000147172712-31false2022Q3P2Y00014717272022-01-012022-09-3000014717272022-11-08xbrli:shares00014717272022-07-012022-09-30iso4217:USD00014717272021-07-012021-09-3000014717272021-01-012021-09-30iso4217:USDxbrli:shares00014717272022-09-3000014717272021-12-310001471727us-gaap:CommonStockMember2021-12-310001471727us-gaap:AdditionalPaidInCapitalMember2021-12-310001471727us-gaap:RetainedEarningsMember2021-12-310001471727us-gaap:CommonStockMember2022-01-012022-03-310001471727us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-3100014717272022-01-012022-03-310001471727us-gaap:RetainedEarningsMember2022-01-012022-03-310001471727us-gaap:CommonStockMember2022-03-310001471727us-gaap:AdditionalPaidInCapitalMember2022-03-310001471727us-gaap:RetainedEarningsMember2022-03-3100014717272022-03-310001471727us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-3000014717272022-04-012022-06-300001471727us-gaap:RetainedEarningsMember2022-04-012022-06-300001471727us-gaap:CommonStockMember2022-06-300001471727us-gaap:AdditionalPaidInCapitalMember2022-06-300001471727us-gaap:RetainedEarningsMember2022-06-3000014717272022-06-300001471727us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-300001471727us-gaap:RetainedEarningsMember2022-07-012022-09-300001471727us-gaap:CommonStockMember2022-09-300001471727us-gaap:AdditionalPaidInCapitalMember2022-09-300001471727us-gaap:RetainedEarningsMember2022-09-300001471727us-gaap:CommonStockMember2020-12-310001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2020-12-310001471727us-gaap:AdditionalPaidInCapitalMember2020-12-310001471727us-gaap:RetainedEarningsMember2020-12-3100014717272020-12-310001471727us-gaap:CommonStockMember2021-01-012021-03-310001471727us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100014717272021-01-012021-03-310001471727us-gaap:RetainedEarningsMember2021-01-012021-03-310001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-01-012021-03-310001471727us-gaap:CommonStockMember2021-03-310001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-03-310001471727us-gaap:AdditionalPaidInCapitalMember2021-03-310001471727us-gaap:RetainedEarningsMember2021-03-3100014717272021-03-310001471727us-gaap:CommonStockMember2021-04-012021-06-300001471727us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-3000014717272021-04-012021-06-300001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-04-012021-06-300001471727us-gaap:RetainedEarningsMember2021-04-012021-06-300001471727us-gaap:CommonStockMember2021-06-300001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-06-300001471727us-gaap:AdditionalPaidInCapitalMember2021-06-300001471727us-gaap:RetainedEarningsMember2021-06-3000014717272021-06-300001471727us-gaap:CommonStockMember2021-07-012021-09-300001471727us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-07-012021-09-300001471727us-gaap:RetainedEarningsMember2021-07-012021-09-300001471727us-gaap:CommonStockMember2021-09-300001471727us-gaap:SeriesFPreferredStockMemberus-gaap:PreferredStockMember2021-09-300001471727us-gaap:AdditionalPaidInCapitalMember2021-09-300001471727us-gaap:RetainedEarningsMember2021-09-3000014717272021-09-300001471727bttr:IHeartMediaMember2022-01-012022-09-300001471727bttr:IHeartMediaMember2022-07-012022-09-300001471727bttr:IHeartMediaMember2021-07-012021-09-300001471727bttr:IHeartMediaMember2021-01-012021-09-3000014717272022-05-10bttr:channel0001471727bttr:ECommerceMember2022-07-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2022-07-012022-09-30xbrli:pure0001471727bttr:ECommerceMember2021-07-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2021-07-012021-09-300001471727bttr:ECommerceMember2022-01-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727bttr:ECommerceMember2021-01-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2021-01-012021-09-300001471727bttr:BrickAndMortarMember2022-07-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:BrickAndMortarMemberus-gaap:RevenueFromContractWithCustomerMember2022-07-012022-09-300001471727bttr:BrickAndMortarMember2021-07-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:BrickAndMortarMemberus-gaap:RevenueFromContractWithCustomerMember2021-07-012021-09-300001471727bttr:BrickAndMortarMember2022-01-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:BrickAndMortarMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727bttr:BrickAndMortarMember2021-01-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:BrickAndMortarMemberus-gaap:RevenueFromContractWithCustomerMember2021-01-012021-09-300001471727bttr:DirectToConsumerMember2022-07-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:DirectToConsumerMemberus-gaap:RevenueFromContractWithCustomerMember2022-07-012022-09-300001471727bttr:DirectToConsumerMember2021-07-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:DirectToConsumerMemberus-gaap:RevenueFromContractWithCustomerMember2021-07-012021-09-300001471727bttr:DirectToConsumerMember2022-01-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:DirectToConsumerMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727bttr:DirectToConsumerMember2021-01-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberbttr:DirectToConsumerMemberus-gaap:RevenueFromContractWithCustomerMember2021-01-012021-09-300001471727bttr:InternationalMember2022-07-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2022-07-012022-09-300001471727bttr:InternationalMember2021-07-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2021-07-012021-09-300001471727bttr:InternationalMember2022-01-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2022-01-012022-09-300001471727bttr:InternationalMember2021-01-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2021-01-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2022-07-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2021-07-012021-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727bttr:SalesChannelConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMember2021-01-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2022-07-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMember2022-07-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2021-07-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMemberus-gaap:RevenueFromContractWithCustomerMember2021-01-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMember2021-07-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:TwoCustomersMemberbttr:ECommerceMember2021-01-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:BrickAndMortarMemberbttr:OneCustomerMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:BrickAndMortarMemberbttr:OneCustomerMemberus-gaap:RevenueFromContractWithCustomerMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2022-07-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberbttr:InternationalMember2022-07-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberbttr:InternationalMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2021-07-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberus-gaap:RevenueFromContractWithCustomerMemberbttr:InternationalMember2021-01-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberbttr:InternationalMember2021-07-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:OneCustomerMemberbttr:InternationalMember2021-01-012021-09-300001471727us-gaap:CommonStockMemberbttr:IHeartMediaMember2019-08-282019-08-280001471727us-gaap:CommonStockMemberbttr:IHeartMediaMember2020-03-052020-03-0500014717272021-01-012021-12-310001471727us-gaap:CustomerRelationshipsMember2022-01-012022-09-300001471727us-gaap:CustomerRelationshipsMember2021-12-310001471727us-gaap:CustomerRelationshipsMember2022-09-300001471727us-gaap:TradeNamesMember2022-01-012022-09-300001471727us-gaap:TradeNamesMember2021-12-310001471727us-gaap:TradeNamesMember2022-09-300001471727srt:WeightedAverageMember2022-01-012022-09-300001471727bttr:TermLoanMember2022-09-300001471727bttr:TermLoanMember2021-12-310001471727us-gaap:LineOfCreditMember2022-09-300001471727us-gaap:LineOfCreditMember2021-12-310001471727us-gaap:FederalFundsEffectiveSwapRateMember2022-01-012022-09-300001471727us-gaap:FederalFundsEffectiveSwapRateMember2022-09-300001471727us-gaap:LondonInterbankOfferedRateLIBORMember2021-01-012021-12-310001471727us-gaap:LondonInterbankOfferedRateLIBORMember2021-12-310001471727bttr:TermLoanMemberbttr:WintrustCreditFacilityMember2021-01-060001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2021-01-060001471727us-gaap:LineOfCreditMemberus-gaap:LondonInterbankOfferedRateLIBORMemberbttr:WintrustCreditFacilityMember2021-01-062021-01-060001471727us-gaap:LineOfCreditMemberus-gaap:FederalFundsEffectiveSwapRateMemberbttr:WintrustCreditFacilityMember2022-03-252022-03-250001471727us-gaap:LineOfCreditMemberus-gaap:FederalFundsEffectiveSwapRateMemberus-gaap:SubsequentEventMemberbttr:WintrustCreditFacilityMember2022-10-012022-10-310001471727us-gaap:LineOfCreditMemberus-gaap:SubsequentEventMemberbttr:WintrustCreditFacilityMember2022-10-310001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2021-01-062021-01-060001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2022-03-310001471727us-gaap:LineOfCreditMembersrt:ScenarioForecastMemberbttr:WintrustCreditFacilityMember2023-03-310001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2022-09-300001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2021-08-130001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2022-01-010001471727us-gaap:LineOfCreditMembersrt:ScenarioForecastMemberbttr:WintrustCreditFacilityMember2023-01-010001471727us-gaap:LineOfCreditMemberus-gaap:SubsequentEventMemberbttr:WintrustCreditFacilityMember2022-10-240001471727bttr:TermLoanMemberbttr:WintrustCreditFacilityMember2022-09-300001471727bttr:TermLoanMemberbttr:WintrustCreditFacilityMember2021-12-310001471727us-gaap:LineOfCreditMemberbttr:WintrustCreditFacilityMember2021-12-310001471727bttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-09-300001471727us-gaap:EmployeeStockOptionMembersrt:MinimumMemberbttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-01-012022-09-300001471727srt:MaximumMemberus-gaap:EmployeeStockOptionMemberbttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-01-012022-09-300001471727us-gaap:EmployeeStockOptionMemberbttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-01-012022-09-300001471727bttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-07-012022-09-300001471727bttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-01-012022-09-300001471727bttr:AmendedAndRestatedIncentiveAwardPlan2019Member2021-07-012021-09-300001471727bttr:AmendedAndRestatedIncentiveAwardPlan2019Member2021-01-012021-09-300001471727us-gaap:RestrictedStockMemberbttr:AmendedAndRestatedIncentiveAwardPlan2019Member2022-02-012022-02-280001471727us-gaap:RestrictedStockMember2022-02-012022-02-280001471727us-gaap:InventoriesMemberbttr:ThreeSuppliersMemberus-gaap:SupplierConcentrationRiskMember2022-01-012022-09-300001471727us-gaap:InventoriesMemberbttr:ThreeSuppliersMemberus-gaap:SupplierConcentrationRiskMember2021-01-012021-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:ThreeCustomersMemberus-gaap:AccountsReceivableMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:ThreeCustomersMemberus-gaap:AccountsReceivableMember2021-01-012021-12-310001471727us-gaap:CustomerConcentrationRiskMemberbttr:FourCustomersMemberus-gaap:SalesRevenueNetMember2022-01-012022-09-300001471727us-gaap:CustomerConcentrationRiskMemberbttr:ThreeCustomersMemberus-gaap:SalesRevenueNetMember2021-01-012021-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
|
|
|
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
Or
|
|
|
|
|
|
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40477
Better Choice Company Inc.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
Delaware |
83-4284557 |
|
(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer Identification No.) |
12400 Race Track Road
Tampa, Florida 33626
(Address of Principal Executive Offices) (Zip Code)
_______________________________________________
(Registrant’s Telephone Number, Including Area Code):
(212) 896-1254
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
|
|
|
|
|
|
|
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on which
Registered
|
|
Common Stock, $0.001 par value share |
BTTR |
NYSE American |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No
☐
Indicate by checkmark whether the registrant is a large accelerated
filer, accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
Emerging growth company |
☐ |
If an emerging growth company, indicate by a check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by a check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No
☒
The number of shares outstanding of each of the registrant’s
classes of common stock as of the latest practicable date was:
29,405,529 shares of $0.001 par value common stock outstanding as
of November 8, 2022.
Better Choice Company Inc.
Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. We intend such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). All statements other than
statements of historical facts contained in this Quarterly Report
on Form 10-Q ("Quarterly Report") are “forward-looking statements”
for purposes of federal and state securities laws. These statements
involve known and unknown risks, uncertainties and other important
factors that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements.
In some cases, you can identify forward-looking statements by terms
such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“could,” “intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” or “continue,” or the negative
of these terms or other similar expressions, although not all
forward-looking statements contain these words. The forward-looking
statements in this Quarterly Report are only predictions and are
based largely on our current expectations and projections about
future events and financial trends that we believe may affect our
business, financial condition and results of operations.
Forward-looking statements contained herein include, among others,
statements concerning management's expectations about future
events, operating plans and performance, the continued effects of
the COVID-19 pandemic and geopolitical actions and the threat of
cyber-attacks, including levels of consumer, business and economic
confidence generally, the regulatory environment, litigation, sales
and the expected benefits of our business strategy and strategic
priorities, and such statements are based on the current beliefs
and expectations of management, as applicable. These
forward-looking statements speak only as of the date of this
Quarterly Report and are subject to a number of known and unknown
risks, uncertainties, and assumptions. Although we believe the
expectations reflected in any of our forward-looking statements are
reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our
future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and contain
inherent risks and uncertainties. Accordingly, you are cautioned
not to place undue reliance on forward-looking statements, which
speak only as of the dates on which they are made. Except as
required by applicable law, we do not plan to publicly update or
revise any forward-looking statements contained herein, whether as
a result of any new information, future events, changed
circumstances, or otherwise. We qualify all of our forward-looking
statements by these cautionary statements. You should, however,
consult further disclosures we make in future filings and public
disclosures, including without limitation, our Annual Report on
Form 10-K ("Annual Report"), Quarterly Reports on Forms 10-Q, and
Current Reports on Forms 8-K.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, those summarized below:
•the
impact of damage to or interruption of our information technology
systems due to cyber-attacks or other circumstances beyond our
control
•the
impact of the actual or perceived effects of the COVID-19 pandemic,
including as a result of any additional variants of the virus or
the efficacy and distribution of vaccines, on the global pet health
and wellness industry, our employees, suppliers, customers and end
consumers, which could adversely and materially impact our
business, financial condition and results of
operations;
•business
interruptions resulting from geopolitical actions, including war
and terrorism;
•our
ability to successfully implement our growth strategy;
•failure
to achieve growth or manage anticipated growth;
•our
ability to achieve or maintain profitability;
•the
loss of key members of our senior management team;
•our
ability to generate sufficient cash flow or raise capital on
acceptable terms to run our operations, service our debt and make
necessary capital expenditures;
•our
ability to successfully integrate Halo’s and TruPet’s
brands;
•our
dependence on our subsidiaries for payments, advances and transfers
of funds due to our holding company status;
•our
ability to successfully develop additional products and services or
successfully market and commercialize such products and
services;
•competition
in our market;
•our
ability to attract new and retain existing customers, suppliers,
distributors or retail partners;
•allegations
that our products cause injury or illness or fail to comply with
government regulations;
•our
ability to manage our supply chain effectively;
•our
or our co-manufacturers’ and suppliers’ ability to comply with
legal and regulatory requirements;
•the
effect of potential price increases and shortages on the inputs,
commodities and ingredients that we require, whether as a result of
the actual or perceived effects of the COVID-19 pandemic or broader
geopolitical and macroeconomic conditions, including the military
conflict between Russia and Ukraine;
•our
ability to develop and maintain our brand and brand
reputation;
•compliance
with data privacy rules;
•our
compliance with applicable regulations issued by the U.S. Food and
Drug Administration (“FDA”), the U.S. Federal Trade Commission
(“FTC”), the U.S. Department of Agriculture (“USDA”), and other
federal, state and local regulatory authorities, including those
regarding marketing pet food, products and
supplements;
•risk
of our products being recalled for a variety of reasons, including
product defects, packaging safety and inadequate or inaccurate
labeling disclosure;
•risk
of shifting customer demand in relation to raw pet foods, premium
kibble and canned pet food products, and failure to respond to such
changes in customer taste quickly and effectively; and
•the
other risks identified in this Quarterly Report including, without
limitation, Part I, Item 2 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and Part II, Item
1A “Risk Factors” as such factors may updated from time to time in
our other public filings.
NOTE REGARDING TRADEMARKS
We own or have rights to use the trademarks and trade names that we
use in conjunction with the operation of our business. Each
trademark or trade name of any other company appearing in this
Quarterly Report on Form 10-Q is, to our knowledge, owned by such
other company. Solely for convenience, our trademarks and trade
names referred to in this Quarterly Report on Form 10-Q may appear
without the ® or ™ symbols, but those references are not intended
to indicate, in any way, that we will not assert, to the fullest
extent under applicable law, our rights or the right of the
applicable licensor to these trademarks and trade
names.
PART I
ITEM 1. FINANCIAL STATEMENTS
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of
Operations
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net sales |
$ |
11,865 |
|
|
$ |
13,200 |
|
|
$ |
45,394 |
|
|
$ |
35,019 |
|
|
Cost of goods sold |
7,700 |
|
|
8,762 |
|
|
31,795 |
|
|
22,407 |
|
|
Gross profit |
4,165 |
|
|
4,438 |
|
|
13,599 |
|
|
12,612 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
10,007 |
|
|
7,745 |
|
|
25,771 |
|
|
21,397 |
|
|
Share-based compensation |
562 |
|
|
660 |
|
|
2,454 |
|
|
3,517 |
|
|
Total operating expenses |
10,569 |
|
|
8,405 |
|
|
28,225 |
|
|
24,914 |
|
|
Loss from operations |
(6,404) |
|
|
(3,967) |
|
|
(14,626) |
|
|
(12,302) |
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
Interest expense, net |
(142) |
|
|
(79) |
|
|
(324) |
|
|
(3,148) |
|
|
Gain on extinguishment of debt, net |
— |
|
|
— |
|
|
— |
|
|
457 |
|
|
Change in fair value of warrant liabilities |
— |
|
|
590 |
|
|
— |
|
|
23,463 |
|
|
Total other (expense) income, net |
(142) |
|
|
511 |
|
|
(324) |
|
|
20,772 |
|
|
Net (loss) income before income taxes |
(6,546) |
|
|
(3,456) |
|
|
(14,950) |
|
|
8,470 |
|
|
Income tax expense |
1 |
|
|
— |
|
|
4 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders |
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(14,954) |
|
|
$ |
8,470 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic |
29,364,712 |
|
|
29,466,520 |
|
|
29,339,918 |
|
|
16,799,796 |
|
|
Weighted average number of shares outstanding, diluted |
29,364,712 |
|
|
29,466,520 |
|
|
29,339,918 |
|
|
23,685,351 |
|
|
Net (loss) income per share available to common stockholders,
basic |
$ |
(0.22) |
|
|
$ |
(0.12) |
|
|
$ |
(0.51) |
|
|
$ |
0.48 |
|
|
Net (loss) income per share available to common stockholders,
diluted |
$ |
(0.22) |
|
|
$ |
(0.12) |
|
|
$ |
(0.51) |
|
|
$ |
0.34 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
Better Choice Company Inc.
Unaudited Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Assets |
|
|
|
|
Cash and cash equivalents |
$ |
5,652 |
|
|
$ |
21,729 |
|
|
Restricted cash |
6,963 |
|
|
7,213 |
|
|
Accounts receivable, net |
9,594 |
|
|
6,792 |
|
|
Inventories, net |
11,611 |
|
|
5,245 |
|
|
Prepaid expenses and other current assets |
1,108 |
|
|
2,940 |
|
|
Total Current Assets |
34,928 |
|
|
43,919 |
|
|
Fixed assets, net |
421 |
|
|
369 |
|
|
Right-of-use assets, operating lease |
186 |
|
|
56 |
|
|
Intangible assets, net |
10,441 |
|
|
11,586 |
|
|
Goodwill |
18,614 |
|
|
18,614 |
|
|
Other assets |
110 |
|
|
116 |
|
|
Total Assets |
$ |
64,700 |
|
|
$ |
74,660 |
|
|
Liabilities & Stockholders’ Equity |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
$ |
3,852 |
|
|
$ |
4,553 |
|
|
Accrued and other liabilities |
3,109 |
|
|
1,879 |
|
|
Line of credit |
640 |
|
|
— |
|
|
Term loan, net |
1,282 |
|
|
855 |
|
|
Operating lease liability |
51 |
|
|
54 |
|
|
Total Current Liabilities |
8,934 |
|
|
7,341 |
|
|
Non-current Liabilities |
|
|
|
|
Line of credit, net |
6,735 |
|
|
4,856 |
|
|
Term loan, net |
3,495 |
|
|
4,559 |
|
|
Deferred tax liability |
24 |
|
|
24 |
|
|
Operating lease liability |
137 |
|
|
5 |
|
|
Total Non-current Liabilities |
10,391 |
|
|
9,444 |
|
|
Total Liabilities |
19,325 |
|
|
16,785 |
|
|
Stockholders’ Equity |
|
|
|
|
Common Stock, $0.001 par value, 200,000,000 shares authorized,
29,364,712 and 29,146,367 shares issued and outstanding as of
September 30, 2022 and December 31, 2021,
respectively
|
29 |
|
|
29 |
|
|
Additional paid-in capital |
319,556 |
|
|
317,102 |
|
|
Accumulated deficit |
(274,210) |
|
|
(259,256) |
|
|
Total Stockholders’ Equity |
45,375 |
|
|
57,875 |
|
|
Total Liabilities and Stockholders’ Equity |
$ |
64,700 |
|
|
$ |
74,660 |
|
See
accompanying notes to the unaudited condensed consolidated
financial statements.
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Stockholders’
Equity
(Dollars in thousands except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Shares |
Amount |
Additional
Paid-In
Capital |
Accumulated
Deficit |
Total
Stockholders’ Equity |
|
Balance as of December 31, 2021 |
29,146,367 |
|
$ |
29 |
|
$ |
317,102 |
|
$ |
(259,256) |
|
$ |
57,875 |
|
|
|
|
|
|
|
|
Share-based compensation |
218,345 |
|
— |
|
1,091 |
|
— |
|
1,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
— |
|
— |
|
— |
|
(4,040) |
|
(4,040) |
|
|
Balance as of March 31, 2022 |
29,364,712 |
|
$ |
29 |
|
$ |
318,193 |
|
$ |
(263,296) |
|
$ |
54,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
— |
|
— |
|
801 |
|
— |
|
801 |
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
— |
|
— |
|
— |
|
(4,367) |
|
(4,367) |
|
|
Balance as of Balance as of June 30, 2022 |
29,364,712 |
|
$ |
29 |
|
$ |
318,994 |
|
$ |
(267,663) |
|
$ |
51,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
— |
|
— |
|
562 |
|
— |
|
562 |
|
|
Net loss available to common stockholders |
— |
|
— |
|
— |
|
(6,547) |
|
(6,547) |
|
|
Balance as of Balance as of September 30, 2022 |
29,364,712 |
|
$ |
29 |
|
$ |
319,556 |
|
$ |
(274,210) |
|
$ |
45,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Series F Convertible Preferred Stock |
|
|
|
|
|
|
Shares |
Amount |
|
Shares |
Amount |
|
Additional
Paid-In
Capital |
Accumulated
Deficit |
Total
Stockholders’ (Deficit) Equity |
|
Balance as of December 31, 2020 |
8,651,400 |
|
$ |
9 |
|
|
21,754 |
|
$ |
— |
|
|
$ |
232,530 |
|
$ |
(260,641) |
|
$ |
(28,102) |
|
|
Shares and warrants issued pursuant to private
placement |
546,733 |
|
1 |
|
|
— |
|
— |
|
|
4,071 |
|
— |
|
4,072 |
|
|
Share-based compensation |
17,537 |
|
— |
|
|
— |
|
— |
|
|
2,544 |
|
— |
|
2,544 |
|
|
Warrant exercises |
297,383 |
|
— |
|
|
— |
|
— |
|
|
1,310 |
|
— |
|
1,310 |
|
|
Shares issued to third-party for services |
5,000 |
|
— |
|
|
— |
|
— |
|
|
46 |
|
— |
|
46 |
|
|
Warrant modifications |
— |
|
— |
|
|
— |
|
|
|
402 |
|
(402) |
|
— |
|
|
Conversion of Series F shares to common stock |
1,482,672 |
|
1 |
|
|
(4,448) |
|
— |
|
|
(1) |
|
— |
|
— |
|
|
Net loss available to common stockholders |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
(12,850) |
|
(12,850) |
|
|
Balance as of March 31, 2021 |
11,000,725 |
|
$ |
11 |
|
|
17,306 |
|
$ |
— |
|
|
$ |
240,902 |
|
$ |
(273,893) |
|
$ |
(32,980) |
|
|
Warrant exercise |
83,333 |
|
— |
|
|
— |
|
— |
|
|
375 |
|
— |
|
375 |
|
|
Conversion of Series F shares to common stock |
4,000 |
|
— |
|
|
(12) |
|
— |
|
|
— |
|
— |
|
— |
|
|
Conversion of convertible notes to common stock |
4,732,420 |
|
5 |
|
|
— |
|
— |
|
|
21,771 |
|
— |
|
21,776 |
|
|
Share-based compensation |
— |
|
— |
|
|
— |
|
— |
|
|
313 |
|
— |
|
313 |
|
|
Shares issued in lieu of fractional shares due to reverse stock
split |
1,081 |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
Net income available to common stockholders |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
24,776 |
|
24,776 |
|
|
Balance as of June 30, 2021 |
15,821,559 |
|
$ |
16 |
|
|
17,294 |
|
$ |
— |
|
|
$ |
263,361 |
|
$ |
(249,117) |
|
$ |
14,260 |
|
|
Shares issued pursuant to IPO |
8,000,000 |
|
8 |
|
|
— |
|
— |
|
|
36,152 |
|
— |
|
36,160 |
|
|
Conversion of Series F shares to common stock |
5,764,533 |
|
6 |
|
|
(17,294) |
|
— |
|
|
(6) |
|
— |
|
— |
|
|
Reclassification of warrant liability to equity |
— |
|
— |
|
|
— |
|
— |
|
|
16,387 |
|
— |
|
16,387 |
|
|
Share repurchases |
(344,775) |
|
(1) |
|
|
— |
|
— |
|
|
— |
|
(1,273) |
|
(1,274) |
|
|
Share-based compensation |
— |
|
— |
|
|
— |
|
— |
|
|
660 |
|
— |
|
660 |
|
|
Net loss available to common stockholders |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
(3,456) |
|
(3,456) |
|
|
Balance as of September 30, 2021 |
29,241,317 |
|
$ |
29 |
|
|
— |
|
$ |
— |
|
|
$ |
316,554 |
|
$ |
(253,846) |
|
$ |
62,737 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Cash
Flows
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash Flow from Operating Activities: |
|
|
|
|
Net (loss) income available to common stockholders |
$ |
(14,954) |
|
|
$ |
8,470 |
|
|
Adjustments to reconcile net (loss) income to net cash used in
operating activities: |
|
|
|
|
Shares and warrants issued to third parties for
services |
— |
|
|
46 |
|
|
|
|
|
|
Depreciation and amortization |
1,265 |
|
|
1,255 |
|
|
Amortization of debt issuance costs and discounts |
39 |
|
|
1,785 |
|
|
Share-based compensation |
2,454 |
|
|
3,517 |
|
|
|
|
|
|
Change in fair value of warrant liabilities |
— |
|
|
(23,463) |
|
|
Payable-in-kind interest expense on notes payable |
— |
|
|
1,110 |
|
|
|
|
|
|
|
|
|
|
Amortization of prepaid assets |
2,095 |
|
|
891 |
|
|
Other |
638 |
|
|
(981) |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable, net |
(2,901) |
|
|
(2,893) |
|
|
Inventories, net |
(6,877) |
|
|
1,445 |
|
|
Prepaid expenses and other assets |
(257) |
|
|
680 |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
466 |
|
|
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
60 |
|
|
(174) |
|
|
Cash Used in Operating Activities |
$ |
(17,972) |
|
|
$ |
(8,320) |
|
|
|
|
|
|
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
$ |
(198) |
|
|
$ |
(124) |
|
|
Cash Used in Investing Activities |
$ |
(198) |
|
|
$ |
(124) |
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
Proceeds from shares and warrants issued pursuant to private
placement, net |
$ |
— |
|
|
$ |
4,012 |
|
|
|
|
|
|
Share repurchases |
— |
|
|
(1,274) |
|
|
|
|
|
|
Proceeds from revolving lines of credit |
7,500 |
|
|
5,535 |
|
|
Payments on revolving lines of credit |
(5,000) |
|
|
(5,883) |
|
|
Proceeds from term loan |
— |
|
|
6,000 |
|
|
Payments on term loans |
(650) |
|
|
(8,379) |
|
|
|
|
|
|
|
|
|
|
Cash received for warrant exercises |
— |
|
|
1,685 |
|
|
IPO proceeds, net |
— |
|
|
36,160 |
|
|
Debt issuance costs |
(7) |
|
|
(140) |
|
|
Cash Provided by Financing Activities |
$ |
1,843 |
|
|
$ |
37,716 |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents and restricted
cash |
$ |
(16,327) |
|
|
$ |
29,272 |
|
|
Total cash and cash equivalents and restricted cash, beginning of
period |
28,942 |
|
|
3,989 |
|
|
Total cash and cash equivalents and restricted cash, end of
period |
$ |
12,615 |
|
|
$ |
33,261 |
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
$ |
279 |
|
|
$ |
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
Note 1 - Nature of business and summary of significant accounting
policies
Nature of the business
Better Choice Company Inc. (the "Company") is a pet health and
wellness company focused on providing pet products and services
that help dogs and cats live healthier, happier and longer lives.
The Company has a broad portfolio of pet health and wellness
products for dogs and cats sold under its Halo brand across
multiple forms, including foods, treats, toppers, dental products,
chews and supplements. The products consist of kibble and canned
dog and cat food, freeze-dried raw dog food and treats, vegan dog
food and treats, oral care products and supplements.
Basis of presentation
The Company’s condensed consolidated financial statements are
prepared in accordance with the rules and regulations of the U.S.
Securities and Exchange Commission (“SEC”) for interim financial
reports and accounting principles generally accepted in the United
States ("GAAP"). Accordingly, the Condensed Consolidated Balance
Sheet as of December 31, 2021 has been derived from the audited
consolidated financial statements at that date but does not include
all of the information required by GAAP for complete financial
statements. Results of operations for interim periods may not be
representative of results to be expected for the full
year.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
accompanying notes in the Company's Annual Report for the year
ended December 31, 2021, filed with the SEC.
Consolidation
The condensed financial statements are presented on a consolidated
basis and include the accounts of the Company and its wholly owned
subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
Use of estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during
the reporting periods. The Company bases its estimates on
historical experience and on various other assumptions that the
Company believes to be reasonable under the circumstances. On an
ongoing basis, the Company evaluates these assumptions, judgments
and estimates. Actual results may differ from these
estimates.
In the opinion of management, the condensed consolidated financial
statements contain all adjustments necessary for a fair statement
of the results of operations for the periods ended
September 30, 2022 and 2021, the financial position as of
September 30, 2022 and December 31, 2021 and the cash
flows for the periods ended September 30, 2022 and
2021.
Summary of significant accounting policies
For additional information, please refer to the most recently filed
Annual Report regarding the Company's summary of significant
accounting policies.
Advertising
The Company charges advertising costs to expense as incurred and
such charges are included in selling, general and administrative
("SG&A") expenses. The Company's advertising expenses consist
primarily of online advertising, search costs, email advertising,
and radio advertising. In addition, the Company reimburses its
customers and third parties for in store activities and record
these costs as advertising expenses. Advertising costs were
$4.8 million and $10.0 million for the three and nine
months ended September 30, 2022, respectively, of which
$2.1 million is related to the amortization of the prepaid
advertising contract with iHeart for both the three and nine months
ended September 30, 2022. Advertising costs were
$2.9 million and $7.0 million for the three and nine
months ended September 30, 2021, respectively, of which
$0.9 million is related to the amortization of the prepaid
advertising contract with iHeart for both the three and nine months
ended September 30, 2021. See "Note 4 - Prepaid expenses and
other current assets" for additional information on the prepaid
advertising contract with iHeart.
Share repurchases
On May 10, 2022, the Company's board of directors approved a share
repurchase program that authorizes the repurchase of up to
$3.0 million of the Company's outstanding common stock in the
open market through December 31, 2022. Repurchased shares are
immediately retired and returned to unissued status. During the
nine months ended September 30, 2022 no shares were
repurchased.
New accounting standards
Issued but not yet adopted
ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU 2016-13, a new standard to
replace the incurred loss impairment methodology under current GAAP
with a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. The
standard is effective for the Company on January 1, 2023, and early
adoption is permitted. The Company is currently evaluating the
impact the standard, including subsequent updates, will have on its
consolidated financial statements and related disclosures, but does
not expect the guidance to have a significant impact on the
financial statements.
Note 2 - Revenue
The Company records revenue net of discounts, which primarily
consist of trade promotions, certain customer allowances and early
pay discounts.
The Company excludes sales taxes collected from revenues.
Retail-partner based customers are not subject to sales
tax.
The Company’s direct-to-consumer ("DTC") loyalty program enables
customers to accumulate points based on their spending. A portion
of revenue is deferred at the time of sale when points are earned
and recognized when the loyalty points are redeemed.
Revenue channels
The Company groups its revenue channels into four categories:
E-commerce, which includes the sale of product to online retailers
such as Amazon and Chewy; Brick & Mortar, which primarily
includes the sale of product to Pet Specialty retailers such as
Petco, Pet Supplies Plus and neighborhood pet stores, as well as to
select grocery chains; DTC, which includes the sale of product
through the Company's website; and International, which includes
the sale of product to foreign distribution partners and to select
international retailers (transacted in U.S. dollars).
Information about the Company’s net sales by revenue channel is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
E-commerce
(1)
|
|
$ |
3,530 |
|
|
30 |
% |
|
$ |
4,742 |
|
|
36 |
% |
|
$ |
11,035 |
|
|
24 |
% |
|
$ |
11,644 |
|
|
33 |
% |
|
Brick & Mortar
(2)
|
|
1,342 |
|
|
11 |
% |
|
1,816 |
|
|
14 |
% |
|
9,632 |
|
|
21 |
% |
|
5,408 |
|
|
16 |
% |
|
DTC |
|
1,371 |
|
|
12 |
% |
|
2,363 |
|
|
18 |
% |
|
5,066 |
|
|
11 |
% |
|
7,140 |
|
|
20 |
% |
|
International
(3)
|
|
5,622 |
|
|
47 |
% |
|
4,279 |
|
|
32 |
% |
|
19,661 |
|
|
44 |
% |
|
10,827 |
|
|
31 |
% |
|
Net Sales |
|
$ |
11,865 |
|
|
100 |
% |
|
$ |
13,200 |
|
|
100 |
% |
|
$ |
45,394 |
|
|
100 |
% |
|
$ |
35,019 |
|
|
100 |
% |
(1)The
Company's E-commerce channel includes two customers that amounted
to greater than 10% of the Company's total net sales during the
three and nine months ended September 30, 2022. These
customers had an aggregate of $3.3 million and
$10.6 million of net sales during the three and nine months
ended September 30, 2022, respectively. Two customers amounted
to greater than 10% of the Company's total net sales during the
three and nine months ended September 30, 2021, respectively.
These customers had an aggregate of $4.4 million and
$10.8 million of net sales during the three and nine months
ended September 30, 2021, respectively.
(2)The
Company's Brick & Mortar channel includes $4.3 million of
net sales from one customer that amounted to greater than 10% of
the Company's total net sales during the nine months ended
September 30, 2022.
(3)One
of the Company's International customers that distributes products
in China amounted to greater than 10% of the Company's total net
sales during the three and nine months ended September 30,
2022 and represented $5.3 million and $16.6 million of
net sales, respectively. One of the Company's International
customers in China represented greater than 10% of net sales during
the three and nine months ended September 30, 2021 and
represented $2.9 million and $6.7 million of net sales,
respectively.
Note 3 - Inventories
Inventories are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Food, treats and supplements |
$ |
10,948 |
|
|
$ |
4,666 |
|
|
Inventory packaging and supplies |
1,414 |
|
|
1,028 |
|
|
|
|
|
|
Total Inventories |
12,362 |
|
|
5,694 |
|
|
Inventory reserve
(1)
|
(751) |
|
|
(449) |
|
|
Inventories, net |
$ |
11,611 |
|
|
$ |
5,245 |
|
(1)The
increase in the Company's inventory reserve is attributable to the
Company's rebranding initiatives.
Note 4 - Prepaid expenses and other current assets
Prepaid expenses and other current assets are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Prepaid advertising contract with iHeart
(1)
|
$ |
— |
|
|
$ |
2,095 |
|
|
Other prepaid expenses and other current assets |
1,108 |
|
|
845 |
|
|
Total Prepaid expenses and other current assets |
$ |
1,108 |
|
|
$ |
2,940 |
|
(1)On
August 28, 2019, the Company entered into a radio advertising
agreement with iHeart Media + Entertainment, Inc. ("iHeart") and
issued 166,667 shares of common stock valued at $3.4 million
for future advertising services. The Company issued an
additional 20,834 shares valued at $0.1 million on March 5,
2020 pursuant to the agreement. The current portion of the
remaining value, reflected above, is the remaining value of
services that the Company expects to utilize within the twelve
months following the reporting period date, unless the term is
extended. The Company utilized the remaining advertising services
during the three months ended September 30, 2022.
Note 5 - Accrued and other liabilities
Accrued and other liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Accrued taxes |
$ |
107 |
|
|
$ |
139 |
|
|
Accrued payroll and benefits |
870 |
|
|
755 |
|
|
Accrued trade promotions and advertising |
662 |
|
|
119 |
|
|
Accrued interest |
45 |
|
|
25 |
|
|
Accrued commissions |
281 |
|
|
— |
|
|
Deferred revenue |
297 |
|
|
225 |
|
|
Short-term financing |
289 |
|
|
— |
|
|
Other |
558 |
|
|
616 |
|
|
Total accrued and other liabilities |
$ |
3,109 |
|
|
$ |
1,879 |
|
Note 6 - Goodwill and intangible assets
Goodwill
Goodwill was $18.6 million as of September 30, 2022 and
December 31, 2021, respectively. Goodwill is evaluated for
impairment if an event occurs or circumstances change that indicate
the carrying value of a reporting unit may not be recoverable.
During July 2022, the Company completed a legal merger of TruPet,
LLC, a wholly owned subsidiary of Better Choice Company Inc.
("TruPet"), and Halo, Purely for Pets, Inc., a wholly owned
subsidiary of Better Choice Company Inc. ("Halo"), with Halo as the
surviving entity in connection with the execution of rebranding its
former TruDog brand under the Halo brand umbrella. In conjunction
with the legal merger and rebranding, the Company performed an
analysis of its reporting units and concluded it has one reporting
unit after the legal merger and rebrand, and as such, the Company
performed a quantitative goodwill assessment as of July 1, 2022.
Under the quantitative approach, the Company makes various
estimates and assumptions to determine the estimated fair value of
the reporting unit using a combination of a discounted cash flow
model and a guideline comparable analysis. The fair value
measurements used in the impairment review of goodwill are Level 3
measurements which include unobservable inputs that are supported
by little, infrequent or no market activity and reflect
management’s own assumptions. Key assumptions used in the
discounted cash flow analysis included a discount rate, forecasted
operating results and long-term growth rates; key assumptions used
in the guideline comparable analysis include the determination of
comparable companies and market multiples. As a result of the
Company's quantitative analysis, no impairment charge was recorded
as the fair value of the reporting unit exceeded the carrying
value.
During the period from July 2, 2022 through September 30,
2022, there was a decline in the Company's stock price and a change
in the Company's Chief Executive Officer ("CEO"), and as such, the
Company determined there were triggering events present during the
interim period. The Company performed a qualitative analysis around
its market capitalization and determined the decline in stock price
is not indicative of its operating results and that the decline in
market value from July 2,2022 to September 30, 2022 was not of
sufficient duration to indicate impairment. Additionally, the
Company performed other qualitative analyses which considered the
potential impacts of the change in CEO and other known information
that could cause a change in the assumptions used in the July 1,
2022 assessment. As a result of the Company's qualitative analysis,
it was concluded that it was more-likely-than-not that the carrying
value of the reporting unit did not exceed the fair value and no
impairment charge was recorded. As of September 30, 2022 and
December 31, 2021, there was no accumulated impairment loss
and no impairment expense related to goodwill. If global
macroeconomic or geopolitical conditions worsen, projected revenue
growth rates or projected operating margins decline, weighted
average cost of capital increases, or if the Company has a further
sustained decline in its stock price, it is possible this could
result in a material impairment charge.
Intangible assets
The Company’s intangible assets (in thousands) and related useful
lives (in years) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
|
Estimated useful life |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net carrying
amount |
|
Accumulated
amortization |
|
Net carrying
amount |
|
Customer relationships |
7 |
|
$ |
7,190 |
|
|
$ |
(2,858) |
|
|
$ |
4,332 |
|
|
$ |
(2,088) |
|
|
$ |
5,102 |
|
|
Trade name |
15 |
|
7,500 |
|
|
(1,391) |
|
|
6,109 |
|
|
(1,016) |
|
|
6,484 |
|
|
Total intangible assets |
|
|
$ |
14,690 |
|
|
$ |
(4,249) |
|
|
$ |
10,441 |
|
|
$ |
(3,104) |
|
|
$ |
11,586 |
|
Amortization expense was $0.4 million and $1.2 million
for the three and nine months ended September 30, 2022 and
2021, respectively.
The estimated future amortization of intangible assets over the
remaining weighted average useful life of 8.9 years is as follows
(in thousands):
|
|
|
|
|
|
|
Remainder of 2022 |
$ |
382 |
|
|
2023 |
1,527 |
|
|
2024 |
1,527 |
|
|
2025 |
1,527 |
|
|
2026 |
1,494 |
|
|
Thereafter |
3,984 |
|
|
|
$ |
10,441 |
|
The Company assesses intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be fully recoverable. If
impairment indicators are present, the Company performs a
recoverability test by comparing the sum of the estimated
undiscounted future cash flows attributable to these long-lived
assets to their carrying value. Based on the potential impairment
indicators described above, the Company performed an assessment of
its intangible assets at the end of the reporting period and
determined that the undiscounted cash flows of the intangible asset
group exceeded the carrying value, and as such, there has been no
impairment of the intangible assets as of September 30,
2022.
Note 7 - Debt
The components of the Company’s debt consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
Maturity
Date |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Term loan, net |
1/6/2024 |
|
$ |
4,777 |
|
|
(1) |
|
$ |
5,414 |
|
|
(2) |
|
Line of credit, net |
1/6/2024 |
|
7,375 |
|
|
(1) |
|
4,856 |
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
12,152 |
|
|
|
|
10,270 |
|
|
|
|
Less current portion |
|
|
1,922 |
|
|
|
|
855 |
|
|
|
|
Total long term debt |
|
|
$ |
10,230 |
|
|
|
|
$ |
9,415 |
|
|
|
(1)Interest
at a variable rate of the daily Federal Funds Rate plus 285 basis
points with an interest rate floor of 2.50% per annum.
(2)Interest
at a variable rate of LIBOR plus 250 basis points with an interest
rate floor of 2.50% per annum.
Term loans and lines of credit
On January 6, 2021, 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 bore interest at a variable rate
of LIBOR plus 250 basis points, with an interest rate floor of
2.50% per annum (the "Wintrust Credit Facility"). The Second
Wintrust Amendment described below updated the rate at which the
Wintrust Credit Facility bore interest to the greater of the daily
U.S. Federal Funds Rate plus 285 basis points, or the interest rate
floor, which remained unchanged. The Third Wintrust Amendment
described below updated the interest rate on the Wintrust Credit
Facility to the U.S. Federal Funds Rate plus 375 basis points, with
an interest rate floor of 3.75% and extends the maturity date of
the Wintrust Credit Facility from January 6, 2024 to October
31, 2024. Accrued interest on the Wintrust Credit Facility is
payable monthly which commenced on February 1, 2021. Principal
payments were required to be made monthly on the term loan
commencing February 2021 with a balloon payment upon the original
maturity date. The proceeds from the Wintrust Credit Facility were
used (i) to repay outstanding principal, interest and fees under
the previous revolving line of credit with Citizens Business Bank
(the "ABL Facility") and (ii) for general corporate purposes. Debt
issuance costs of $0.1 million were incurred related to the
Wintrust Credit Facility.
The Wintrust Credit Facility subjected the Company to certain
financial covenants, including the maintenance of a fixed charge
coverage ratio of no less than 1.25 to 1.00, tested as of the last
day of each fiscal quarter. The numerator in the fixed charge
coverage ratio was the operating cash flow of Halo, defined as Halo
EBITDA less cash paid for unfinanced Halo capital expenditures,
income taxes and dividends. The denominator was fixed charges such
as interest expense and principal payments paid or payable on other
indebtedness attributable to Halo. As of December 31, 2021, the
Company failed to satisfy the fixed charge coverage ratio and
entered into a default waiver agreement with Wintrust in which
Wintrust waived the existing default through the next testing date,
March 31, 2022. As part of the Second Wintrust Amendment described
below, the financial covenants were amended to subject the Company
to a minimum liquidity covenant test in lieu of a fixed charge
coverage ratio which required the Company to maintain liquidity,
tested on the last day of each fiscal quarter beginning March 31,
2022, of no less than (i) $13.0 million as of the last day of
each fiscal quarter ending March 31, 2022, through and including
the last day of the fiscal quarter ending December 31, 2022 and
(ii) $12.0 million as of the last day of the fiscal quarter
ending March 31, 2023, and as of the last day of each fiscal
quarter thereafter. Furthermore, as part of the Third Wintrust
Amendment described below, the financial covenants were further
amended to require the Company to maintain a minimum liquidity of
$8.5 million tested on the last day of each fiscal quarter
beginning September 30, 2022 and thereafter.
The Wintrust Credit Facility is secured by a general guaranty and
security interest on the assets, including the intellectual
property, of the Company and its subsidiaries. The Company has also
pledged all of the capital stock of Halo held by the Company as
additional collateral. Furthermore, the Wintrust Credit Facility
was supported by a collateral pledge by a member of the Company’s
board of directors; as a result of the First Wintrust Amendment
described below, this collateral pledge was terminated and
released.
On August 13, 2021, Halo entered into the first amendment to the
Wintrust Credit Facility (the “First Wintrust Amendment”) to
increase the revolving line of credit from $6.0 million to
$7.5 million. The First Wintrust Amendment also required Halo
to secure the credit facility with a pledge of a deposit account in
the amount of $7.2 million, which was decreased to
$6.9 million
on January 1, 2022 and was to further decrease to $6.0 million
on January 1, 2023. Additionally, on March 25, 2022, the Company
entered into the second amendment to the Wintrust Credit Facility
(the "Second Wintrust Amendment") which provided for the release of
the Company's Bona Vida subsidiary as a guarantor, an update to the
financial covenants as described above and an update to the rate at
which the Wintrust Credit Facility bore interest, which is also
described above. Furthermore, on October 24, 2022, the Company
entered into the third amendment to the Wintrust Credit Facility
(the "Third Wintrust Amendment") which provided for an increase to
the revolving line of credit from $7.5 million to
$13.5 million, set the amount of Halo's obligation to pledge a
deposit account with Wintrust to a fixed amount of
$6.3 million throughout the remainder of the term and provided
updates to the interest rate, maturity date and financial covenants
as described above.
As of September 30, 2022, the term loan and line of credit
outstanding under the Wintrust Credit Facility were $4.8 million
and $7.4 million, respectively, net of debt issuance costs of less
than $0.1 million, respectively. As part of the Third Wintrust
Amendment described above, Halo used a portion of the increased
revolving credit facility to repay and retire the outstanding term
loan portion of the Wintrust Credit Facility. As of
December 31, 2021, the term loan and line of credit
outstanding were $5.4 million and $4.9 million, respectively, net
of debt issuance costs of less than $0.1 million, respectively.
Debt issuance costs are amortized using the effective interest
method. 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.
Prior to the Third Wintrust Amendment, the Company would have been
in violation of the previous debt covenant associated with the
Wintrust Credit Facility as of September 30, 2022. Upon
execution of the Third Wintrust Amendment in October as described
above, the Company was in compliance with all debt covenant
requirements and there were no events of default as of
September 30, 2022. The Company currently expects it will be
able to generate sufficient cash flow from operations and maintain
sufficient liquidity to meet the required debt covenants; however
if the Company fails to satisfy the debt covenant as described
above, Wintrust has the right to call on the debt.
Note 8 - Commitments and contingencies
The Company had no material purchase obligations as of
September 30, 2022 or December 31, 2021.
The Company may be involved in legal proceedings, claims, and
regulatory, tax, or government inquiries and investigations that
arise in the ordinary course of business resulting in loss
contingencies. The Company accrues for loss contingencies when
losses become probable and are reasonably estimable. If the
reasonable estimate of the loss is a range and no amount within the
range is a better estimate, the minimum amount of the range is
recorded as a liability. Legal costs such as outside counsel fees
and expenses are charged to expense in the period incurred and are
recorded in SG&A expenses. The Company does not accrue for
contingent losses that are considered to be reasonably possible,
but not probable; however, the Company discloses the range of such
reasonably possible losses. Loss contingencies considered remote
are generally not disclosed.
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 - Warrants
The following summarizes the Company's outstanding warrants to
purchase shares of the Company's common stock as of and for the
periods ended September 30, 2022 and December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
Weighted Average Exercise Price |
|
Warrants outstanding as of December 31, 2020 |
9,916,997 |
|
|
$ |
7.32 |
|
|
Issued |
548,110 |
|
|
$ |
8.70 |
|
|
Exercised |
(389,881) |
|
|
$ |
4.52 |
|
|
Terminated/Expired |
(641,642) |
|
|
$ |
24.64 |
|
|
Warrants outstanding as of December 31, 2021 |
9,433,584 |
|
|
$ |
5.92 |
|
|
Issued |
— |
|
|
$ |
— |
|
|
Exercised |
— |
|
|
$ |
— |
|
|
Terminated/Expired |
— |
|
|
$ |
— |
|
|
Warrants outstanding as of September 30, 2022 |
9,433,584 |
|
|
$ |
5.92 |
|
There was no intrinsic value associated with the outstanding
warrants as of September 30, 2022 and December 31, 2021,
respectively.
Note 10 - Share-based compensation
During the three and nine months ended September 30, 2022, the
Company recognized $0.6 million and $2.5 million, respectively, of
share-based compensation expense. During the three and nine months
ended September 30, 2021, the Company recognized $0.7 million
and $3.5 million, respectively, of share-based compensation
expense.
On November 11, 2019, the Company received shareholder approval for
the Amended and Restated 2019 Incentive Award Plan (the “Amended
2019 Plan”). The Amended 2019 Plan provides for the grant of stock
options, stock appreciation rights, restricted stock awards,
restricted stock units, other stock or cash-based awards or a
dividend equivalent award. The total number of shares currently
authorized for issuance under the Amended 2019 Plan is
5,614,637.
Stock options
Options granted under the Amended 2019 Plan vest over a period of
two to three years. All vested options are exercisable and
may be exercised through the ten-year anniversary of the grant date
(or such earlier date described in the applicable award agreement).
The fair value of an option award is estimated on the date of grant
using the Black–Scholes option valuation model. During the three
and nine months ended September 30, 2022, the Company granted
9,000 and 611,000 stock options, respectively, under the Amended
2019 Plan. During the three and nine months ended
September 30, 2021, the Company granted 473,720 and 1,429,408
stock options, respectively, under the Amended 2019
Plan.
As of September 30, 2022 and December 31, 2021, the
Company had 3,250,770 and 2,684,041 stock options outstanding,
respectively.
Stock awards
In February 2022, the Company granted 218,345 shares of common
stock to members of its board of directors under the Amended 2019
Plan as compensation for annual board service. The stock awards
were immediately vested and, as such, the Company recorded
share-based compensation expense of $0.5 million upon
issuance.
Note 11 - Income taxes
For the three and nine months ended September 30, 2022, the
Company recorded minimal income tax expense and for the three and
nine months ended September 30, 2021, the Company recorded no
income tax expense. For the three and nine months ended
September 30, 2022, the Company's effective tax rate was less
than 1% and for the three and nine months ended September 30,
2021, the Company’s effective tax rate was 0%. The Company’s
effective tax rate differs from the U.S. federal statutory rate of
21% primarily because the Company’s losses have been fully offset
by a valuation allowance due to uncertainty of realizing the tax
benefit of net operating losses ("NOLs”) for the nine months ended
September 30, 2022 and for the year ended December 31,
2021.
Note 12 - Related party transactions
Director fees
The Company pays quarterly board of director fees. As of
September 30, 2022 and December 31, 2021,
$0.1 million of director fees were included in accounts
payable on the Condensed Consolidated Balance Sheets,
respectively.
Note 13 - Concentrations
Major suppliers
The Company sourced approximately 70% of its inventory purchases
from three vendors for the nine months ended September 30,
2022. The Company sourced approximately 76% of its inventory
purchases from three vendors for the nine months ended
September 30, 2021.
Major customers
Accounts receivable from three customers represented 96% of
accounts receivable as of September 30, 2022. Accounts
receivable from three customers represented 71% of accounts
receivable as of December 31, 2021. Four customers
represented 70% of gross sales for the nine months ended
September 30, 2022. Three customers represented 54% of gross
sales for the nine months ended September 30,
2021.
Credit risk
As of September 30, 2022 and December 31, 2021, the
Company’s cash and cash equivalents were deposited in accounts at
certain financial institutions and may maintain some balances in
excess of federally insured limits. The Company maintains its cash
and cash equivalents with high-quality, accredited financial
institutions and, accordingly, such funds are subject to minimal
credit risk. The Company has not experienced any losses
historically in these accounts and believes it is not exposed to
significant credit risk in its cash and cash
equivalents.
Note 14 - (Loss) earnings per share
The Company presents (loss) earnings per share on a basic and
diluted basis. Basic (loss) earnings per share is computed by
dividing net (loss) earnings by the weighted average number of
common shares outstanding ("WASO") during the period. Diluted
(loss) earnings per share includes the dilutive effect of common
stock equivalents, consisting of stock options and warrants using
the treasury stock method and convertible notes and preferred stock
using the if-converted method. Under the treasury stock method, the
amount the holder must pay for exercising stock options or warrants
and the amount of average compensation cost for future service that
has not yet been recognized are collectively assumed to be used to
repurchase shares.
For the three and nine months ended September 30, 2022 and the
three months ended September 30, 2021, the Company’s basic and
diluted net loss per share attributable to common stockholders are
the same because the Company generated a net loss and common stock
equivalents are excluded from diluted net loss per share as they
have an antidilutive impact. As the Company reported net income for
the nine months ended September 30, 2021, basic and diluted
net earnings per share attributable to common stockholders are
calculated as outlined above. For the nine months ended
September 30, 2021, the weighted average diluted common shares
had 5,397,048 common stock equivalents excluded based on the fact
that their inclusion would have had an anti-dilutive effect on
earnings per share.
The following table sets forth basic and diluted net (loss)
earnings per share available to common stockholders for the three
and nine months ended September 30, 2022 and 2021 (in
thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
Common stockholders |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(14,954) |
|
|
$ |
8,470 |
|
|
Less: Adjustment due to warrant modifications |
|
— |
|
|
— |
|
|
— |
|
|
402 |
|
|
Adjusted net (loss) income available to common
stockholders |
|
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(14,954) |
|
|
$ |
8,068 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Basic WASO |
|
29,364,712 |
|
|
29,466,520 |
|
|
29,339,918 |
|
|
16,799,796 |
|
|
Net (loss) earnings per share available to common stockholders,
basic |
|
$ |
(0.22) |
|
|
$ |
(0.12) |
|
|
$ |
(0.51) |
|
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(14,954) |
|
|
$ |
8,470 |
|
|
Less: Adjustment due to warrant modifications |
|
— |
|
|
— |
|
|
— |
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net (loss) income available to common
stockholders |
|
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(14,954) |
|
|
$ |
8,068 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Basic WASO |
|
29,364,712 |
|
|
29,466,520 |
|
|
29,339,918 |
|
|
16,799,796 |
|
|
Dilutive common stock equivalents |
|
— |
|
|
— |
|
|
— |
|
|
6,885,555 |
|
|
Diluted WASO |
|
29,364,712 |
|
|
29,466,520 |
|
|
29,339,918 |
|
|
23,685,351 |
|
|
Net (loss) earnings per share available to common stockholders,
diluted |
|
$ |
(0.22) |
|
|
$ |
(0.12) |
|
|
$ |
(0.51) |
|
|
$ |
0.34 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes forward-looking statements about
our business, financial condition and results of operations,
including discussions about management’s expectations for our
business.
The financial condition, results of operations and cash flows
discussed in this Management’s Discussion and Analysis of Financial
Condition and Results of Operations are those of Better Choice
Company Inc. and its consolidated subsidiaries, collectively, the
“Company,” “Better Choice Company,” “we,” “our,” or “us”.
These statements represent projections, beliefs, and expectations
based on current circumstances and conditions and in light of
recent events and trends, and you should not construe these
statements either as assurances of performance or as promises of a
given course of action. Instead, various known and unknown factors
are likely to cause our actual performance and management’s actions
to vary, and the results of these variances may be both material
and adverse. Accordingly, readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management’s analysis only as of the date hereof. We undertake no
obligation to publicly release the results of any revision to these
forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview and Outlook
Better Choice is a pet 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. Our
mission is to become the most innovative premium pet food company
in the world, and we are motivated by our commitment to making
products with integrity and treating pets and their parents with
respect. We believe that our broad portfolio of pet health and
wellness products are well positioned to benefit from the trends of
growing pet humanization and an increased consumer focus on health
and wellness, and have adopted a laser focused, channel-specific
approach to growth that is driven by new product innovation. Our
executive team has a proven history of success in both pet and
consumer-packaged goods, and has over 50 years of combined
experience in the pet industry and over 100 years of combined
experience in the consumer-packaged goods industry.
We sell our premium and super-premium products (which we believe
generally includes products with a retail price greater than $0.20
per ounce) under the Halo brand umbrella, which includes Halo
Holistic™, Halo Elevate® and the former TruDog brand, which has
been rebranded and successfully integrated under the Halo brand
umbrella during the third quarter of 2022. Our core products sold
under the Halo brand are made with high-quality, thoughtfully
sourced ingredients for natural, science based nutrition. Each
innovative recipe is formulated with leading veterinary and
nutrition experts to deliver optimal health. Our diverse and
established customer base has enabled us to penetrate multiple
channels of trade, which we believe enables us to deliver on core
consumer needs and serve pet parents wherever they shop. We group
these channels of trade into four distinct categories: E-commerce,
which includes the sale of product to online retailers such as
Amazon and Chewy; Brick & Mortar, which primarily includes the
sale of product to Pet Specialty retailers such as Petco, Pet
Supplies Plus and neighborhood pet stores, as well as to select
grocery chains; DTC, which includes the sale of product through our
website halopets.com; and International, which includes the sale of
product to foreign distribution partners and to select
international retailers.
The Global Pet Food and Treat Market
The U.S. represents the largest and most developed market for pet
food globally, with food and treats accounting for approximately
$39 billion of consumer sales in 2019, or 36% of the total U.S. pet
care market, according to AlphaWise and Morgan Stanley Research.
According to the American Pet Product Association, between 66% and
70% of all households in the U.S. own a pet, equating to a total
pet population of more than 130 million companion animals and an
average of 1.7 pets per household. Pet spending represents a
significant portion of household spend on consumer products, as
this translates to an average annual spend on pet care of more than
$1,500 per pet owning household, with $460 of this spend attributed
to pet food and treats.
Historically, consumer spending on pets grew at an approximately 3%
CAGR in the decade leading up to the COVID-19 pandemic, driven by
steady annual increases in household pet ownership of approximately
1%, the continued premiumization of the category and the
humanization of pets. These industry tailwinds have been magnified
in the post-COVID landscape, as stay-at-home orders have driven a
more than tripling of annual pet ownership growth alongside
fundamental changes in consumer purchasing behavior. This surge in
pet acquisition has led to a dramatic increase in the forecasted
growth of the pet care industry over the next ten
years.
Beyond the estimated $3.9 billion permanent increase to annual
spend on pet food and treats, this “Pet Boom” was driven by the
acceleration of pet ownership by millennial and Gen-Z households.
From a demographic perspective, younger pet owners are more likely
to spend a higher percentage of their income on pets, treat their
pet as an important member of the family and to purchase products
from pet specialty and online retailers rather than from grocery
stores. Along these lines, women are 3.2 times more interested in
purchasing pet food than men, and are 2.4 times more likely to
engage with search ads than men. Taken holistically, these traits
suggest a preference to purchase more premium and super-premium pet
food and treats from brands like Halo, with a tendency to purchase
products in the channels where we compete.
Globally, Asia is the second largest market for pet products, with
China representing the largest market opportunity for growth. Like
the U.S., growth in the Asian pet care industry has been driven by
dramatic increases in household pet ownership. We believe that
growth in Asia is fueled by increasing levels of economic financial
status and demand for premium, western manufactured products as a
result of product quality concerns. This demand has been supported
by a rapidly growing middle class in China, where a recent McKinsey
report estimated that in 2018 roughly 730 million people in urban
areas fell into the income categories of “aspirants” and
“affluents,” with the Brookings group estimating that approximately
60 million people are added to these income categories each year.
We believe that this growth drove the increase in the number of
dog-owning Chinese households as measured by Euromonitor, which
increased from 12% in 2015 to 20% in 2020, according to
Euromonitor. According to Euromonitor, the Chinese market for
premium dry dog and cat food is anticipated to grow at a 20% CAGR
and 28% CAGR, respectively, from 2015 through 2025, suggesting that
the Chinese pet market has significant room for growth in the
foreseeable future. We are focused on targeting Chinese pet owners
with the highest willingness to pay, which tend to be urban
dwelling millennial and Gen-Z women. In 2021, 80% of our products
were purchased online, and approximately 50% of our end-consumers
were born after 1990.
Our Growth Strategy
•Strong
Innovation Pipeline.
We have a robust and growing pipeline of new products, and believe
our size is an advantage as we are nimble enough to quickly bring
new products to market, but large enough to benefit from strong
existing customer relationships and established economies of scale
with our co-manufacturers.
•Ability
to Leverage Differentiated Omni-Channel Strategy for
Growth.
We believe that we can leverage our differentiated omni-channel
strategy to design and sell products purpose-built for success in
specific channels while maintaining our ability to leverage
marketing and sales resources cross-channel. We believe that this
strategy will allow us to deliver on core consumer needs, maximize
gross margin and respond to changing channel dynamics that have
accelerated in recent years.
•Capitalize
on Continuing Trends of Humanization of Pets.
We believe our combination of innovative products designed
specifically for certain channels can assist our growth to become a
leader in the premium and super-premium categories across dog and
cat food.
•Well
Positioned to Capitalize on a Once-in-a-Generation Demographic
Shift in Asia.
We believe that Asia represents the largest macro-growth
opportunity in the global pet food industry. In China, the number
of households that own a pet has doubled in the last five years,
with younger pet owners leading growth.
Recent Corporate Developments
On September 13, 2022, we announced that Scott Lerner was stepping
down from his role as CEO, effective September 14. Also on
September 13, 2022, we announced that Lionel F. Conacher was
appointed as Interim CEO, effective September 14,
2022.
Results of Operations for the three and nine months ended
September 30, 2022 and 2021
The following table sets forth our consolidated results for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Change |
|
% |
|
2022 |
|
2021 |
|
Change |
|
% |
|
Net sales |
$ |
11,865 |
|
|
$ |
13,200 |
|
|
$ |
(1,335) |
|
|
(10) |
% |
|
$ |
45,394 |
|
|
$ |
35,019 |
|
|
$ |
10,375 |
|
|
30 |
% |
|
Cost of goods sold |
7,700 |
|
|
8,762 |
|
|
(1,062) |
|
|
(12) |
% |
|
31,795 |
|
|
22,407 |
|
|
9,388 |
|
|
42 |
% |
|
Gross profit |
4,165 |
|
|
4,438 |
|
|
(273) |
|
|
(6) |
% |
|
13,599 |
|
|
12,612 |
|
|
987 |
|
|
8 |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
10,007 |
|
|
7,745 |
|
|
2,262 |
|
|
29 |
% |
|
25,771 |
|
|
21,397 |
|
|
4,374 |
|
|
20 |
% |
|
Share-based compensation |
562 |
|
|
660 |
|
|
(98) |
|
|
(15) |
% |
|
2,454 |
|
|
3,517 |
|
|
(1,063) |
|
|
(30) |
% |
|
Total operating expenses |
10,569 |
|
|
8,405 |
|
|
2,164 |
|
|
26 |
% |
|
28,225 |
|
|
24,914 |
|
|
3,311 |
|
|
13 |
% |
|
Loss from operations |
(6,404) |
|
|
(3,967) |
|
|
(2,437) |
|
|
(61) |
% |
|
(14,626) |
|
|
(12,302) |
|
|
(2,324) |
|
|
(19) |
% |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
(142) |
|
|
(79) |
|
|
(63) |
|
|
80 |
% |
|
(324) |
|
|
(3,148) |
|
|
2,824 |
|
|
(90) |
% |
|
Gain on extinguishment of debt, net |
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
— |
|
|
457 |
|
|
(457) |
|
|
(100) |
% |
|
Change in fair value of warrant liabilities |
— |
|
|
590 |
|
|
(590) |
|
|
(100) |
% |
|
— |
|
|
23,463 |
|
|
(23,463) |
|
|
(100) |
% |
|
Total other (expense) income, net |
(142) |
|
|
511 |
|
|
(653) |
|
|
(128) |
% |
|
(324) |
|
|
20,772 |
|
|
(21,096) |
|
|
(102) |
% |
|
Net (loss) income before income taxes |
(6,546) |
|
|
(3,456) |
|
|
(3,090) |
|
|
(89) |
% |
|
(14,950) |
|
|
8,470 |
|
|
(23,420) |
|
|
277 |
% |
|
Income tax expense |
1 |
|
|
— |
|
|
1 |
|
|
— |
% |
|
4 |
|
|
— |
|
|
4 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders |
$ |
(6,547) |
|
|
$ |
(3,456) |
|
|
$ |
(3,091) |
|
|
(89) |
% |
|
$ |
(14,954) |
|
|
$ |
8,470 |
|
|
$ |
(23,424) |
|
|
277 |
% |
Net sales
We sell our products through online retailers, pet specialty
retailers, our online portal directly to our consumers and
internationally to foreign distribution partners (transacted in
U.S. dollars). Generally, our sales transactions are single
performance obligations that are recorded at the time the product
is shipped from our distribution centers and when control
transfers. We offer a variety of trade promotions, discounts and
incentives to our customers, which impacts the transaction price of
our products and our net sales accordingly. DTC net sales include
revenue derived from shipping fees and are net of loyalty points
earned (a portion of revenue is deferred at the time of the sale as
points are earned and not recognized until the redemption of the
points, estimated based on historical experience). We record a
revenue reserve based on historical return rates to account for
customer returns.
Information about our revenue channels is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
E-commerce
(1)
|
|
$ |
3,530 |
|
|
30 |
% |
|
$ |
4,742 |
|
|
36 |
% |
|
$ |
11,035 |
|
|
24 |
% |
|
$ |
11,644 |
|
|
33 |
% |
|
Brick & Mortar
(2)
|
|
1,342 |
|
|
11 |
% |
|
1,816 |
|
|
14 |
% |
|
9,632 |
|
|
21 |
% |
|
5,408 |
|
|
16 |
% |
|
DTC |
|
1,371 |
|
|
12 |
% |
|
2,363 |
|
|
18 |
% |
|
5,066 |
|
|
11 |
% |
|
7,140 |
|
|
20 |
% |
|
International
(3)
|
|
5,622 |
|
|
47 |
% |
|
4,279 |
|
|
32 |
% |
|
19,661 |
|
|
44 |
% |
|
10,827 |
|
|
31 |
% |
|
Net Sales |
|
$ |
11,865 |
|
|
100 |
% |
|
$ |
13,200 |
|
|
100 |
% |
|
$ |
45,394 |
|
|
100 |
% |
|
$ |
35,019 |
|
|
100 |
% |
(1)Our
E-commerce channel includes two customers that amounted to greater
than 10% of our total net sales during the three and nine months
ended September 30, 2022. These customers had an aggregate of
$3.3 million and $10.6 million of net sales during the
three and nine months ended September 30, 2022, respectively.
Two customers amounted to greater than 10% of our total net sales
during the three and nine months ended September 30, 2021,
respectively. These customers had an aggregate of $4.4 million
and $10.8 million of net sales during the three and nine
months ended September 30, 2021, respectively.
(2)Our
Brick & Mortar channel includes $4.3 million of net sales
from one customer that amounted to greater than 10% of our total
net sales during the nine months ended September 30,
2022.
(3)One
of our International customers that distributes products in China
amounted to greater than 10% of our total net sales during the
three and nine months ended September 30, 2022 and represented
$5.3 million and $16.6 million of net sales,
respectively. One of our International customers in China
represented greater than 10% of net sales during the three and nine
months ended September 30, 2021 and represented
$2.9 million and $6.7 million of net sales,
respectively.
Net sales decreased $1.3 million, or 10%, to $11.9 million for the
three months ended September 30, 2022 compared to $13.2
million for the three months ended September 30, 2021. The
decrease was driven by softness in our E-commerce channel as one of
our primary customers significantly reduced its levels of on-hand
inventory and lower customer acquisition and retention marketing
spend as we prepare for the Halo Holistic™ relaunch, softness in
our DTC channel as we began to re-introduce customer acquisition
marketing spend after finalizing the rebranding of TruDog under the
Halo umbrella, and a reduction in our Brick & Mortar channel as
we exited select grocery chains and shifted the focus of this
channel to the Halo Elevate® product line, partially offset by
increased International sales. Net sales increased $10.4 million,
or 30%, to $45.4 million for the nine months ended
September 30, 2022 compared to $35.0 million for the nine
months ended September 30, 2021. The increase was driven by
growth in our Brick & Mortar channel driven by the launch of
Halo Elevate® and growth in our International channel, partially
offset by lower E-commerce and DTC sales driven by an intentional
reduction in new customer acquisition and retention marketing spend
in connection with our strategic rebranding of TruDog under the
Halo umbrella which was successfully executed and implemented in
July 2022 and the Halo Holistic™ relaunch. Our revenue growth and
the sales for certain products was negatively impacted in the first
half of 2022 by the supply chain issues being felt globally as we
navigate through short-term shortages in raw materials as well as
production delays stemming from labor constraints.
Key factors that we expect to affect our future sales growth
include new product innovation and launches, our expansion strategy
in each of the sales channels and our key supplier
relationships.
Gross profit
Cost of goods sold consists primarily of the cost of product
obtained from co-manufacturers, packaging materials, freight costs
for shipping inventory to the warehouse, as well as third-party
warehouse and order fulfillment costs. We review inventory on hand
periodically to identify damages, slow moving inventory, and/or
aged inventory. Based on this analysis, we record inventories at
the lower of cost or net realizable value, with any reduction in
value expensed as cost of goods sold.
Our products are manufactured to our specifications by our
co-manufacturers using raw materials. We work with our
co-manufacturers to secure a supply of raw materials that meet our
specifications. In addition to procuring raw materials that meet
our formulation requirements, our co-manufacturers manufacture,
test and package our products. We design our packaging for our
co-manufacturers and the packaging is shipped directly to
them.
Our gross profit has been and will continue to be affected by a
variety of factors, primarily product sales mix, volumes sold,
discounts offered to newly acquired and recurring customers, the
cost of our manufactured products, and the cost of freight from the
manufacturer to the warehouse.
During the three months ended September 30, 2022, gross profit
decreased $0.2 million, or 6%, to $4.2 million compared to $4.4
million during the three months ended September 30, 2021.
Gross profit margin increased 1% to 35% for the three months ended
September 30, 2022 compared to 34% for the three months ended
September 30, 2021. The increase in margin was driven by cost
savings realized due to transitioning the production of our dry
kibble sold through our International channel to our new
co-manufacturer, which was partially offset by an inventory
write-off attributable to our Halo Holistic™ rebranding
initiatives. During the nine months ended September 30, 2022,
gross profit increased $1.0 million, or 8%, to $13.6 million
compared to $12.6 million during the three months ended
September 30, 2021. Gross profit margin decreased 6% to 30%
for the nine months ended September 30, 2022 compared to 36%
for the nine months ended September 30, 2021. The decrease in
margin was driven primarily by several cost increases from our
primary suppliers as a result of broad-scale inflation in the
industry as well as an inventory write-off attributable to our Halo
Holistic™ rebranding initiatives, which is partially offset by cost
savings from transitioning some of our primary suppliers and price
increases to customers as described below. We expect these cost
savings offsets will contribute to a higher gross profit
realization going forward.
We continue to actively work with our co-manufacturer and freight
partners to generate future cost savings, and have successfully
transitioned some of our primary suppliers to help realize improved
gross profit margins in future periods. Additionally, we began
implementing price increases to our customers to help cover these
cost increases beginning late in the third quarter of 2021. We
implemented additional price increases during 2022, which became
effective in the second and third quarters of 2022. We could see
continued margin variability due to the current economic
environment and pricing pressures due to inflationary costs for
both transportation and raw materials. We will continue to refine
and optimize our overall pricing strategy as we evaluate the future
impact of inflation and align ourselves with the
market.
Operating expenses
Our SG&A expenses consist of the following:
•Sales
and marketing costs
for specific customer promotional programs, paid media, content
creation expenses and our DTC selling platform. Marketing costs are
geared towards customer acquisition and retention and building
brand awareness. During the three months ended September 30,
2022, sales and marketing costs increased approximately
$1.9 million or 54%, to $5.4 million from
$3.5 million during the three months ended September 30,
2021. During the nine months ended September 30, 2022, sales
and marketing costs increased approximately $3.9 million or
49%, to $11.9 million from $8.0 million during the nine
months ended September 30, 2021. The increases were driven
primarily by non-cash amortization related to the utilization of
the remaining prepaid radio advertisement services with iHeart,
marketing and advertising agency fees related to building and
launching our new sales strategy as well as increased marketing
spend in our International sales channel, partially offset by a
temporary intentional decrease in customer acquisition and
retention marketing spend as we shift the focus of our investments
to our longer-term sales strategy.
•Employee
compensation and benefits
increased approximately $0.3 million or 19% during the three
months ended September 30, 2022 to $1.9 million from
$1.6 million during the three months ended September 30,
2021. During the nine months ended September 30, 2022,
employee compensation and benefits increased approximately
$0.4 million or 7% to $6.1 million from $5.7 million
during the nine months ended September 30, 2021. The increases
were primarily related to the addition of several key members to
our management team during the second half of 2021 that have
significant operating experience in the pet and consumer-packaged
good sectors which we believe will enable us to successfully
execute our growth strategy, partially offset by higher severance
costs during the first half of 2021.
•Freight,
which is primarily related to the shipping of DTC orders to
customers, remained flat at $0.3 million for both the three
months ended September 30, 2022 and 2021. Freight also
remained flat at $1.2 million for both the nine months ended
September 30, 2022 and 2021. Freight costs are generally
increasing, offset by our lower DTC sales as described
above.
•Non-cash
charges
including depreciation, amortization, disposal or sale of assets
and bad debt expense increased $0.1 million or 25% during the
three months ended September 30, 2022 to $0.5 million
from $0.4 million for the three months ended
September 30, 2021. The increase was driven by additional
capital expenditures. During the nine months ended
September 30, 2022, non-cash charges decreased approximately
$0.1 million or 7% to $1.4 million from $1.5 million
during the nine months ended September 30, 2021. The decrease
was driven by disposals of certain assets during 2021, offset by
additional capital expenditures throughout 2022.
•Other
general and administrative costs
for various general corporate expenses, including professional
services, information technology, insurance, travel, costs related
to merchant credit card fees, product development costs, rent, and
certain tax costs. During both the three months ended
September 30, 2022 and September 30, 2021, other general
and administrative costs remained flat at $1.9 million. During
the nine months ended September 30, 2022, other general and
administrative costs increased $0.2 million, or 4% to
$5.2 million compared to $5.0 million for the nine months
ended September 30, 2021. The increase was driven by higher
international consulting fees, additional travel fees and higher
product development costs during the nine months ended
September 30, 2022, partially offset by a non-cash reduction
of our sales tax liability of $0.6 million during the nine months
ended September 30, 2021 with no similar reduction of expense
during the nine months ended September 30, 2022, as well as
lower professional fees, lower franchise taxes and a reduction in
rent expense as a result of prior lease terminations.
Share-based compensation includes expenses related to equity awards
issued to employees and non-employee directors. During the three
months ended September 30, 2022, share-based compensation
decreased $0.1 million, or 15%, to $0.6 million as compared to $0.7
million for the three months ended September 30, 2021. The
decrease was primarily driven by accelerated vesting of certain
stock option grants during the three months ended
September 30, 2021. During the nine months ended
September 30, 2022, share-based compensation decreased $1.0
million, or 30%, to $2.5 million as compared to $3.5 million for
the nine months ended September 30, 2021. The decrease was
driven by accelerated vesting on certain stock option grants during
2021, partially offset by common stock issued for board service and
accelerated vesting of a certain stock option grant during 2022 and
additional option grants.
We have had no impairment expense related to goodwill or intangible
assets through September 30, 2022. In conjunction with the
rebranding of TruDog and legal merger with Halo, we performed an
analysis of our reporting units and concluded we have one reporting
unit, and as such, we performed a quantitative goodwill assessment
as of July 1, 2022 that indicated no impairment. Additionally,
during the period from July 2, 2022 through September 30,
2022, there was a decline in our stock price and a change in CEO,
and as such, we determined there were triggering events present
during the interim period. We performed a qualitative analysis
around the market value and determined the decline in stock price
is not indicative of our operating results and that the decline in
market value from July 2,2022 to September 30, 2022 was not of
sufficient duration to indicate impairment. Additionally, we
performed other qualitative analyses which considered the potential
impacts of the change in CEO and other known information that could
cause a change in the assumptions used in the July 1, 2022
assessment. As a result of our analysis, we concluded that the fair
value was more-likely-than-not above carrying value. If global
macroeconomic or geopolitical conditions worsen, projected revenue
growth rates or projected operating margins decline, weighted
average cost of capital increases, or if we have a sustained
decline in its stock price, it is possible this could result in a
potentially material goodwill impairment charge.
Interest expense, net
During the three months ended September 30, 2022, interest
expense remained flat at $0.1 million for both the three months
ended September 30, 2022 and 2021. During the nine months
ended September 30, 2022, interest expense decreased $2.8
million to $0.3 million from $3.1 million for the nine months ended
September 30, 2021. Interest expense for the three and nine
months ended September 30, 2022 and three months ended
September 30, 2021 is comprised of interest on our Wintrust
Credit Facility and the amortization of debt issuance costs.
Interest expense for the nine months ended September 30, 2021
is comprised of interest on our Wintrust Credit Facility, payable
in-kind interest on our previous senior subordinated convertible
notes, and the amortization of debt issuance costs and accretion of
debt discounts, including $1.4 million during the three months
ended June 30, 2021 associated with the remaining discount on the
previous convertible notes, which was fully accreted to interest
expense in connection with the conversion to common stock resulting
from the commencement of the trading of our common stock on the
NYSE.
Gain on extinguishment of debt, net
During the nine months ended September 30, 2021, we incurred a
net gain on extinguishment of debt of $0.5 million, while there was
no corresponding activity for the nine months ended
September 30, 2022. Gain on extinguishment of debt for the
nine months ended September 30, 2021 relates to extinguishment
accounting applied in connection with the forgiveness of our PPP
loans, partially offset by the loss on termination of a term loan
and ABL Facility.
Change in fair value of warrant liabilities
Common stock warrants classified as liabilities are revalued at
each balance sheet date subsequent to the initial issuance and
changes in the fair value are reflected in the Condensed
Consolidated Statements of Operations as change in fair value of
warrant liabilities. The change in fair value for the three and
nine months ended September 30, 2021 relates to the change in
the fair value of common stock warrants issued in connection with a
private placement. Upon consummation of our IPO on July 1, 2021,
these warrants met the requirements to be considered equity were
reclassified as such.
Income taxes
Our income tax provision consists of an estimate of federal and
state income taxes based on enacted federal and state tax rates, as
adjusted for any allowable credits, deductions and uncertain tax
positions as they arise. During the three and nine months ended
September 30, 2022, we recorded minimal income tax expense.
During the three and nine months ended September 30, 2021, we
did not record income tax expense due to the continued losses
incurred by us. The effective tax rate is less than 1% for the
three and nine months ended September 30, 2022 and 0% for the
three and nine months ended September 30, 2021, which differs
from the U.S. Federal statutory rate of 21% primarily because our
losses have been fully offset by a valuation allowance due to
uncertainty of realizing the tax benefit of our NOLs.
Liquidity and capital resources
Historically, we have financed our operations primarily through the
sales of shares of our common stock, warrants, preferred stock, and
loans. In connection with our IPO on July 1, 2021, we issued and
sold 8,000,000 shares of common stock at a price of $5.00 per share
and received total net proceeds of approximately
$36.1 million, after deducting underwriting discounts and
commissions of $2.8 million, and offering costs of
approximately $1.1 million. On September 30, 2022 and
December 31, 2021, we had cash and cash equivalents and
restricted cash of $12.6 million and $28.9 million,
respectively.
We are subject to risks common in the pet wellness consumer market
including, but not limited to, dependence on key personnel,
competitive forces, successful marketing and sale of our products,
the successful protection of our proprietary technologies, ability
to grow into new markets, and compliance with government
regulations. As of September 30, 2022, we have not experienced
a significant adverse impact to our business, financial condition
or cash flows resulting from the COVID-19 pandemic, geopolitical
actions or threat of cyber-attacks. However, we have seen adverse
impacts to our gross profit margin due to inflationary pressures in
the current economic environment. Uncertainties regarding the
continued economic impact of inflationary pressures, the COVID-19
pandemic, geopolitical actions and threat of cyber-attacks are
likely to result in sustained market turmoil, which could
negatively impact our business, financial condition, and cash flows
in the future.
Our ability to raise additional capital may be adversely impacted
by the potential worsening of global economic conditions, including
inflationary pressures, and the recent disruptions to, and
volatility in, the credit and financial markets in the United
States and worldwide resulting from the COVID-19 pandemic and
geopolitical tensions. If we seek additional financing to fund our
business activities in the future, investors or other financing
sources may be unwilling to provide additional funding on
commercially reasonable terms or at all. If we are unable to raise
the necessary funds when needed or achieve planned cost savings, or
other strategic objectives are not achieved, we may not be able to
continue our operations, or we could be required to modify our
operations that could slow future growth.
We are required to maintain a minimum liquidity (as defined in the
Wintrust Credit Facility) of no less than $8.5 million tested
on the last day of each fiscal quarter beginning September 30, 2022
and thereafter to comply with our financial covenants. As of
September 30, 2022, we were in compliance with all debt
covenant requirements and there were no events of default. We have
historically incurred losses and expect to continue to generate
operating losses and consume cash resources in the near term;
however, due to our high level of working capital, minimal debt and
expected financial performance in the future, we expect to be in
compliance with all required debt covenants and do not anticipate
substantial doubt about our ability to continue as a going concern.
We have implemented and continue to implement plans to achieve
operating profitability, including various margin improvement
initiatives, the consolidation of and introduction of new
co-manufacturers, the optimization of our pricing strategy and
ingredient profiles, and new product innovation.
A summary of our cash flows is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash flows (used in) provided by: |
|
|
|
|
Operating activities |
$ |
(17,972) |
|
|
$ |
(8,320) |
|
|
Investing activities |
(198) |
|
|
(124) |
|
|
Financing activities |
1,843 |
|
|
37,716 |
|
|
Net (decrease) increase in cash and cash equivalents and restricted
cash |
$ |
(16,327) |
|
|
$ |
29,272 |
|
Cash flows from operating activities
Cash used in operating activities increased $9.7 million, or 116%,
during the nine months ended September 30, 2022 compared to
the nine months ended September 30, 2021. The increase in cash
used in operating activities was primarily driven by significant
fluctuations in our working capital, including a comparative
increase in our inventory balance of $8.3 million as we built
inventory to support the Halo Elevate® launch and the rebranding of
TruDog and Halo Holistic™. Additionally, net (loss) income from
operations adjusted for non-cash expenses was $(8.5) million for
the nine months ended September 30, 2022 compared to $(7.4)
million for the nine months ended September 30, 2021. This
increase in operating cash outflows was primarily driven by
increased marketing spend related to building and launching our new
long-term sales strategy during 2022, which is not expected to
recur at the same levels in 2023.
Cash flows from investing activities
Cash used in investing activities was $0.2 million during the
nine months ended September 30, 2022 and
$0.1 million
during the nine months ended September 30, 2021. The cash used
in investing activities is related to the purchase of fixed
assets.
Cash flows from financing activities
Cash provided by financing activities was $1.8 million for
the
nine months ended September 30, 2022 compared to
cash provided by financing activities of $37.7 million during
the
nine months ended September 30, 2021.
The cash provided by financing activities for the nine months ended
September 30, 2022 was related to net proceeds from the
revolving line of credit of $2.5 million, partially offset by
payments on the term loan of $0.7 million. The cash provided
by financing activities for the nine months ended
September 30, 2021 was primarily related to net proceeds from
the IPO of
$36.2 million,
proceeds from private placements of $4.1 million and cash
received from warrant exercises of
$1.7 million,
partially offset by net payments on the term loans of
$2.4 million, net payments on the revolving line of credit of $0.3
million, $0.1 million of debt issuance costs and $1.3 million
related to share repurchases.
Indebtedness
As of September 30, 2022, our indebtedness consisted of a term
loan and a revolving credit facility. For additional details about
the terms, covenants and restrictions contained in the Wintrust
Credit Facility, see "Note 7 - Debt" to our interim condensed
consolidated financial statements included in this Quarterly
Report.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results
of operations are based upon our unaudited condensed consolidated
financial statements, which have been prepared in accordance with
GAAP. The preparation of our unaudited condensed consolidated
financial statements and related disclosures requires us to make
estimates, assumptions and judgments that affect the reported
amounts of assets, liabilities, net sales, costs and expenses and
related disclosures. We believe that the estimates, assumptions and
judgements involved in the accounting policies described below and
in our Annual Report for the year ended December 31, 2021 have the
greatest potential impact on our financial statements and,
therefore, we consider those to be our critical accounting
estimates. Accordingly, we evaluate our estimates and assumptions
on an ongoing basis. Our actual results may differ from these
estimates under different assumptions and conditions. Other than
noted below, there have been no material changes to our critical
accounting estimates compared to the descriptions in our Annual
Report for the year ended December 31, 2021.
Goodwill Impairment
We evaluate goodwill for impairment at least annually at the
reporting unit level. We monitor the existence of potential
impairment indicators throughout the year and will evaluate for
impairment whenever events or circumstances indicate that the fair
value of a reporting unit is below its carrying value. Impairment
testing is based on our current business strategy in light of
present industry and economic conditions, as well as future
expectations. Fair value measurements used in the impairment review
of goodwill are Level 3 measurements.
When evaluating goodwill for impairment, we have the option to
first assess qualitative factors to determine whether it is more
likely than not the fair value of a reporting unit is less than its
carrying amount. Qualitative factors include macroeconomic
conditions, industry and market conditions, and overall company
financial performance. If, after assessing the totality of events
and circumstances, we determine that it is more likely than not the
fair value of the reporting unit is greater than its carrying
amount, a quantitative impairment test is unnecessary. If the fair
value exceeds the carrying value, we conclude that no goodwill
impairment has occurred. If the carrying value of the reporting
unit exceeds its fair value, we recognize an impairment loss in an
amount equal to the excess, not to exceed the carrying value of the
goodwill. We consider fair value to be substantially in excess of
carrying value at a 20% premium or greater.
When performing a quantitative impairment test, determining the
fair value of a reporting unit involves the use of significant
estimates and assumptions to evaluate the impact of operational and
macroeconomic changes. If a quantitative assessment is deemed
necessary, we determine fair value using a weighted average of
widely accepted valuation techniques, including the income approach
and market approach. The income approach applies a fair value
methodology based on discounted cash flows, which contains
uncertainties because it requires management to make significant
assumptions and judgments including estimation of future cash
flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, estimation of the useful
life over which cash flows will occur, and determination of our
weighted average cost of capital or discount rate, which is
risk-adjusted to reflect the specific risk profile of our business.
The market approach includes determining appropriate comparable
companies and applying an estimated multiple to apply to our
operating results. The primary market multiples to which we compare
are revenue and earnings before interest, taxes, depreciation, and
amortization.
See "Note 6 - Goodwill and intangible assets" to our unaudited
condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q for more information regarding
goodwill impairment assessment completed during the
period.
In performing our assessments, we believe that we have made
reasonable estimates based on the facts and circumstances that were
available. However, the determination of fair value includes
assumptions that are subject to risk and uncertainty. If our future
performance varies from current expectations, assumptions, or
estimates, including those assumptions around inflationary
pressures on product and labor costs, our revenue growth rates and
our overall profitability, as well as our expectations around the
duration of our stock price decline, may trigger future impairment
charges. We will continue to monitor developments throughout the
remainder of 2022, including updates to our forecasts as well as
our market capitalization, and an update of our assessment and
related estimates may be required in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and not required to provide the information under this
Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Management evaluated its internal control over financial reporting
for the quarter ended September 30, 2022. Based upon that
evaluation, our Principal Executive Officer and Principal Financial
and Accounting Officer concluded that our disclosure controls and
procedures were effective as of September 30,
2022.
Changes in internal control over financial reporting
There were no changes in internal control over financial reporting
during the fiscal quarter ended September 30, 2022 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and
legal proceedings, which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to
time that may harm our business. We are currently not aware of any
such legal proceedings or claims that we believe will have a
material adverse effect on our business, financial condition or
operating results.
ITEM 1A. RISK FACTORS
Other than noted below, there have been no material changes from
the risk factors described under the heading “Risk Factors” in our
Annual Report filed on March 29, 2022. Additionally, in the
Quarterly Report filed with the SEC on August 11, 2022, we included
a risk factor concerning our ability to continue as a going concern
for at least one year from the issuance of the financial statements
which has since been alleviated and therefore removed from our Risk
Factors. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources” for further discussion around going concern. You should
carefully consider, in addition to the other information set forth
in this report, the below and the risk factors discussed in our
Annual Report that could materially affect our business, financial
condition or future results. The risks described in our Annual
Report are not the only risks facing our Company. In addition to
risks and uncertainties inherent in forward-looking statements
contained in this Quarterly Report, additional risks and
uncertainties not currently known to us or that we currently deem
to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.
If our goodwill or amortizable intangible assets become impaired,
then we could be required to record a significant charge to
earnings.
We evaluate goodwill for impairment at least annually. We monitor
the existence of potential impairment indicators throughout the
year and will evaluate for impairment whenever events or
circumstances indicate that the fair value of a reporting unit is
below its carrying value. Factors that may be considered a change
in circumstances indicating that the carrying value of our goodwill
or amortizable intangible assets may not be recoverable include
declines in stock price, market capitalization or cash flows, and
slower growth rates in our industry. Depending on the results of
these evaluations, we could be required to record a significant
charge to earnings in our consolidated financial statements during
the period in which any impairment of our goodwill or amortizable
intangible assets were determined, negatively impacting our results
of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The below presents information with respect to common stock
repurchases during the three months ended September 30,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs |
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under
the Plans or Programs |
|
July 1, 2022 to July 31, 2022 |
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
3,000,000 |
|
|
August 1, 2022 to August 31, 2022 |
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
3,000,000 |
|
|
September 1, 2022 to September 30, 2022 |
|
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
3,000,000 |
|
|
Total |
|
— |
|
|
$ |
— |
|
|
— |
|
|
|
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed herewith.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit |
Exhibit Description |
Form |
File
No. |
Exhibit |
Filing
Date |
|
|
|
8-K |
333-161943 |
2.1 |
05/10/2019 |
|
|
|
8-K |
333-161943 |
2.2 |
05/10/2019 |
|
|
|
8-K |
333-161943 |
2.3 |
05/10/2019 |
|
|
|
8-K |
333-161943 |
2.4 |
05/10/2019 |
|
|
|
8-K |
333-161943 |
2.1 |
12/26/2019 |
|
|
|
10-Q |
001-40477 |
2.6 |
08/11/2022 |
|
|
|
10-Q |
333-161943 |
3.1 |
04/15/2019 |
|
|
|
10-Q |
333-161943 |
3.2 |
04/15/2019 |
|
|
|
8-K |
333-161943 |
3.1 |
03/20/2019 |
|
|
|
10-KT |
333-161943 |
3.5 |
07/25/2019 |
|
|
|
8-K |
333-161943 |
99.1 |
07/30/2020 |
|
|
|
10-Q |
333-161943 |
3.4 |
04/15/2019 |
|
|
|
10-Q |
333-161943 |
3.5 |
04/15/2019 |
|
|
|
8-K |
333-161943 |
3.1 |
10/02/2020 |
|
|
|
8-K |
001-40477 |
3.1 |
07/29/2022 |
|
|
|
10-Q |
001-40477 |
3.10 |
08/11/2022 |
|
|
|
8-K |
333-161943 |
4.2 |
11/15/2019 |
|
|
|
10-Q |
333-161943 |
10.6 |
01/31/2020 |
|
|
|
10-Q |
333-161943 |
4.8 |
01/31/2020 |
|
|
|
10-Q |
333-161943 |
4.10 |
01/31/2020 |
|
|
|
8-K |
333-161943 |
10.1 |
04/30/2019 |
|
|
|
8-K |
333-161943 |
10.1 |
11/15/2019 |
|
|
|
10-K |
333-161943 |
10.19 |
05/04/2020 |
|
|
|
S-1 |
333-234349 |
10.7 |
10/28/2019 |
|
|
|
10-Q |
333-161943 |
4.11 |
06/25/2020 |
|
|
|
10-Q |
333-161943 |
4.13 |
06/25/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit |
Exhibit Description |
Form |
File
No. |
Exhibit |
Filing
Date |
|
|
|
8-K |
333-161943 |
10.5 |
07/21/2020 |
|
|
|
8-K |
333-161943 |
4.1 |
10/02/2020 |
|
|
|
8-K |
333-161943 |
10.1 |
10/02/2020 |
|
|
|
S-1/A |
333-251241 |
4.22 |
02/16/2021 |
|
|
|
S-1/A |
333-251241 |
4.23 |
02/16/2021 |
|
|
|
S-1 |
333-234349 |
10.8 |
10/28/2019 |
|
|
|
8-K/A |
333-161943 |
10.2 |
01/05/2021 |
|
|
|
10-K |
333-161943 |
10.12 |
03/30/2021 |
|
|
|
10-K |
333-161943 |
10.13 |
03/30/2021 |
|
|
|
10-K |
333-161943 |
10.14 |
03/30/2021 |
|
|
|
8-K |
333-161943 |
10.1 |
01/11/2021 |
|
|
|
8-K |
333-161943 |
10.3 |
01/11/2021 |
|
|
|
8-K |
333-161943 |
10.4 |
01/11/2021 |
|
|
|
8-K |
333-161943 |
10.5 |
01/11/2021 |
|
|
|
8-K |
333-161943 |
10.6 |
01/11/2021 |
|
|
|
8-K |
001-40477 |
10.1 |
08/17/2021 |
|
|
|
8-K |
001-40477 |
10.2 |
08/17/2021 |
|
|
|
8-K |
001-40477 |
10.3 |
08/17/2021 |
|
|
|
10-K |
001-40477 |
10.14 |
03/29/2022 |
|
|
|
8-K |
001-40477 |
10.1 |
10/25/2022 |
|
|
|
8-K |
001-40477 |
10.2 |
10/25/2022 |
|
|
|
8-K |
001-40477 |
10.3 |
10/25/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit |
Exhibit Description |
Form |
File
No. |
Exhibit |
Filing
Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101* |
The following materials from the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2022 formatted in
Inline Extensible Business Reporting Language ("iXBRL"): (i) the
Condensed Consolidated Balance Sheets, (ii) the Condensed
Consolidated Statements of Operations, (iii) the Condensed
Consolidated Statements of Stockholders Equity, (iv) the Condensed
Consolidated Statements of Cash Flows and (v) related notes, tagged
as blocks of text and including detailed tags |
|
|
|
|
|
104* |
Cover page from the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2022, formatted in iXBRL (included as
Exhibit 101) |
|
|
|
|
† Indicates a management contract or any
compensatory plan, contract or arrangement.
* Filed or furnished herewith.
# Certain information in this document has
been excluded pursuant to Regulation S-K, Item 601(b)(10)(iv). Such
excluded information is both not material and is the type that the
registrant treats as private or confidential.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
BETTER CHOICE COMPANY INC. |
|
|
|
|
Date: November 10, 2022 |
By: |
/s/ LIONEL F. CONACHER |
|
|
|
|
|
Lionel F. Conacher |
|
|
Interim Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
Date: November 10, 2022 |
By: |
/s/ SHARLA A. COOK |
|
|
|
|
|
Sharla A. Cook |
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
Better Choice (AMEX:BTTR)
Graphique Historique de l'Action
De Jan 2023 à Fév 2023
Better Choice (AMEX:BTTR)
Graphique Historique de l'Action
De Fév 2022 à Fév 2023
