international retailers. We believe our omni-channel approach is a significant competitive advantage, as it allows us to design and sell products purpose-built for success in specific channels while maintaining our ability to leverage marketing and sales resources cross-channel. Information about the Company’s revenue channels is as follows (in thousands): E-commerce | | | $14,218 | | | 34% | | | $1,952 | | | 13% | Brick & Mortar | | | 8,982 | | | 21% | | | 194 | | | 1% | DTC | | | 10,778 | | | 25% | | | 13,392 | | | 86% | International | | | 8,612 | | | 20% | | | 39 | | | —% | Net Sales | | | $42,590 | | | 100% | | | $15,577 | | | 100% |
Note 4 − Inventories Inventories are summarized as follows (in thousands): Food, treats and supplements | | | $4,987 | | | $6,425 | Inventory packaging and supplies | | | 596 | | | 504 | Other products and accessories | | | — | | | 73 | Total inventories | | | 5,583 | | | 7,002 | Inventory reserve | | | (714) | | | (422) | Inventories, net | | | $4,869 | | | $6,580 |
Note 5 – Prepaid expenses and other current assets Prepaid advertising contract with iHeart(1) | | | $1,788 | | | $1,776 | Other prepaid expenses and other current assets(2) | | | 2,286 | | | 865 | Total Prepaid expenses and other current assets | | | 4,074 | | | 2,641 |
(1)
| On August 28, 2019, the Company entered into a radio advertising agreement with iHeart Media + Entertainment, Inc. and issued 1,000,000 shares of common stock valued at $3.4 million for future advertising to be provided to the Company from August 2019 to August 2021. The Company issued an additional 125,000 shares valued at $0.1 million on March 5, 2020 pursuant to the agreement. The agreement requires the Company to spend a minimum amount for talent fees or other direct iHeart costs. The company committed to using $1.7 million of the media inventory by August 28, 2020, with the remainder of the inventory available through August 28, 2021. On August 28, 2020 the contract was amended to extend the commitment dates by one year, whereas $1.7 million of the advertising media inventory will now be used by August 28, 2021, with the remainder available through August 28, 2022. The long-term portion of the contract balance of $1.2 million and $1.1 million was recorded in other non-current assets as of December 31, 2020 and 2019, respectively. |
(2)
| As of December 31, 2020, this amount includes various other prepaid contracts. The Company entered into an agreement for access to an investment platform in exchange for 500,000 shares of common stock valued at $0.6 million for a period of one year. Additionally, the Company entered into an agreement for marketing services in exchange for 500,000 shares of common stock valued at $0.5 million from January 2021 to January 2022. |
TABLE OF CONTENTS Note 6 − Property and equipment
Property and equipment consist of the following (in thousands): Equipment | | | 3 - 7 years | | | $234 | | | $222 | Furniture and fixtures | | | 5 - 7 years | | | 150 | | | 138 | Computer software | | | 3 years | | | 111 | | | 115 | Computer equipment | | | 2 - 3 years | | | 4 | | | 4 | Total property and equipment | | | | | | 499 | | | 479 | Accumulated depreciation | | | | | | (247) | | | (62) | Net property and equipment | | | | | | $252 | | | $417 |
Depreciation expense was $0.2 million and $0.1 million for the years ended December 31, 2020 and 2019, respectively. Note 7 – Accrued liabilities Accrued liabilities consist of the following (in thousands): Accrued professional fees(1) | | | $704 | | | $1,695 | Accrued sales tax | | | 1,009 | | | 1,233 | Accrued payroll and benefits | | | 913 | | | 994 | Accrued trade promotions | | | 106 | | | 357 | Accrued dividends(2) | | | — | | | 256 | Accrued interest | | | 86 | | | 109 | Other | | | 185 | | | 77 | Total accrued liabilities | | | $3,003 | | | $4,721 |
(1)
| The Company recognized a reduction in accrued legal fees related to a finalized settlement of amounts that were accrued for in 2019. |
(2)
| Accrued dividends related to the Series E were less than $0.3 million as of December 31, 2019. In connection with the issuance of Series F Preferred Stock in October 2020, all accrued dividends were settled through the terms of the exchange agreement related to the Series E Preferred Stock. See “Note 13 − Redeemable convertible preferred stock” for additional information. |
Note 8 – Operating leases The table below presents certain information related to the lease costs for operating leases (in thousands): Operating lease costs | | | $307 | | | $369 | Short-term lease costs | | | 130 | | | 115 | Variable lease costs | | | 27 | | | 31 | Total operating lease costs | | | $464 | | | $515 |
The following table presents weighted-average terms for our operating leases: Weighted-average remaining lease term | | | 1.9 | | | 2.6 | Weighted-average discount rate | | | 12.5% | | | 12.5% |
TABLE OF CONTENTS The following table presents the maturities of operating lease liabilities as of December 31, 2020 (in thousands): 2021 | | | 204 | 2022 | | | 186 | 2023 | | | 7 | Total maturities of operating lease liabilities | | | 397 | Less: imputed interest | | | 40 | Present value of future minimum lease payments | | | $357 |
Note 9 – Intangible assets, royalties, and goodwill Intangible assets and royalties In May 2019, the Company acquired a licensing agreement with Authentic Brands and Elvis Presley Enterprises (“ABG”). The licensing agreement required an upfront equity payment of $1.0 million worth of common stock and the license was recorded at its amortized cost which approximated fair value. The Company did not plan to use the license in the future and therefore terminated the agreement on January 13, 2020. The Company recognized an impairment charge for the net book value of the licensing agreement as of and for the year ended December 31, 2019. As part of the termination, the Company: (1) paid ABG $0.1 million in cash upon the signing of the termination agreement on January 13, 2020, (2) issued ABG 72,720 shares of the Company’s common stock on January 13, 2020, (3) agreed to pay ABG $0.1 million in cash in four equal installments each month from July 31, 2020 through October 31, 2020, (4) issued ABG $0.6 million aggregate principal amount of Subordinated Promissory Notes (the “ABG Notes”) effective January 20, 2020, and (5) issued ABG a common stock purchase warrant (the “ABG Warrants”) equal to a fair value of $150,000 on January 20, 2020. The terms of the ABG Notes match those of the Seller Notes, including convertible features exercisable any time after the date of issuance, a 10% interest rate and maturity date of June 30, 2023. The ABG Warrants are exercisable for 24 months from the date of the consummation of an IPO (as defined in the ABG Warrants) and carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock was sold in the IPO. The fair values of the ABG Notes and ABG Warrants on their issuance dates were $0.6 million and less than $0.1 million, respectively. On June 24, 2020, the exercise price of the ABG Warrants was amended in connection with the issuance of the June 2020 Notes (defined below) to lower the maximum exercise price from $5.00 to $4.25 per share. See “Note 10 − Debt” and “Note 11 − Warrants” for additional information. The total cost of the contract termination noted above is measured at its fair value of $1.1 million and is included in general and administrative expense. The Company’s intangible assets (in thousands) and related useful lives (in years) are as follows: Customer relationships | | | 7 | | | $7,190 | | | $(1,059) | | | $6,131 | | | $(35) | | | $7,155 | Trade name | | | 15 | | | 7,500 | | | (516) | | | 6,984 | | | (14) | | | 7,486 | Total intangible assets | | | | | | $14,690 | | | $(1,575) | | | $13,115 | | | $(49) | | | $14,641 |
(1)
| The gross intangible asset values and the net carrying amount as of December 31, 2019 have been updated to correct an immaterial disclosure reporting error in our 2019 Annual Report on Form 10-K. |
Amortization expense was $1.5 million and less than $0.1 million for the years ended December 31, 2020 and 2019, respectively. TABLE OF CONTENTS The estimated future amortization of intangible assets over the remaining weighted average useful life of 10.2 years is as follows (in thousands): 2021 | | | $1,526 | 2022 | | | 1,526 | 2023 | | | 1,526 | 2024 | | | 1,526 | 2025 | | | 1,526 | Thereafter | | | 5,485 | | | | $13,115 |
There were no indicators or impairment of the intangible assets as of December 31, 2020. Goodwill Goodwill of $18.6 million was recognized in connection with the Halo Acquisition. The Company performed a quantitative assessment for its annual impairment test as of October 1, 2020. Under the quantitative approach, the Company makes various estimates and assumptions in determining the estimated fair value of the reporting unit using a combination of discount cash flow models and valuations based on earnings multiples for guideline public companies when externally quoted market prices are not readily available. As of and for the years ended December 31, 2020 and 2019, there was no accumulated impairment loss and no impairment expense related to goodwill. Note 10 – Debt The components of the Company’s debt consist of the following (in thousands): Short term loan, net | | | $7,826 | | | (1) | | | 1/15/2021 | | | $16,061 | | | (1) | | | 12/19/2020 | Line of credit, net | | | 5,023 | | | (2) | | | 7/5/2022 | | | 4,819 | | | (1) | | | 12/19/2020 | November 2019 notes payable, net (November 2019 Notes) | | | 2,830 | | | 10% | | | 6/30/2023 | | | 2,769 | | | 10% | | | 11/4/2021 | December 2019 notes payable, net (Senior Seller Notes) | | | 10,332 | | | 10% | | | 6/30/2023 | | | 9,191 | | | 10% | | | 6/30/2023 | December 2019 notes payable, net (Junior Seller Notes) | | | 4,973 | | | 10% | | | 6/30/2023 | | | 4,410 | | | 10% | | | 6/30/2023 | ABG notes payable, net (ABG Notes) | | | 687 | | | 10% | | | 6/30/2023 | | | — | | | — | | | — | June 2020 notes payable, net (June 2020 Notes) | | | 88 | | | 10% | | | 6/30/2023 | | | — | | | — | | | — | Halo PPP Loan | | | 431 | | | 1% | | | 5/3/2022 | | | — | | | — | | | | TruPet PPP Loan | | | 421 | | | .98% | | | 4/6/2022 | | | — | | | — | | | — | Total debt | | | 32,611 | | | | | | | | | 37,250 | | | | | | | Less current portion | | | 8,016 | | | | | | | | | 20,880 | | | | | | | Total long term debt | | | $24,595 | | | | | | | | | $16,370 | | | | | | |
(1)
| Interest at Bank of Montreal Prime plus 8.05% |
(2)
| Interest at a variable rate of LIBOR plus 250 basis points with and interest rate floor of 3.25% per annum |
Short term loan and line of credit On the Halo Acquisition date, December 19, 2019, the Company entered into a Loan Facilities Agreement (the “Facilities Agreement”) by and among the Company, as the borrower, the several lenders from time to time parties thereto (collectively, the “Lenders”) and a private debt lender, as agent (the “Agent”). The Facilities Agreement provided for (i) a term loan facility of $20.5 million and (ii) a revolving demand loan facility not to exceed TABLE OF CONTENTS $7.5 million. The term loan was scheduled to mature on December 19, 2020 or such earlier date on which a demand is made by the Agent or any Lender and was extended as discussed below. The remaining revolving credit facility balance of $5.1 million was repaid in full with a portion of the proceeds from the ABL Facility, discussed below, and resulted in a loss on debt extinguishment of $0.1 million. Certain directors and shareholders of the Company (“Shareholder Guarantors”) agreed to enter into a Continuing Guaranty (the “Shareholder Guaranties”) in the amount of $20.0 million and guarantee the Company’s obligations under the Facilities Agreement. As consideration for the Shareholder Guaranties, the Company issued common stock purchase warrants to the Shareholder Guarantors in an amount equal to 0.325 warrants for each dollar of debt under the agreement guaranteed by such Shareholder Guarantors (the “Guarantor Warrants”). 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 proceeds of the ABL Facility were used (i) to repay all principal, interest and fees outstanding under the Company’s existing revolving credit facility and (ii) for general corporate purposes. Debt issuance costs of $0.1 million were incurred related to the Company entering into this revolving line of credit. The ABL Facility matures on July 5, 2022 and bears interest at a variable rate of LIBOR plus 250 basis points, with an interest rate floor of 3.25% per annum. Accrued interest on the ABL Facility is payable monthly commencing on August 5, 2020. The ABL Agreement provides for customary financial covenants, such as maintaining a specified adjusted EBITDA and a maximum senior debt leverage ratio, that commence 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 Company prepaid the principal of the ABL Facility in full and did not incur any prepayment charges. See “Note 21 - Subsequent events” for additional information related to the revolver. The ABL Facility is secured by a general security interest on the assets of the Company and is personally guaranteed by a member of the Company’s board of directors. On October 5, 2020, the Company paid down the term loan by $11.0 million using proceeds from the Series F Private Placement. On October 29, 2020, the Company made an additional pay down on the term loan by $1.0 million using additional proceeds from the Series F Private Placement. On November 25, 2020, Better Choice Company Inc. (the “Company”) entered into the fifth amendment (the “Fifth Amendment”) to the Facilities Agreement, extending the maturity date of the term loan to January 15, 2021. The Company paid down the short term loan in full during January 2021. See “Note 21 − Subsequent events” for additional information related to the term loan. As of December 31, 2020 and 2019, the term loan outstanding was $7.8 million and $16.1 million, net of debt issuance costs and discounts of less than $0.2 million and $4.4 million, respectively, and the line of credit outstanding was $5.0 million and $4.8 million, net of debt issuance costs of $0.2 million and $0.2 million, respectively. The debt issuance costs and discounts are amortized using the effective interest method. As of December 31, 2020 and 2019, the Company was in compliance with its debt covenants. Notes payable On November 4, 2019, the Company issued $2.8 million of subordinated convertible notes (the “November 2019 Notes”) which carry a 10% interest rate and mature on November 4, 2021. The interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. Payment in kind (“PIK”) interest is payable by increasing the aggregate principal amount of the November 2019 Notes. The November 2019 Notes are exercisable any time from the date of issuance and carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price(defined as the price at which the Company’s stock will be sold in a future IPO). The November 2019 Notes were amended on January 6, 2020. The amendment incorporates only the preferable terms of the Seller Notes as noted below, and all other terms and provisions of the November 2019 Notes remain in full force and effect. As amended, for so long as any event of default (as defined in the November 2019 Note) exists, interest shall accrue on the November 2019 Note principal at the default interest rate of 12.0% per annum, and such accrued interest shall be immediately due and payable. The November 2019 Notes were amended for the second time on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these TABLE OF CONTENTS notes from $4.00 per share to $3.75 per share and extends the maturity date from November 4, 2021 to June 30, 2023. Under the applicable accounting guidance, the Company accounted for the change in conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of $0.3 million as a reduction to the carrying amount of the debt instrument by increasing the associated debt discount with a corresponding increase in additional paid-in capital. As of December 31, 2020 and 2019, the aggregate amount of November 2019 Notes outstanding was $2.8 million and $2.8 million, respectively, net of discounts of less than $0.3 million and less than $0.1 million, respectively. The discounts are being amortized over the life of the November 2019 Notes using the effective interest method. On December 19, 2019, the Company issued $10.0 million and $5.0 million in senior subordinated convertible notes (the “Senior Seller Notes”) and junior subordinated convertible notes (the “Junior Seller Notes” and together with the Senior Seller Notes, the “Seller Notes”), respectively, to the sellers of Halo. The Seller Notes are exercisable any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. Interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the Seller Notes. The Seller Notes carried a conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The Seller Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than of $0.3 million as a reduction to the carrying amounts of the debt instruments by increasing the associated debt discounts with a corresponding increase in additional paid-in capital. As of December 31, 2020, the Senior Seller Notes outstanding were $10.3 million, net of discounts of $0.8 million, and the Junior Seller Notes outstanding were $5.0 million, net of discounts of $0.5 million. As of December 31, 2019, the Senior Seller Notes outstanding were $9.2 million, net of discounts of $0.9 million, and the Junior Seller Notes outstanding were $4.4 million, net of discounts of $0.5 million. The discounts are being amortized over the life of the Seller Notes using the effective interest method. On January 13, 2020, the Company issued $0.6 million in senior subordinated convertible notes to ABG. The ABG Notes are exercisable any time from the date of issuance and carry a 10% interest rate and mature on June 30, 2023. The interest is payable in arrears on March 31, June 30, September 30 and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the ABG Notes. The ABG Notes carried an initial conversion price of the lower of (a) $4.00 per share or (b) the IPO Price. The ABG Notes were amended on June 24, 2020 in connection with the issuance of the June 2020 Notes. The amendment lowers the maximum conversion price applicable to the conversion of these notes from $4.00 per share to $3.75 per share. The Company accounted for the change in the conversion price as a modification of the debt instrument. The Company recognized the increase in the fair value of the conversion option of less than $0.1 million as a reduction to the carrying amount of the debt instrument by decreasing the associated debt premium with a corresponding increase in additional paid-in capital. As of December 31, 2020, the ABG Notes outstanding was $0.7 million, including a debt premium of less than $0.1 million. The debt premium is being amortized over the life of the ABG Notes using the effective interest method. On June 24, 2020, the Company issued $1.5 million in subordinated convertible promissory notes (the “June 2020 Notes”) which carry a 10% interest rate and mature on June 30, 2023. The interest is payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year. PIK interest is payable by increasing the aggregate principal amount of the June 2020 Notes. The June 2020 Notes are convertible any time from the date of issuance and carry a conversion price $0.75 per share. The June 2020 Notes are also convertible automatically upon the Company’s consummation of an initial public offering or change in control (each as defined in the June 2020 Notes). The Company evaluated the conversion option within the June 2020 Notes to determine whether the conversion price was beneficial to the note holders. The Company recorded a beneficial conversion feature (“BCF”) related to the issuance of the June 2020 Notes. The BCF for the June 2020 Notes was recognized and measured by allocating a portion of the proceeds to the beneficial conversion feature, based on relative fair value, and as a reduction to the TABLE OF CONTENTS 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 Company will accrete the discount recorded in connection with the BCF valuation as interest expense over the term of the June 2020 Notes, using the effective interest rate method. As of December 31, 2020, the amount outstanding on the June 2020 Notes was less than $0.1 million, net of discounts of less than $1.5 million. The discounts are being amortized over the life of the June 2020 Notes using the effective interest method. The exercise, conversion or exchange of convertible securities, including for other securities, will dilute the percentage ownership of the Company’s stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect the Company’s ability to obtain additional capital. As of December 31, 2020 and 2019, the Company was in compliance with all covenant requirements and there were no events of default. All notes payable are subordinated to the short term loan and line of credit. PPP loans On April 10, 2020, TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc., was granted a loan from JPMorgan Chase Bank, N.A. in the aggregate amount of $0.4 million, pursuant to the PPP under Division A, Title I of the CARES Act (the “TruPet PPP Loan”). The loan matures on April 6, 2022, and bears interest at a rate of 0.98% per annum, payable monthly commencing on November 6, 2020. As of December 31, 2020, the TruPet PPP loan outstanding was $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 matures on May 3, 2022 and bears interest at a rate of 1.00% per annum, with interest and principal payable monthly, commencing on November 1, 2020. As of December 31, 2020, the Halo PPP Loan outstanding was $0.4 million. Under the terms of the PPP, certain amounts of the loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company has used the entire loan amounts for qualifying expenses. The Company recorded interest expense related to its outstanding indebtedness of $9.2 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively. Fair Value The fair value of the November 2019, Senior Seller Notes and Junior Seller Notes, ABG Notes and June 2020 Notes were approximately $2.5 million, $9.0 million, $4.5 million, $0.5 million, and $1.3 million, respectively, as of December 31, 2020. Fair value was determined by applying the income approach using a discounted cash flow model which primarily uses unobservable inputs (Level 3). The carrying amounts of the Company’s short term loan and PPP loans approximates fair value due to its short term nature. The carrying amount for the Company’s line of credit approximates fair value as the instrument has a variable interest rate that approximates market rates. Note 11 – Warrants The following illustrates the Company's outstanding warrants to purchase shares of the Company's common stock as of and for the years ending December 31, 2020 and 2019: Warrants acquired on May 6, 2019 | | | 712,823 | | | $3.90 | Issued | | | 17,414,030 | | | $3.27 | Exercised | | | (1,144,999) | | | $3.50 | Warrants outstanding as of December 31, 2019 | | | 16,981,854 | | | $3.23 | Issued | | | 49,928,469 | | | $0.77 | Exercised | | | (1,937,690) | | | $0.58 | Terminated/Expired | | | (5,470,655) | | | $3.07 | Warrants outstanding as of December 31, 2020 | | | 59,501,978 | | | $1.22 |
TABLE OF CONTENTS The intrinsic value of outstanding warrants was $23.8 million and $12.2 million as of December 31, 2020 and 2019, respectively. The following discussion provides details on the various types of outstanding warrants and the related relevant disclosures around each type. Warrant Derivative Liability In connection with the May Acquisitions, the Company acquired 712,823 warrants with a weighted average exercise price of $3.90 (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 1,003,232 warrants on March 17, 2020 to certain of its warrant holders at an exercise price of $1.62 and modified the exercise price of the existing May Acquisitions Warrants to $1.62. 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 1,990,624 warrants to certain of its warrant holders at an exercise price of $0.75 and modified the exercise price of the existing warrants to $0.75. 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 $0.65 per share. As such, the Company issued an additional 570,258 warrants to certain of its warrant holders at an exercise price of $0.65. During the fourth quarter of 2020, holders exercised a total 1,687,690 warrants for which the Company issued shares of common stock. During December 2020, 2,512,321 of these warrants expired and an immaterial amount remained outstanding as of December 31, 2020, all of which expired during January 2021. The warrants are valued based on future assumptions and, as the reset triggers were known events on December 31, 2020 and 2019, the Company included the triggers in the valuations performed during the periods ended December 31, 2020 and 2019. The following schedules show the fair value of the warrant derivative liability as of December 31, 2020 and 2019, and the change in fair value during the years ended December 31, 2020 and 2019 (in thousands): Assumption of warrants in May Acquisitions | | | $2,130 | Change in fair value of warrant derivative liability | | | 90 | Balance as of December 31, 2019 | | | $2,220 | Change in fair value of warrant derivative liability | | | (2,220) | Balance as of December 31, 2020 | | | $— |
Series F Warrant Liability During October 2020, the Company issued 43,403,130 warrants in connection with the Series F insider-led equity financing with an exercise price of $0.75. The warrants are exercisable on the date of issuance and expire 72 months after the date of issuance. These warrants include a reset feature if the Company issues common stock, options, or convertible securities with a strike price below the exercise price of the warrants. 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. See “Note 13 − Redeemable convertible preferred stock” for more information on Series F. The Company calculated 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, 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 Series F Additional Paid-in Capital. TABLE OF CONTENTS The following schedule shows the fair value of the warrant liability upon issuance and the change in fair value during the year ended December 31, 2020 (in thousands): Issuance of Series F warrants | | | $14,952 | Change in fair value of warrant liability | | | 24,898 | Balance as of December 31, 2020 | | | $39,850 |
The following schedule shows the inputs used to measure the fair value of the warrant liability as of December 31, 2020: Stock price | | | $1.27 | Exercise price | | | $0.75 | Expected remaining term (in years) | | | 5.75 – 5.81 | Volatility | | | 67.5% | Risk-free interest rate | | | 0.5% |
The valuation of the warrants is 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 as part of the PIPE, the Company issued 5,744,991 warrants with an exercise price of $4.25. Additionally, in connection with the PIPE transaction, the Company issued 220,539 warrants to brokers with an exercise price of $3.00. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO. On November 4, 2019, the Company issued 11,000 warrants in connection with the November 2019 Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. On December 19, 2019, the Company issued 937,500 warrants in connection with the Seller Notes. The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO. The warrants carried an initial exercise price equal to the greater of (i) $5.00 per share or (ii) the price at which the common stock of the Company was sold in the IPO. On June 24, 2020, the warrants related to the November 2019 Notes and Seller Notes were amended in connection with the issuance of the June 2020 Notes to lower the maximum exercise price applicable to these warrants from $5.00 to $4.25 per share. The decrease in the exercise price resulted in an increase to the fair value of the warrants of $0.1 million which the Company recognized in general and administrative expense. On December 19, 2019 the Company issued 6,500,000 warrants with an exercise price of $1.82 in conjunction with the short term loan (the “Guarantor Warrants”). The warrants are exercisable on the date of issuance and expire 24 months from the date of the consummation of a future IPO. The Guarantor Warrants had a fair value of $4.2 million on the date of issuance. On June 24, 2020, the Company issued 1,000,000 warrants with an exercise price of $1.25 per share in connection with the June 2020 Notes (the “June 2020 Warrants”), which were exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company issued 300,000 warrants with an exercise price of $1.05 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 were exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. TABLE OF CONTENTS Warrants Issued as Compensation On September 17, 2019, a Company advisor was issued 2,500,000 warrants with an exercise price of $0.10 and 1,500,000 warrants with an exercise price of $10.00. The warrants were exercisable as follows: 1,250,000 of the warrants with the $0.10 exercise price (the “Tranche 1 Warrants”) were exercisable on the earlier of the twelve-month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company; the remaining 1,250,000 of the warrants with the $0.10 exercise price (the “Tranche 2 Warrants”) and the 1,500,000 warrants with the $10.00 exercise price (the “Tranche 3 Warrants”) were exercisable on the earlier of the eighteen-month anniversary of the issuance date or immediately prior to a change in control subject to the advisor’s continued service to the Company. On June 1, 2020, the Company entered into a termination agreement (the “Termination Agreement”) with the advisor. Pursuant to the terms of the Termination Agreement, the Tranche 1 Warrants were amended to reduce the number of shares of common stock purchasable thereunder to 1,041,666 shares, and the Tranche 2 Warrants and Tranche 3 Warrants were cancelled. The Tranche 1 Warrants (as amended pursuant to the Termination Agreement) were fully vested as of the date of the termination of the agreement and will remain exercisable until September 17, 2029. Furthermore, if the Company engages in any restricted business line as defined in the Termination Agreement, the Company will issue to the former advisor additional shares of common stock based on formulas intended to compensate the former advisor for the warrants that were reduced or terminated. In connection with the Termination Agreement, the Company recorded expense of $5.7 million during the year ended December 31, 2020 in general and administrative expense. On June 24, 2020, the Company issued 1,000,000 warrants with an exercise price of $1.25 per share to two non-employee directors, which were exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. On July 20, 2020, the Company issued 200,000 warrants two non-employee directors at a price of $1.05 per share (the “July 2020 Director Warrants”), which were exercisable on the date of issuance and expire on the earlier of (i) 84 months from the date of the consummation of an underwritten public offering or other up-list transaction or (ii) June 30, 2030. The warrants issued to 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 400,000 warrants to a third-party for services with an exercise price of $1.00 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 12 – Commitments and contingencies Commitments We have entered into leases (see “Note 8 – Operating leases”), a royalty contract termination (see “Note 9 − Intangible assets, royalties, and goodwill”) and debt instruments (see “Note 10 – Debt”), including a line of credit, subordinated convertible notes and a short term loan for which we are committed to pay certain amounts over a period of time. The Company had no material purchase obligations as of December 31, 2020 or 2019. Contingencies 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. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. 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 consolidated statements of operations and comprehensive loss. We do not accrue for contingent losses that are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed. 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 TABLE OF CONTENTS 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 13 – Redeemable convertible preferred stock On May 6, 2019, the Company acquired 2,633,678 outstanding shares of Series E, which represented an element of the purchase price and were recorded at fair value (on an as converted into common stock basis) based on the $6.00 per share closing price of Better Choice Company’s shares of common stock as they remained outstanding after the reverse acquisitions discussed in “Note 2 − Acquisitions” above. The Series E had a stated value of $0.99 per share and was convertible to common stock at a price of $0.78 per share. On May 10, 2019 and May 13, 2019, holders of the Company’s Series E converted 689,394 and 236,364 preferred shares into 875,000 and 300,000 shares of the Company’s common stock, respectively. On November 21, 2019, holders of the Company’s Series E converted 320,542 preferred shares into 406,841 shares of the Company’s common 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 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 consists of: (i) one 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 $0.50; and (iii)(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 $0.75. Pursuant to the valueSeries 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 and directors of the Seller Warrants. BTTR also (i)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 Subscription Agreementregistration rights agreement, (the “Registration Rights Agreement”) and as amended by a certain first amendment to the Registration Rights Agreement”), dated October 29,2020, pursuant to which the Company filed a registration statement with the Sellers relatingSEC on December 9, 2020 along with and amendment 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 conjunction with money received for 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 Consolidated Balance Sheets. On October 2, 2020, the Company entered into an amendment to its Facilities Agreement to permit the Company to use a portion of the net proceeds of the Series F Private Placement to make a partial repayment of the outstanding term loan thereunder. See “Note 10 − Debt” for additional information. On October 12, 2020 and October 23, 2020, the Company issued 1,106 and 2,832 Series F Units, respectively, in conjunction 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 TABLE OF CONTENTS 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 Consolidated Balance Sheets limited to the proceeds amount allocated to the instrument. The rights, preferences and privileges of Series F are as follows: Ranking Except to the extent the holders of the Series F Preferred Stock consent to the creation of a class of equity securities ranking senior to, or pari passu with, the Series F Preferred Stock, the Series F Preferred Stock shall rank senior to all shares of capital stock of the Company with respect to preferences as to dividends, distributions and payments upon liquidation, dissolution or winding up of the Company. Voting As to matters submitted to the holders of the Common Stock, each holder of the Series F Preferred Stock will be entitled to such number of votes equal to the number of shares of Common stock issuable upon conversion of such holder’s Series F Preferred Stock and shall vote, or provide consent, together with the Common Stock as if they were a single class. The holders of the Series F Preferred Stock shall vote as a separate class on matter affecting the terms of the Series F Preferred Stock, such as the authorization of a class of equity securities ranking senior to, or pari passu with, the Series F Preferred Stock. Dividends Holders of Series F Preferred Stock will not be entitled to receive dividends except to the extent that dividends are declared on the Series F Preferred Stock by the Company in its sole discretion or declared and made by the Company to holders of the Common Stock. In addition, if the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then each holder of Series F Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Series F Preferred Stock (without taking into account any limitations or restrictions on the convertibility of the Series F Preferred Stock) held by such holder. Liquidation If the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of Series F Preferred Stock shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders, before any amount shall be paid to the holders of any of shares of Common Stock or other capital stock of the Company ranking junior to the Series F Preferred Stock, an amount per share of Series F Preferred Stock equal to the sum of $1,000 (subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the initial issuance date with respect to the Series F Preferred Stock, the “Stated Value”)) plus any accrued and unpaid dividends and late charges (such sum, the “Conversion Amount”). The rights of holders of Series F Preferred Stock to receive their liquidation preference also will be subject to the proportionate rights of capital stock, if any, ranking senior to or in parity with the Series F Preferred Stock as to liquidation. Conversion Subject to certain beneficial ownership limitations contained in the Certificate of Designations, holders of the Series F Preferred Stock shall be entitled to convert each share of outstanding Series F Preferred Stock held by such holder into such number of validly issued, fully paid and non-assessable shares of Common Stock equal to the Conversion Amount of such share of Series F Preferred Stock divided by $0.50 (subject to adjustment, the “Conversion Price”). Redemption Each share of Series F Preferred Stock not previously converted into shares of Common Stock shall automatically, without any further action by the holders of such Series F Preferred Stock, be converted into such number of fully paid and non-assessable shares of Common Stock determined by dividing the Stated Value of such share of Series F TABLE OF CONTENTS Preferred Stock by the then applicable Conversion Price upon the closing of a firm commitment underwritten public offering of shares of Common Stock which results in the Common Stock being traded on any of The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market or any successor market thereto. Any such conversion shall be subject to the beneficial ownership limitations set forth in the Certificate of Designations. Anti-dilution Holders of the Series F Preferred Stock are entitled to a “full rachet” anti-dilution adjustment to the Conversion Price in the event the Company issues, sells or grants any shares of Common Stock (or securities convertible, exercisable or exchangeable for Common Stock) for no consideration or for consideration or purchase price per share (or, in the case of securities convertible, exercisable or exchangeable for Common Stock, with a conversion, exercise or exchange price) less than the Conversion Price then in effect. Note 14 – Stockholders’ deficit As a result of the reverse acquisition of Better Choice Company and Bona Vida by TruPet in May 2019, the historical TruPet members' equity (units and incentive units) have been re-cast to reflect the equivalent Better Choice common stock for all periods presented after the transaction. Prior to the transaction in May 2019, TruPet was a limited liability company, and as such, the concept of authorized shares was not relevant. A summary of equity transactions for the years ended December 31, 2020 and 2019 are presented below: In December 2018, the Company completed a private placement and issued 2,391,403 Series A Preferred Stock to unrelated parties for $2.17 per share. The proceeds were approximately $4.7 million, net of $0.5 million of issuance costs. Additionally, on February 12, 2019, the Company issued 69,115 Series A Preferred Units in a private placement at $2.17 per unit. The proceeds were approximately $0.2 million, net of share issuance costs. On May 6, 2019, all Series A Preferred Shares were converted to 2,460,518 shares of common stock. On May 6, 2019, the Company acquired 1,011,748 shares of common stock valued at $6.1 million representing its initial 7% investment in TruPet. These shares were recorded as an acquisition of treasury shares. Also on May 6, 2019, Better Choice Company issued 18,103,273 shares of its common stock in exchange for all outstanding shares of Bona Vida. On May 6, 2019, the Company issued 5,744,991 million units for gross proceeds of $3.00 per unit in a PIPE transaction. Each unit included one share of common stock and a warrant to purchase an additional share. The funds raised from the PIPE were used to fund the operations of the combined company. Net proceeds of $15.7 million were received in the private placement, allocable between shares of common stock and warrants. Pursuant to the employment agreement of an officer with Bona Vida dated October 29, 2018, the officer was entitled to a $500,000 change of control payment. The officer later agreed to receive 100,000 shares of Better Choice Company common stock. The 100,000 shares of common stock were valued at $6.00 per share, which was the market value as of the date of the May Acquisitions. On August 28, 2019, the Company issued 1,000,000 shares of Common Stock valued at $3.4 million to iHeartMedia for future advertising to be incurred from August 2019 to August 2021. Refer to “Note 5 − Prepaid expenses and other current assets” for more information. At the closing of the Halo acquisition in December 2019, Better Choice Company issued 2,134,390 shares of the Company’s common stock valued at $1.82 per share, which was the market value as of the date of the Halo Acquisition. On January 2, 2020, the Company issued 308,642 shares of common stock to an investor for net proceeds of $0.5 million, net of issuance costs of $0.1 million. On January 13, 2020, the Company issued 72,720 shares of common stock to ABG in connection with the termination of a licensing agreement discussed in “Note 9 − Intangible assets, royalties, and goodwill”. On March 5, 2020, December 1, 2020, December 8 and December 22, 2020, the Company issued 125,000 shares, 35,000 shares, 500,000 shares 500,000 shares of common stock, respectively, for advertising services and marketing services. TABLE OF CONTENTS On December 2, 2020, the Company issued 96,000 shares of common stock in connection with conversion of Series F Preferred Stock. During the year ended December 31, 2020, the Company issued 1,837,690 shares of Common Stock in connection with warrant exercises. The Company has reserved common stock for future issuance as follows: Conversion of Series E | | | — | | | 1,760,903 | Conversion of Series F | | | 43,507,130 | | | — | Exercise of options to purchase common stock | | | 7,815,442 | | | 7,791,833 | Warrants to purchase common stock | | | 59,501,978 | | | 16,981,854 | Notes payable | | | 7,530,232 | | | 4,437,500 | Total | | | 118,354,782 | | | 30,972,090 |
Note 15 – Share-based compensation During the period from November 1, 2018 through May 5, 2019, incentive units for the equivalent of 1.3 million shares were awarded to employees and consultants. The incentive units were measured at fair value on the date of each respective award with a weighted average value per equivalent share of $2.47. The awards were to vest over a period of two to three years. On May 6, 2019, all outstanding incentive unit awards issued prior to May 6, 2019 immediately vested. As a result of the immediate vesting of these incentive units, share-based compensation expense equal to $2.2 million was recorded in the consolidated statements of operations and comprehensive loss on May 6, 2019. On May 6, 2019, the Company acquired the Better Choice Company Inc. 2019 Incentive Award Plan (the “2019 Plan”) which became effective as of April 29, 2019. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash-based awards or a dividend equivalent award (each an “Award”). Non-employee directors of the Company and employees and consultants of the Company or any of its subsidiaries are eligible to receive awards under the 2019 Plan. The 2019 Plan authorizes the issuance of the(i) 6,000,000 shares of common stock Consideration,plus (ii) issued convertible subordinated seller notes (“Seller Notes”),an annual increase on the first day of each calendar year beginning on January 1, 2020 and (iii) issued Seller Warrantsending 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. On November 11, 2019, the Company received shareholder approval for the Amended and Restated 2019 Incentive Award Plan (the “Amended 2019 Plan”). Under the Amended 2019 Plan, the number of option awards available for issuance increased from 6,000,000 to 9,000,000 on December 19, 2019. Stock options Effective as of December 19, 2019, the Board repriced all outstanding options under the Amended 2019 Plan As a result, the exercise price of all outstanding vested and unvested options was lowered to $1.82 per share, the closing price of the Company’s common stock on December 19, 2019. No other terms of the option agreements were changed. The change in exercise price of the outstanding options caused an increase in fair value of all vested options at date of repricing of $0.6 million which was expensed by the Company. The change in exercise price also caused an increase in fair value of all unvested options at date of repricing of $0.8 million. Effective October 1, 2020, outstanding stock option awards held by current employees as of October 1, 2020 were repriced concurrent with the closing of the Series F Private Placement. In total, 6,077,731 stock options were repriced. The exercise price was set at a 20% premium to the Series F Preferred Stock conversion price, or $0.60 per share. The change in exercise price of the outstanding options caused an increase in fair value of all vested options at date of repricing of $0.2 million which was expensed by the Company. The change in exercise price also caused an increase in fair value of all unvested options at date of repricing of $0.2 million. TABLE OF CONTENTS The following table provides detail of the options granted and outstanding (dollars in thousands): Options outstanding as of December 31, 2019 | | | 7,791,833 | | | $1.85 | | | 9.5 | | | $— | Granted | | | 1,050,000 | | | $0.86 | | | | | | | Forfeited/Expired | | | (1,026,391) | | | $(1.62) | | | | | | | Options outstanding as of December 31, 2020 | | | 7,815,442 | | | $0.80 | | | 8.6 | | | $4,246 | | | | | | | | | | | | | | Options exercisable as of December 31, 2020 | | | 5,684,467 | | | $0.83 | | | 8.3 | | | $3,094 |
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 a ten-year anniversary of the grant date (or such earlier date described in the applicable award agreement). During the years ended December 31, 2020 and 2019, $7.5 million and $10.3 million, respectively, of share-based compensation expense was recognized related to options issued. As of December 31, 2020, unrecognized share-based compensation related to options was $2.7 million. The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model, using the following assumptions primarily based on historical data: Risk-free interest rate | | | 0.33 − 0.89% | | | 1.49 − 2.39% | Expected volatility(1) | | | 67.50% | | | 63.00% | Expected dividend yield | | | —% | | | —% | Expected life (years)(2) | | | 3.0 - 6.5 | | | 3.0 - 6.5 |
(1)
| Expected volatility was determined using a combination of historical volatility and implied volatility. |
(2)
| For certain options, the simplified method is utilized to determine the expected life due to the lack of historical data. |
Restricted stock In March 2020, the Company issued 450,000 shares of restricted common stock to three non-employee directors in return for services provided in their capacity as directors and issued 5,956 restricted shares of common stock to an officer of the Company. The restricted shares were immediately vested and as such, the Company recorded share-based compensation expense of $0.5 million upon issuance. Note 16 – Employee benefit plans The Company maintained two qualified defined contribution 401(k) plans, which covered substantially all of our employees. Under the plans, participants are entitled to make pre-tax and/or Roth post-tax contributions up to the annual maximums established by the Internal Revenue Service. The Company matches participant contributions pursuant to the terms of the plans, which contributions are limited to a percentage of the participant’s eligible compensation. The Company made contributions related to the plans and recognized expense of less than $0.2 million during the year ended December 31, 2020 and $0.1 million for the year ended December 31, 2019. Note 17 – Related party transactions Management services During the year ended December 31, 2019, the company paid $0.2 million for management services provided by an entity owned by a member of the board of directors. Marketing services A company controlled by a member of the board of directors provides online traffic acquisition marketing services for the Company. The Company incurred immaterial amounts for their services during the year ended December 31, TABLE OF CONTENTS 2020. During the year ended December 31, 2019, the Company incurred $0.2 million for their services. The service contract has a 30-day termination clause. As of December 31, 2020, the Company had no outstanding balance and as of December 31, 2019 the outstanding balance was $0.1 million, included in Accounts Payable in the Consolidated Balance Sheets. Notes payable The Company issued $1.4 million of subordinated convertible notes to a member of the board of directors during the year ended December 31, 2019, and $0.8 million of subordinated convertible notes to the same director during June 2020. The notes remain outstanding as of December 31, 2020. Interest related to the subordinated convertible notes was $0.2 million and less than $0.1 million for the years ended December 31, 2020 and 2019, respectively. Halo transaction bonus and notes payable The Company issued $0.1 million of subordinated convertible notes to an executive in satisfaction of a transaction bonus as per his employment agreement upon the close of the Halo Acquisition in December 2019. These convertible notes are outstanding as of December 31, 2020 and December 31, 2019. Guarantor warrants The Company issued a total of 6,500,000 warrants to three members of the board of directors as consideration for the Shareholder Guaranties related to the short term loan during the year ended December 31, 2019. The 6,500,000 warrants had a fair market value of $4.2 million as of the date of issuance. On June 24, 2020, the Company issued a total of 2,000,000 warrants to three members of the board of directors in connection with the June 2020 Notes. On July 20, 2020, the Company issued a total of 500,000 warrants to three members of the board of directors in connection with the ABC Facility. See “Note 11 − Warrants” for additional information. Note 18 – Income taxes For the years ended December 31, 2020 and 2019, the Company recorded no current or deferred income tax expense. The Company’s effective tax rate of 0% differs from the United States federal statutory rate of 21% primarily because the Company’s losses have been fully offset by a valuation allowance due to uncertainty as to the realization of the tax benefit of net operating losses (“NOLs”) for the years ended December 31, 2020 and 2019. The following table is a reconciliation of the components that caused our provision for income taxes to differ from amounts computed by applying the United States federal statutory rate of 21% (in thousands): Statutory U.S. Federal income tax | | | $(12,482) | | | 21.0% | | | $(38,760) | | | 21.0% | State income taxes, net | | | (1,720) | | | 2.9% | | | (818) | | | 0.4% | LLC income not taxed | | | — | | | —% | | | 2,376 | | | (1.3%) | Loss on acquisitions | | | — | | | —% | | | 29,051 | | | (15.7%) | Change in valuation allowance | | | 8,811 | | | (14.8%) | | | 7,892 | | | (4.3%) | Warrant valuation | | | 4,763 | | | (8.0)% | | | 19 | | | —% | Tax effect of non-deductible warrant expense | | | 2,000 | | | (3.4)% | | | — | | | —% | Return to provision adjustment | | | (1,571) | | | 2.6% | | | — | | | —% | Other | | | 199 | | | (0.3)% | | | 240 | | | 0.1% | Total provision | | | $— | | | 0% | | | $— | | | 0% |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. TABLE OF CONTENTS Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands): Deferred income tax assets:
| | | | | | | Net operating loss carryforwards | | | $11,185 | | | $8,503 | ROU assets | | | 81 | | | — | Share-based compensation | | | 5,728 | | | 2,493 | Inventory | | | 212 | | | — | Other assets | | | 2,595 | | | 301 | Gross deferred tax assets | | | 19,801 | | | 11,297 | Valuation allowance | | | (16,724) | | | (7,913) | Net deferred tax assets | | | $3,077 | | | $3,384 | Deferred income tax liabilities:
| | | | | | | Inventory | | | — | | | (137) | Operating lease liabilities | | | (79) | | | — | Intangibles | | | (2,998) | | | (3,247) | Deferred tax assets, net of valuation allowance | | | $— | | | $— |
As of December 31, 2020, the Company had a deferred tax asset (before valuation allowance) recorded on gross federal and state net operating loss carryforwards of approximately $44.0 million and $42.5 million, respectively. The net operating losses will begin to expire in 2027. The Internal Revenue Code, as amended (“IRC”), imposes restrictions on the utilization of NOLs and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change NOLs may be limited as prescribed under IRC Section 382. Events which may cause limitation in the amount of the NOLs and credits that can be utilized annually include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Under ASC 805, “Business Combinations”, an acquirer should recognize, and measure deferred taxes arising from assets acquired and liabilities assumed in a business combination in accordance with ASC 740. The 2019 financial statement loss includes losses that will not result in future deferred tax assets and therefore these losses are excluded. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets in the future. A significant piece of objective negative evidence evaluated was the cumulative loss incurred through the years ended December 31, 2020 and 2019. Such objective evidence limits the ability to consider other subjective positive evidence such as current year taxable income and future income projections. On the basis of this evaluation, as of December 31, 2020, a valuation allowance of $16.7 million was recorded since it is more likely than not that the deferred tax assets will not be realized. Changes in valuation allowance are as follows (in thousands): Valuation allowance, at beginning of year | | | $7,913 | | | $— | Increase in valuation allowance | | | 8,811 | | | 7,892 | Halo Acquisition | | | — | | | 21 | Valuation allowance, at end of year | | | $16,724 | | | $7,913 |
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company does not expect the impact to be material. TABLE OF CONTENTS As of December 31, 2020 and 2019, the Company had no accrued interest and penalties related to uncertain income tax positions. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. As of December 31, 2020 and 2019, the Company does not have any significant uncertain tax positions. If incurred, the Company would classify interest and penalties on uncertain tax positions as income tax expense. The Company is subject to taxation in the United States federal and various state jurisdictions. The Company is not currently under audit by any taxing authorities. The Company remains open to examination by tax jurisdictions for tax years beginning with the 2017 tax year for Federal and 2016 for states. Federal and state net operating losses are subject to review by taxing authorities in the year utilized. For the period ended May 6, 2019, the Company was a limited liability company, taxed as a partnership. Thus, all of the Company’s income and losses flowed through to the owners. The company converted to a C-corporation, subject to income tax on May 6, 2019, the date of the May Acquisitions. Note 19 – Concentrations Major Suppliers The Company sourced approximately 76% of its inventory receipts from three vendors for the year ended December 31, 2020. The Company sourced approximately 74% of its inventory receipts from one vendor for the year ended December 31, 2019. Major Customers Accounts receivable from two customers represented 72% of accounts receivable as of December 31, 2020. Accounts receivable from one customer represented 44% of accounts receivable as of December 31, 2019. Two customers represented 38% of gross sales for the year ended December 31, 2020. None of the Company’s customers represented greater than 10% of gross sales for the year ended December 31, 2019. Credit Risk At December 31, 2020 and 2019, the Company’s cash and cash equivalents were deposited in accounts at several 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 20 – Net loss per share Basic and diluted net loss per share attributable to common stockholders is presented using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares. Basic and diluted net loss per share is calculated by dividing net and comprehensive loss attributable to common stockholders by the weighted-average shares outstanding during the period. For the years ended December 31, 2020 and 2019, the Company’s basic and diluted net and comprehensive loss per share attributable to common stockholders are the same, because the Company has generated a net loss to common stockholders and common stock equivalents are excluded from diluted net loss per share as they have an antidilutive impact. TABLE OF CONTENTS The following table sets forth basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2020 and 2019 (in thousands, except share and per share amounts): Numerator:
| | | | | | | Net and comprehensive loss | | | $(59,335) | | | $(184,462) | Less: Preferred stock dividends | | | 103 | | | 109 | Add: Adjustment due to gain on Series E Exchange | | | (5,415) | | | — | Less: Adjustment due to BCF of Series F Shares | | | 5,349 | | | — | Net and comprehensive loss available to common stockholders | | | $(59,372) | | | $(184,571) | Denominator:
| | | | | | | Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted | | | 49,084,432 | | | 33,238,600 | Net loss per share attributable to common stockholders, basic and diluted | | | $(1.21) | | | $(5.55) |
Note 21 – Subsequent events Old Plank Term Loan and Revolving Line of Credit On January 6, 2021, the Company 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. The proceeds of this credit facility were used (i) to repay a portion of principal, interest and fees outstanding under the Company’s existing term loan and the ABL Facility with Citizens Business Bank and (ii) for general corporate purposes. The remaining principal, interest, and fees outstanding after the pay down using funds from this credit facility was paid using cash from the balance sheet. The Wintrust agreement subjects 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 is operating cash flow, defined as EBITDA less cash paid for unfinanced capital expenditures, income taxes and dividends. The denominator is fixed charges such as interest expense and principal payments paid or payable on other indebtedness. Issuance of Common Stock and Warrants The Company consummated a private placement of common stock units on January 22, 2021 (the “January 2021 Private Placement”) in which we raised approximately $4.1 million, including an investment by certain of our officers and directors of approximately $1.6 million. Each common stock unit was sold at a per unit price of $1.25 and consisted of (i) one share of the Company’s common stock, par value $0.001 per share; and (ii) a warrant to purchase for a six year period one share of common stock at an exercise price per share of $1.45, subject to beneficial ownership imitations (the “January 2021 Warrants”). Pursuant to the January 2021 Private Placement, the Company raised approximately $3.1 million in gross cash proceeds, and $1.0 million in gross cash proceeds received by the Company upon the declaration of effectiveness of the February 2021 registration statement. The proceeds will be used to pay expenses related to the offering and for general corporate purposes. In connection with the January 2021 Private Placement, we entered into a registration rights agreement (the “January 2021 Registration Rights Agreement”). March 2021 Warrant Raise In March 2021, the Company offered to certain of its warrant holders the opportunity to exercise, in full or in part, their warrants to purchase shares of Common Stock at a reduced exercise price and receive shares of Common Stock (the “Warrant Exercise Offer”). The Warrant Exercise Offer was made to a limited number of holders of warrants issued with an exercise price of $4.25 per share, and participating holders were entitled to exercise their warrants for $1.25 per share. The Company received exercise notices for a total of 1,047,609 warrants, resulting in the Company’s receipt of approximately $1.3 million. Stock Options During the first quarter of 2021, the Company granted 5,479,000 stock option awards under the Amended 2019 Plan. TABLE OF CONTENTS Up to 87,462,6734,500,000 Shares
Common Stock PROSPECTUS D.A. Davidson & Co. Roth Capital Partners , 2020 Better Choice Company Inc.
Through and including , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in the listing, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.2021
TABLE OF CONTENTS PART II
INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13.
| OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. |
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, all of which will be paid by us. All of the amounts are estimated except for the Securities and Exchange Commission (“SEC”) registration fee, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filing fee and the exchange listing fee. SEC registration fee | | | $9,255.91[] | Exchange listing fee | | | $N/A[] | Legal fees and expenses | | | $75,000[] | Accounting fees and expenses | | | $75,000[] | Printing expenses | | | $30,000[] | Transfer agent and registrar fees | | | $10,000 | Blue sky fees and expenses
| | | $N/A[]
| FINRA filing fees | | | $N/A[] | Miscellaneous | | | $[25,000] | Total | | | $224,255.91[] |
ITEM 14.
| INDEMNIFICATION OF DIRECTORS AND OFFICERS |
Article 10 of the registrant’s certificate of incorporation (the “Certificate of Incorporation”) limits the liability of the registrant’s directors for monetary damages for breach of their fiduciary duty as directors, except to the extent such exemption or limitation thereof is not permitted under the Delaware General Corporation Law (the “DGCL”) and applicable law. Delaware law provides that such a provision may not limit the liability of directors: for any breach of their duty of loyalty to the corporation or its stockholders; for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; for unlawful payment of dividend or unlawful stock repurchase or redemption, as provided under Section 174 of the DGCL; or for any transaction from which the director derived an improper personal benefit. The limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies, such as injunctive relief or rescission. Article 11 of the Certificate of Incorporation states that the registrant shall indemnify, to the fullest extent permitted by applicable law, any person who is a party or is threatened to be made a party to any action, suit or proceeding authorized by the registrant’s board of directors by reason of the fact that such person is or was a director or executive officer of the registrant or is or was serving at the request of the registrant. Article 11 of the Certificate of Incorporation also requires the registrant to pay any expenses incurred by any director or executive officer in defending against any such action, suit or proceeding in advance of the final disposition of such matter to the fullest extent permitted by law, subject to the receipt of an undertaking by or on behalf of such person to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified as authorized by the Certificate of Incorporation or otherwise. Article 11 of the Certificate of Incorporation permits the registrant to purchase and maintain director or officer liability insurance. The registrant has entered into indemnification agreements with its directors and officers. Subject to certain limited exceptions, under these agreements, the registrant will be obligated, to the fullest extent not prohibited by the DGCL, to indemnify such directors and officers against all expenses, judgments, fines and penalties incurred in connection TABLE OF CONTENTS
with the defense or settlement of any actions brought against them by reason of the fact that they were directors or officers of the registrant. The registrant also maintains liability insurance for its directors and officers in order to limit its exposure to liability for indemnification of such persons. TABLE OF CONTENTS ITEM 15.
| RECENT SALES OF UNREGISTERED SECURITIES |
Since January 1, 2016,2018, the registrant made the following issuances of its unregistered securities as described below. All share amounts have been retroactively adjusted to give effect to the reverse stock split of 26-for-1 of the registrant’s common stock effected on March 15, 2019. The information provided below does not give effect to the proposed reverse stock split of 1-for-6 described in the accompanying prospectus. (1)
| On May 11, 2016, the registrant issued 200,000 shares of common stock, valued at $360,000 as commitment shares to convertible note holders of the registrant. These shares were issued at fair value based on the market price at issuance of $1.80 per share. |
(2)
| On May 11, 2016, the registrant issued senior secured convertible promissory notes to an investor in the principal amount of $440,000 with an original issue discount of 3.5% (the “3.5% OID Convertible Notes”). |
(3)
| On December 28, 2016, the registrant issued an investor of the registrant 35,000 shares of common stock as partial consideration for entering into a forbearance agreement with respect to debt held by such investor. |
(4)
| In January 2017 and February 2017, the registrant entered into restructuring agreements with holders of its 3.5% OID Convertible Notes. Pursuant to these agreements, the registrant agreed to issue new notes (the “January and February 2017 Convertible Notes”) for the amounts due under the 3.5% OID Convertible Notes; penalties, fees, and accrued interest in the aggregate amount of $212,702 would be added to the principal amount due under the January and February 2017 Convertible Notes; 35,000 shares of common stock were issued as a commitment fee. |
(5)
| On May 2, 2017, the registrant issued 208,333 shares of common stock, for the conversion of $15,000 of principal and $10,000 of accrued interest of convertible notes payable. |
(6)
| On June 2, 2017, the registrant issued 208,333 shares of common stock as consideration for the conversion of $25,000 of principal of convertible notes. |
(7)
| On November 17, 2017, the registrant issued a senior secured convertible note to an investor in the principal amount of $250,000 with an original issue discount of 3.5% and received gross proceeds of $241,250. |
(8)
| On January 29, 2018, the registrant issued 998,540 shares of common stock in exchange for the conversion of $28,148 of principal and $1,808 of accrued interest of convertible notes payable. |
(9)
| On February 15, 2018, the registrant issued (i) senior secured convertible promissory notes to an investor in the amount of $250,000 with an original issue discount of 3.5% and (ii) 500,000 five-year warrants to purchase the registrant’s common stock, exercisable at $0.01 per share, and received gross proceeds of $241,250. |
(10)
| On March 14, 2018, a subsidiary of the registrant issued (i) a 10% original issue discount senior secured convertible note in the principal amount of $5,500,000 and (ii) 25,000,000 five-year warrants to purchase the registrant’s common stock, exercisable at $0.01 per share, and received $5,000,000 of bitcoin valued as of such date. |
(11)
| On March 19, 2018, the registrant issued (i) a senior secured convertible note to an investor in the principal amount of $777,202 with an original issue discount of 3.5% and (ii) 1,554,405 five-year warrants to purchase the registrant’s common stock, exercisable at $0.01 per share, and received gross proceeds of $750,000. |
(12)
| On October 22, 2018, the registrant issued 2,846,356 shares of Series E Convertible Preferred Stock to existing holders of the registrant’s securities in exchange for the cancellation of all outstanding secured promissory notes, 803,969.73 shares of Series B Convertible Preferred Stock and 12,054,405 of the registrant’s outstanding warrants. The shares of Series E Convertible Preferred Stock were issued and sold in reliance upon the exemption from registration contained in Section 3(a)(9) of the Securities Act. |
TABLE OF CONTENTS
(13)(2)
| On December 12, 2018, the registrant issued 1,425,641 units to new investors, with each unit consisting of (i) one share of our common stock and (ii) a warrant to purchase one half of a share of common stock. The units were offered at a fixed price of $1.95 per unit for gross proceeds of approximately $2.7$2.8 million. |
(14)(3)
| On December 21, 2018, the registrant issued certain directors and employees stock options to purchase 38,462 shares of the registrant’s common stock. The stock options have an exercise price of $6.76 per share. |
(15)(4)
| In connection with the acquisition of Bona Vida, Inc., on May 6, 2019, the registrant issued an aggregate of 18,003,27318,103,273 shares of common stock to new investors and certain of our directors and executive officers in exchange for all outstanding shares of common stock of Bona Vida, Inc. |
(16)(5)
| In connection with the acquisition of TruPet LLC, on May 6, 2019, the registrant issued an aggregate of 15,027,533 shares of common stock to new investors and certain of our directors and executive officers in exchange for all remaining outstanding membership interests of TruPet LLC. |
(17)(6)
| On May 6, 2019, the registrant issued an aggregate of 5,744,991 shares of common stock and 5,744,991 warrants at an offering price of $3.00 per share to new investors and certain of our directors. The warrants have an exercise price of $4.25 per share. |
(18)(7)
| On May 6, 2019, the registrant issued certain directors and employees stock options to purchase 5,520,0005,250,000 shares of the registrant’s common stock. The stock options have an exercise price of $5.00 per share. |
(19)(8)
| On August 28, 2019, the registrant issued an aggregate of 1,000,000 shares of common stock at a price per share of $5.00 to an affiliate of iHeartMedia + Entertainment, Inc. (“iHeart”) as consideration for iHeart’s provision of advertising inventory with an aggregate value of $5.0 million. |
(20)(9)
| On September 17, 2019, the registrant issued Bruce Linton (i) 2,500,000 share purchase warrants, with each warrant entitling Mr. Linton to acquire one share of common stock at a price of $0.10 per share and (ii) an additional 1,500,000 share purchase warrants entitling Mr. Linton to acquire one share of common stock at a price of $10.00 per share as consideration for Mr. Linton’s services as a special advisor to our Chief Executive Officer, other senior executives and our board of directors. |
(21)(10)
| On November 11, 2019, the registrant issued subordinated convertible notes and warrants to one of our directors and an investor in an aggregate principal amount of $2,750,000. |
(22)(11)
| On December 19, 2019, the registrant issued a total of 2,134,390 shares of common stock, 937,500 warrants and an aggregate amount of $15,000,000 of convertible subordinated notes as consideration to the former stockholders of Halo as part of the Halo Acquisition. |
(23)(12)
| On December 19, 2019, the registrant issued a total of 6,500,000 warrants to certain of our directors as consideration for the shareholder guaranty in connection with the Halo Acquisition. |
(25)(13)
| On January 2, 2020, the registrant issued 308,642 shares of common stock to an investor for net proceeds of $0.5 million, net of issuance costs of less than $0.1 million. |
(26)(14)
| On January 13, 2020 and January 20, 2020, respectively, the registrant issued 72,720 shares of common stock and 61,224 common stock warrants to a third party in connection with a contract termination. |
TABLE OF CONTENTS (27)(15)
| On March 3, 2020, the registrant issued 450,000 shares of restricted common stock to three nonemployee directors in return for services provided in their capacity as directors. |
(28)(16)
| On March 5, 2020, the registrant issued 125,000 shares of common stock to an affiliate of iHeartMedia Entertainment, Inc. (“iHeart”) for future advertising to be incurred through August 2021 . |
(29)(17)
| On March 17, 2020, the registrant issued an additional 1,003,232 warrants to holders of warrants acquired on May 6, 2019 due to dilutive impact of subsequent issuances. |
(30)(18)
| On March 30, 2020, the registrant issued 5,956 restricted shares of common stock to an officer of the Company. |
TABLE OF CONTENTS
(31)(19)
| On June 24, 2020, the registrant issued an aggregate principal amount of $1.5 million subordinated convertible promissory notes and 1,000,000 warrants to one of our directors and one of our shareholders. The subordinated convertible promissory notes are convertible at a conversion price of $0.75 per share and the warrants have an exercise price of $1.25 per share. |
(32)(20)
| On June 24, 2020, the registrant issued 1,000,000 warrants to two of our directors. The warrants have an exercise price of $1.25 per share. |
(33)(21)
| On June 24, 2020, the registrant issued an additional 1,990,624 warrants to holders of warrants acquired on May 6, 2019 due to dilutive impact of subsequent issuances. |
(22)
| On July 20, 2020, the registrant issued a total of 300,000 common stock purchase warrants to certain of our directors as consideration for the shareholder guaranty in connection with the Citizens ABL Agreement. The warrants are exercisable at a price equal to $1.05 per share. |
(34)(23)
| On July 20, 2020, the registrant issued a total of 200,000 common stock purchase warrants to certain of our directors. The warrants are exercisable at a price equal to $1.05 per share. |
(35)
| On September 18, 2020, the registrant issued an additional 570,258 warrants to holders of warrants acquired on May 6, 2019 due to dilutive impact of subsequent issuances. |
(24)
| On October 1, 2020, October 12, 2020 and October 23, 2020, the registrant issued (i) 17,763.550 shares, 1,106.015 shares and 2,832 shares, respectively, of Series F Preferred Stock and (ii) 35,527,100 warrants, 2,212,030 warrants, 5,664,000 warrants, respectively, to acquire shares of registrant’s common stock. The Series F Preferred Stock and related warrants were issued as units, with each (i) share of Series F Preferred Stock having a Stated Value of $1,000 and is convertible into shares of registrant’s common stock at a price of $.50 per share and (ii) related warrant being exercisable to acquire such number of shares of common stock as the related share of Series F Preferred Stock is convertible into with an exercise price of $.75 per share of common stock. |
(36)(25)
| On October 23, 2020, the registrant issued (i) a total of 100 shares of Series F Preferred Stock and (ii) 200,000 warrants to acquire shares of registrant’s common stock, each in connection with a marketing agreement. The Series F Preferred Stock and related warrants were issued as units, with each (i) share of Series F Preferred Stock havinghas a Stated Value of $1,000 and is convertible into shares of registrant’s common stock at a price of $.50 per share. |
(26)
| On November 30, 2020, the registrant issued (i) 400,000 warrants to acquire shares of the registrant’s common stock to a third-party as consideration for services. |
(27)
| On December 8, 2020 the registrant issued 500,000 restricted shares of the registrant’s common stock to a third-party as consideration for services. |
(28)
| On December 22, 2020, the registrant issued 500,000 restricted shares of the registrant’s common stock to a third-party as consideration for services. |
(29)
| On January 22, 2021, the registrant issued (i) a total of 2,488,400 shares of common stock and (ii) 2,488,400 shares of common stock purchase warrants to acquire shares of registrant’s common stock. The common stock and related warrants were issued as units, with each (i) share of common stock having a par value of $.001 and (ii) related warrant being exercisable to acquire suchthe same number of shares common stock issued, at an exercise price of $1.45 per share of common stock. The Company received a $1.0 million commitment for the purchase of 800,000 common shares and 800,000 common stock purchase warrants that were executed upon the declaration of effectiveness of the related registration statement. |
TABLE OF CONTENTS (30)
| On February 1, 2021, the registrant issued (i) 97,222 shares of common stock asin connection with a separation agreement between Mr. Santarsiero and the related share of Series F Preferred Stock is convertible into with an exercise price of $.75 per shareCompany. |
(31)
| On February 2, 2021, the registrant issued (i) 30,000 shares of common stock.stock to a third-party as consideration for services. |
Unless otherwise stated above, the issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701.thereunder. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions. TABLE OF CONTENTS ITEM 16.
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Exhibits EXHIBIT INDEX | | | Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc. and Bona Vida, Inc. | | | 8-K | | | 333-161943 | | | 2.1 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019 | | | 8-K | | | 333-161943 | | | 2.2 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC | | | 8-K | | | 333-161943 | | | 2.3 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC, dated May 6, 2019 | | | 8-K | | | 333-161943 | | | 2.4 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Amended and Restated Stock Purchase Agreement, dated December 18, 2019, by and among the Company, Halo, Purely For Pets, Inc., Thriving Paws, LLC and HH-Halo LP | | | 8-K | | | 333-161943 | | | 2.1 | | | 12/26/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Incorporation, dated January 1, 2019 | | | 10-Q | | | 333-161943 | | | 3.1 | | | 04/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Amendment to Certificate of Incorporation, dated February 1, 2019 | | | 10-Q | | | 333-161943 | | | 3.2 | | | 04/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Amendment to Certificate of Incorporation, dated March 13, 2019 | | | 8-K | | | 333-161943 | | | 3.1 | | | 03/20/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Amendment to Certificate of Incorporation, dated April 18, 2019 | | | 10-KT | | | 333-161943 | | | 3.5 | | | 07/25/2019 | | | | | | | | | | | | | | | | | | | | | | |
| | | Form of Underwriting Agreement | | | | | | | | | | | | | | | | Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc. and Bona Vida, Inc. | | | 8-K | | | 333-161943 | | | 2.1 | | | 05/10/2019 | | | | First Amendment to Agreement and Plan of Merger, dated February 28, 2019, by and among the Company, BBC Merger Sub, Inc., and Bona Vida, Inc., dated May 3, 2019 | | | 8-K | | | 333-161943 | | | 2.2 | | | 05/10/2019 | | | | Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC | | | 8-K | | | 333-161943 | | | 2.3 | | | 05/10/2019 | | | | First Amendment to Securities Exchange Agreement, dated February 2, 2019, by and among the Company, TruPet LLC and the members of TruPet LLC, dated May 6, 2019 | | | 8-K | | | 333-161943 | | | 2.4 | | | 05/10/2019 | | | | Amended and Restated Stock Purchase Agreement, dated December 18, 2019, by and among the Company, Halo, Purely For Pets, Inc., Thriving Paws, LLC and HH-Halo LP | | | 8-K | | | 333-161943 | | | 2.1 | | | 12/26/2019 | | | | Certificate of Incorporation, filed January 4, 2019 | | | 10-Q | | | 333-161943 | | | 3.1 | | | 04/15/2019 | | | | Certificate of Amendment to Certificate of Incorporation, filed February 5, 2019 | | | 10-Q | | | 333-161943 | | | 3.2 | | | 04/15/2019 | | | | Certificate of Amendment to Certificate of Incorporation, filed March 14, 2019 | | | 8-K | | | 333-161943 | | | 3.1 | | | 03/20/2019 | | | | Certificate of Amendment to Certificate of Incorporation, filed April 22, 2019 | | | 10-KT | | | 333-161943 | | | 3.5 | | | 07/25/2019 | | | | Certificate of Amendment to Certificate of Incorporation, filed July 31, 2020 | | | 8-K | | | 333-161943 | | | 99.1 | | | 07/30/2020 | | | | Certificate of Merger of Sport Endurance, Inc. with and into the Company | | | 10-Q | | | 333-161943 | | | 3.4 | | | 04/15/2019 | | | | Bylaws | | | 10-Q | | | 333-161943 | | | 3.5 | | | 04/15/2019 | | | | Amended and Restated Certificate of Designation for Series E Convertible Preferred Stock | | | 8-K | | | 333-161943 | | | 3.1 | | | 05/23/2019 | | | | Certificate of Cancellation of the Amended and Restated Certificate of Designation Preference and Rights of the for Series E Convertible Preferred Stock | | | | | | | | | | | | | | | | Certificate of Designation for Series F Convertible Preferred Stock | | | 8-K | | | 333-161943 | | | 3.1 | | | 10/02/2020 | | | | Form of Common Stock Purchase Warrant in connection with the May 2019 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 04/30/2019 | | | | Form of Tranche 1 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Registrant and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.1 | | | 09/23/2019 | | | | Form of Tranche 2 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.2 | | | 09/23/2019 |
TABLE OF CONTENTS | | | Certificate of Amendment to Certificate of Incorporation, dated July 30, 2020 | | | 8-K | | | 333-161943 | | | 99.1 | | | 07/30/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Merger of Sport Endurance, Inc. with and into the Company | | | 10-Q | | | 333-161943 | | | 3.4 | | | 04/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Bylaws | | | 10-Q | | | 333-161943 | | | 3.5 | | | 04/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Amended and Restated Certificate of Designation for Series E Convertible Preferred Stock | | | 8-K | | | 333-161943 | | | 3.1 | | | 05/23/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Certificate of Designation for Series F Convertible Preferred Stock | | | 8-K | | | 333-161943 | | | 3.1 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant in connection with the May 2019 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 04/30/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Tranche 1 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Registrant and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.1 | | | 09/23/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Tranche 2 Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.2 | | | 09/23/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Additional Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.3 | | | 09/23/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subordinated Convertible Promissory Note in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 11/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.2 | | | 11/15/2019 | | | | | | | | | | | | | | | | | | | | | | |
| | | Form of Additional Common Stock Purchase Warrant, dated September 17, 2019, by and between the Company and Bruce Linton | | | 8-K | | | 333-161943 | | | 4.3 | | | 09/23/2019 | | | | Form of Subordinated Convertible Promissory Note in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 11/15/2019 | | | | Form of Common Stock Purchase Warrant in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.2 | | | 11/15/2019 | | | | Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers | | | 10-Q | | | 333-161943 | | | 10.6 | | | 01/31/2020 | | | | Form of Subordinated Convertible Promissory Note, dated December 19, 2019, by and among the Company and the Halo Sellers listed on the signature pages thereto | | | 10-Q | | | 333-161943 | | | 4.7 | | | 01/31/2020 | | | | Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers | | | 10-Q | | | 333-161943 | | | 4.8 | | | 01/31/2020 | | | | Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors | | | 10-Q | | | 333-161943 | | | 4.10 | | | 01/31/2020 | | | | Form of Common Stock Purchase Warrant Agreement in connection with the December 2018 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 12/13/2018 | | | | Registration Rights Agreement, dated May 6, 2019, by and among the Company and the persons listed on the signature pages thereto in connection with the May 2019 private placement | | | S-1 | | | 333-234349 | | | 10.2 | | | 10/28/2019 | | | | First Amendment, dated June 10, 2019, to Registration Rights Agreement, dated May 6, 2019, by and among the Company and the stockholders party thereto | | | S-1 | | | 333-234349 | | | 10.3 | | | 10/28/2019 | | | | Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 04/30/2019 | | | | Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former stockholders of Bona Vida listed on the signature pages thereto | | | 8-K | | | 333-161943 | | | 4.1 | | | 05/10/2019 | | | | Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former member of TruPet listed on the signature pages thereto | | | 8-K | | | 333-161943 | | | 4.2 | | | 05/10/2019 | | | | Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.3 | | | 11/15/2019 | | | | Form of Subscription Agreement in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 11/15/2019 | | | | Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan | | | 10-K | | | 333-161943 | | | 10.19 | | | 05/04/2020 |
TABLE OF CONTENTS | | | Form of Subordinated Convertible Promissory Note, dated December 19, 2019, by and among the Company and the Halo Sellers listed on the signature pages thereto | | | 10-Q | | | 333-161943 | | | 4.7 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Halo Sellers | | | 10-Q | | | 333-161943 | | | 4.8 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant, dated December 19, 2019, by and among the Company and the Shareholder Personal Guarantors | | | 10-Q | | | 333-161943 | | | 4.10 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant Agreement in connection with the December 2018 private placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 12/13/2018 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Common Stock Purchase Warrant in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.11 | | | 06/25/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subordinated Convertible Promissory Note in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.12 | | | 06/25/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subscription Agreement in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.13 | | | 06/25/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Amendment to November 2019 Notes, Seller Notes and ABG Notes | | | 10-Q | | | 333-161943 | | | 4.15 | | | 08/14/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of July 2020 Common Stock Purchase Warrants | | | 8-K | | | 333-161943 | | | 10.5 | | | 07/21/2020 | | | | | | | | | | | | | | | | | | | | | | |
| | | Form of 2019 Incentive Award Plan Stock Option Agreement | | | S-1 | | | 333-234349 | | | 10.7 | | | 10/28/2019 | | | | Form of Common Stock Purchase Warrant in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.11 | | | 06/25/2020 | | | | Form of Subordinated Convertible Promissory Note in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.12 | | | 06/25/2020 | | | | Form of Subscription Agreement in connection with the June 2020 private placement. | | | 10-Q | | | 333-161943 | | | 4.13 | | | 06/25/2020 | | | | 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 | | | | Form of Amendment to November 2019 Notes, Seller Notes and ABG Notes | | | 10-Q | | | 333-161943 | | | 4.15 | | | 08/14/2020 | | | | Form of July 2020 Common Stock Purchase Warrants | | | 8-K | | | 333-161943 | | | 10.5 | | | 07/21/2020 | | | | Form of Warrant in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 10/02/2020 | | | | Form of Securities Purchase Agreement in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 10/02/2020 | | | | Form of Registration Rights Agreement in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 10.2 | | | 10/02/2020 | | | | Exchange Agreement by and between the Company and Cavalry Fund LP dated September 30, 2020 | | | 8-K | | | 333-161943 | | | 10.3 | | | 10/02/2020 | | | | 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 | | | | Form of warrant in connection with the January 2021 Private Placement | | | S-1/A | | | 333-251241 | | | 4.22 | | | 02/16/2021 | | | | Form of Securities Purchase Agreement in connection with the January 2021 Private Placement | | | S-1/A | | | 333-251241 | | | 4.23 | | | 02/16/2021 | | | | Form of Registration Rights Agreement in connection with the January 2021 Private Placement | | | S-1/A | | | 333-251241 | | | 4.24 | | | 02/16/2021 | | | | Opinion of Meister Seelig & Fein LLP | | | | | | | | | | | | | | | | Form of Indemnification Agreement by and among the Company and its officers and directors | | | S-1 | | | 333-234349 | | | 10.8 | | | 10/28/2019 | | | | Employment Agreement, dated February 1, 2019, for David Lelong | | | 8-K | | | 333-161943 | | | 10.1 | | | 02/07/2019 | | | | Employment Agreement, dated as of May 6, 2019, by and between the Company and Damian Dalla-Longa | | | 10-Q | | | 333-161943 | | | 10.6 | | | 10/09/2019 | | | | Resignation Letter from Damian Dalla-Longa, dated February 5, 2020 | | | 8-K | | | 333-161943 | | | 10.3 | | | 02/11/2020 | | | | Amendment to Employment Agreement, dated February 10, 2020, by and between Damian Dalla-Longa and the Company | | | 8-K | | | 333-161943 | | | 10.4 | | | 02/11/2020 | | | | Employment Agreement, dated as of May 6, 2019, by and between the Company and Lori Taylor | | | 10-Q | | | 333-161943 | | | 10.7 | | | 10/09/2019 | | | | Separation Agreement, dated as of September 13, 2019, by and between the Company and Lori Taylor | | | 10-K | | | 333-161943 | | | 10.28 | | | 05/04/2020 |
TABLE OF CONTENTS | | | Form of Warrant in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 4.1 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Opinion of Meister Seelig & Fein, LLP | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | Loan Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank | | | 8-K | | | 333-161943 | | | 10.1 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Security Agreement dated May 6, 2019, between the Company and Franklin Synergy Bank | | | 8-K | | | 333-161943 | | | 10.2 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Guaranty Agreement, dated April 8, 2019, by TruPet LLC in favor of Franklin Synergy Bank | | | S-1 | | | 333-234349 | | | 10.17 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Revolving Line of Credit Promissory Note dated 2019 | | | 8-K | | | 333-161943 | | | 10.3 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Guaranty Agreement, dated April 8, 2019, by Bona Vida, Inc. in favor of Franklin Synergy Bank | | | S-1 | | | 333-234349 | | | 10.16 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Loan Facilities Credit Letter Agreement, dated December 19, 2019, by and among the Better Choice Company Inc., Halo, Purely for Pets, Inc., Bona Vida Inc., TruPet LLC and Bridging Finance Inc., as agent. | | | 10-Q | | | 333-161943 | | | 10.1 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Pledge and Security Agreement, dated December 19, 2019, by and among the Company, Halo, Purely or Pets, Inc., Bona Vida, Inc., TruPet LLC and Bridging Finance Inc., as Administrative Agent | | | 10-Q | | | 333-161943 | | | 10.2 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing Guaranty of Halo, Purely for Pets, Inc., Bona Vida Inc., TruPet LLC, dated December 19, 2019 | | | 10-Q | | | 333-161943 | | | 10.3 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subscription Agreement, dated December 19, 2019, by and among the Company and the Halo Sellers | | | 10-Q | | | 333-161943 | | | 10.6 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | |
| | | Employment Agreement, dated May 6, 2019, by and among the Company and Anthony Santarsiero | | | S-1 | | | 333-234349 | | | 10.11 | | | 10/28/2019 | | | | Employment Agreement, dated June 29, 2019, by and among the Company and Andreas Schulmeyer | | | S-1 | | | 333-234349 | | | 10.12 | | | 10/28/2019 | | | | Employment Agreement, dated December 19, 2019, by and between the Company, Werner von Pein, and Halo | | | 8-K | | | 333-161943 | | | 10.1 | | | 02/11/2020 | | | | Amendment to Employment Agreement, dated February 10, 2020, by and between Werner von Pein and the Company | | | 8-K | | | 333-161943 | | | 10.2 | | | 02/11/2020 | | | | Employment Agreement, dated October 8, 2020, by and between Sharla Cook and the Company | | | 10-K | | | 333-161943 | | | 10.12 | | | 03/30/2021 | | | | Employment Agreement, dated September 27, 2020, by and between Robert Sauermann and the Company | | | 10-K | | | 333-161943 | | | 10.13 | | | 03/30/2021 | | | | Employment Agreement, dated January 1, 2021, by and between Donald Young and the Company | | | 10-K | | | 333-161943 | | | 10.14 | | | 03/30/2021 | | | | Separation and Retirement Agreement, Dated December 28, 2020 by and between Werner von Pein and the Company | | | 8-K/A | | | 333-161943 | | | 10.1 | | | 01/05/2021 | | | | Employment Agreement, Dated December 28, 2020 by and between Scott Lerner and the Company | | | 8-K/A | | | 333-161943 | | | 10.2 | | | 01/05/2021 | | | | 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 | | | 01/11/2021 | | | | Revolving Promissory Note, dated as of January 6, 2021, issued by Halo in favor of Lender | | | 8-K | | | 333-161943 | | | 10.2 | | | 01/11/2021 | | | | Term Note A, dated as of January 6, 2021, issued by Halo in favor of Lender | | | 8-K | | | 333-161943 | | | 10.3 | | | 01/11/2021 | | | | 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 | | | 01/11/2021 | | | | 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 | | | 01/11/2021 | | | | 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 | | | | Collateral Pledge Agreement, dated as of January 6, 2021, executed and delivered by John M. Word, III in favor of Lender | | | 8-K | | | 333-161943 | | | 10.7 | | | 01/11/2021 | | | | Agreement effective as of February 23, 2021 by and between Emerging Media Consulting, a Florida limited liability company, and Better Choice Company, Inc. | | | 8-K | | | 333-161943 | | | 10.1 | | | 02/18/2021 |
TABLE OF CONTENTS | | | Continuing Personal Guaranty of John Word, Lori Taylor and Michael Young, dated December 19, 2019 | | | 10-Q | | | 333-161943 | | | 10.4 | | | 01/31/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Registration Rights Agreement, dated May 6, 2019, by and among the Company and the persons listed on the signature pages thereto in connection with the May 2019 private placement | | | S-1 | | | 333-234349 | | | 10.2 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | First Amendment, dated June 10, 2019, to Registration Rights Agreement, dated May 6, 2019, by and among the Company and the stockholders party thereto | | | S-1 | | | 333-234349 | | | 10.3 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subscription Agreement dated April 25, 2019 in connection with the May 2019 private placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 04/30/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former stockholders of Bona Vida listed on the signature pages thereto | | | 8-K | | | 333-161943 | | | 4.1 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Registration Rights Agreement, dated as of May 6, 2019, by and among Better Choice Company Inc. and the former member of TruPet listed on the signature pages thereto | | | 8-K | | | 333-161943 | | | 4.2 | | | 05/10/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Registration Rights Agreement by and among the Company and the persons listed on the signature pages thereto in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 4.3 | | | 11/15/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Subscription Agreement in connection with the November 2019 private placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 11/15/2019 | | | | | | | | | | | | | | | | | | | | | | |
TABLE OF CONTENTS
| | | Business Loan Agreement, dated as of July 16, 2020, by and among the Company, Halo, TruPet, Bona Vida (the “Credit Parties”), and Citizens Bank | | | 8-K | | | 333-161943 | | | 10.1 | | | 07/21/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Promissory Note, dated as of July 16, 2020, issued by the Credit Parties in favor of Citizens Bank | | | 8-K | | | 333-161943 | | | 10.2 | | | 07/21/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Security Agreement, dated as of July 16, 2020, by and among the Credit Parties and Citizens Bank | | | 8-K | | | 333-161943 | | | 10.3 | | | 07/21/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Guaranty, dated as of July 16, 2020, by and between Citizens Bank and John M. Word, III | | | 8-K | | | 333-161943 | | | 10.4 | | | 07/21/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Better Choice Company Inc. Amended and Restated 2019 Incentive Award Plan | | | 10-K | | | 333-161943 | | | 10.19 | | | 05/04/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of 2019 Incentive Aware Plan Stock Option Agreement | | | S-1 | | | 333-234349 | | | 10.7 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Indemnification Agreement by and among the Company and its officers and directors | | | S-1 | | | 333-234349 | | | 10.8 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Independent Contractor Agreement, dated September 17, 2019, by and between the Company and Bruce Linton | | | 8-K | | | 333-161943 | | | 10.1 | | | 09/23/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated February 1, 2019, for David Lelong | | | 8-K | | | 333-161943 | | | 10.1 | | | 02/07/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated as of May 6, 2019, by and between the Company and Damian Dalla-Longa | | | 10-Q | | | 333-161943 | | | 10.6 | | | 10/09/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Resignation Letter from Damian Dalla-Longa, dated February 5, 2020 | | | 8-K | | | 333-161943 | | | 10.3 | | | 02/11/2020 | | | | | | | | | | | | | | | | | | | | | | |
TABLE OF CONTENTS
| | | Amendment to Employment Agreement, dated February 10, 2020, by and between Damian Dalla-Longa and the Company | | | 8-K | | | 333-161943 | | | 10.4 | | | 02/11/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated as of May 6, 2019, by and between the Company and Lori Taylor | | | 10-Q | | | 333-161943 | | | 10.7 | | | 10/09/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Separation Agreement, dated as of September 13, 2019, by and between the Company and Lori Taylor | | | 10-K | | | 333-161943 | | | 10.28 | | | 05/04/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated May 6, 2019, by and among the Company and Anthony Santarsiero | | | S-1 | | | 333-234349 | | | 10.11 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated June 29, 2019, by and among the Company and Andreas Schulmeyer | | | S-1 | | | 333-234349 | | | 10.12 | | | 10/28/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Employment Agreement, dated December 19, 2019, by and between the Company, Werner von Pein, and Halo | | | 8-K | | | 333-161943 | | | 10.1 | | | 02/11/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Amendment to Employment Agreement, dated February 10, 2020, by and between Werner von Pein and the Company | | | 8-K | | | 333-161943 | | | 10.2 | | | 02/11/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Securities Purchase Agreement in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 10.1 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Form of Registration Rights Agreement in connection with the October 2020 Series F Private Placement | | | 8-K | | | 333-161943 | | | 10.2 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Exchange Agreement by and between the Company and Cavalry Fund LP dated September 30, 2020 | | | 8-K | | | 333-161943 | | | 10.3 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | |
TABLE OF CONTENTS
| | | Limited Consent and Second Amendment to Loan Facilities Letter Agreement by and among the Company, Halo, Purely for Pets, Inc., a Delaware corporation, TruPet LLC, a Delaware limited liability company, Bona Vida, Inc., a Delaware corporation, and the lenders party thereto | | | 8-K | | | 333-161943 | | | 10.4 | | | 10/02/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | Subsidiaries of the Company | | | 10-K | | | 333-161943 | | | 21.1 | | | 5/4/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, relating to the Financial Statements of the Company | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | Consent of MNP LLP, Independent Registered Public Accounting Firm, relating to the Financial Statements of Bona Vida, Inc. and TruPet LLC | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | Consent of Warren Averett, LLC, Independent Registered Public Accounting Firm, relating to the Financial Statements of Halo, Purely for Pets, Inc. | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | Consent of Meister Seelig & Fein LLP (included in Exhibit 5.1) | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | Power of Attorney | | | S-1 | | | 333-234349 | | | (included on the signature page) | | | | | | * | | | | | | | | | | | | | | | | | | | | 101.INS | | | iXBRL Instance Document | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | 101.SCH | | | iXBRL Taxonomy Extension Schema Document | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | | 101.CAL | | | iXBRL Taxonomy Extension Calculation Document | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | | | | | | |
TABLE OF CONTENTS
101.DEF
| | | iXBRL Taxonomy Extension Definition Linkbase Document
| | | | | | | | | | | | | | | *
| | | | | | | | | | | | | | | | | | | | 101.LAB
| | | iXBRL Taxonomy Extension Labels Linkbase Document
| | | | | | | | | | | | | | | *
| | | | | | | | | | | | | | | | | | | | 101.PRE
| | | iXBRL Taxonomy Extension Presentation Link Document
| | | | | | | | | | | | | | | *
| | | | | | | | | | | | | | | | | | | | 104
| | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
| | | | | | | | | | | | | | | *
|
| | | Terms and Conditions for Winning Media LLC effective as of February 17, 2021 by and between Winning Media LLC and Better Choice Company, Inc. | | | 8-K | | | 333-161943 | | | 10.2 | | | 02/18/2021 | | | | Subsidiaries of the Company | | | S-1 | | | 333-256405 | | | 21.1 | | | 5/21/2021 | | | | Consent of Ernst & Young LLP | | | | | | | | | | | | | | | | Power of Attorney (set forth on the signature page to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on May 21, 2021) | | | S-1 | | | 333-256405 | | | 21.1 | | | 5/21/2021 | 101 | | | The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2020 formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes, tagged as blocks of text and including detailed tags. | | | | | | | | | | | | |
†
| Indicates a management contract or any compensatory plan, contract or arrangement. |
#
| Certain schedules and similar attachments to this agreement have been omitted in accordance with Item 601(b)(5) of Regulation S-K. The Company will furnish copies of any schedules or similar attachments to the SEC upon request. |
***
| Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and would likely cause competitive harm to the registrant if publicly disclosed.Filed or furnished herewith. |
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because they are not required, are not applicable or the information is included in the financial statements or notes thereto.
(a)
| The undersigned registrant hereby undertakes: |
(1)
| To file, during any periodundertakes to provide to the underwriters at the closing specified in which offers or issuances are being made, a post-effective amendment to this registration statement: |
(i)
| To include any prospectusthe underwriting agreement certificates in such denominations and registered in such names as required by Section 10(a)(3) of the Securities Act;underwriters to permit prompt delivery to each purchaser. |
(ii)
| To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
(iii)
| To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(2)
| That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
(3)
| To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and |
(4)
| That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after |
TABLE OF CONTENTS
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(b)
| Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Better Choice Company Inc. pursuant to the foregoing provisions, or otherwise, Better Choice Company Inc. has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Better Choice Company Inc. of expenses incurred or paid by a director, officer or controlling person of Better Choice Company Inc. in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Better Choice Company Inc. will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
(c)
| The undersigned hereby further undertakes that: |
(1)
| For purposes of determining any liability under the Securities Act the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by Better Choice Company Inc. pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2)
| For the purpose of determining any liability under the Securities Act each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3)
| For the purpose of determining any liability under the Securities Act, each filing of Better Choice Company Inc.’s annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
TABLE OF CONTENTS Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statementAmendment No. 1 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in Oldsmar,the City of Tampa, State of Florida, on December 9, 2020.June 16, 2021. | | | BETTER CHOICE COMPANY INC. | | | | | | | | | | | By: | | | /s/ Werner von PeinScott Lerner | | | | | | | Werner von PeinScott Lerner
| | | | | | | Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sharla A. Cook his/her true and lawful attorney-in-fact, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all amendments including pre- and post-effective amendments to this registration statement, any subsequent registration statement for the same offering which may be filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his/her substitute, each acting alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statementAmendment No. 1 to the Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated. | | | | | | | /s/ Werner von PeinScott Lerner | | | Chief Executive Officer
(Principal Executive Officer) | | | December 9, 2020June 16, 2021
| Werner von PeinScott Lerner
| | | | | | | | | | | /s/ Sharla A. Cook | | | Chief Financial Officer
(Principal Financial and Accounting Officer) | | | December 9, 2020June 16, 2021
| Sharla A. Cook | | | | | | | | | | | /s/ Michael Close*
| | | Director | | | December 9, 2020
| Michael Close
| | | | | | | | | | | /s/ Damian Dalla-Longa
| | | Director
| | | December 9, 2020
| Damian Dalla-Longa
| | | | | | | | | | | | | | /s/ Jeff D. Davis
| | | Director
| | | December 9, 2020June 16, 2021
| Jeff D. Davis | | | | | | | | | | | | | | /s/ Clinton Gee*
| | | Director | | | December 9, 2020June 16, 2021
| Clinton GeeGil Fronzaglia
| | | | | | | | | | | | | | /s/ Lori Taylor*
| | | Director | | | December 9, 2020June 16, 2021
| Lori Taylor | | | | | | | | | | | ��� | | | /s/ John M. Word III*
| | | Director | | | December 9, 2020June 16, 2021
| John M. Word III | | | | | | | | | | | | | | /s/ Michael Young*
| | | Director | | | December 9, 2020June 16, 2021
| Michael Young | | | | | | | | | | | | | | *By Sharla A. Cook as attorney-in-fact | | | | | | | | | | | | | | /s/ Sharla A. Cook | | | | | | | Sharla A. Cook | | | | | | |
|
|