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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
Or
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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)
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Delaware |
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83-4284557 |
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(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
12400 Race Track Road
Tampa, Florida 33626
(212) 896‑1254
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(Address of Principal Executive Offices) (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on which
Registered
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Common Stock, $0.001 par value share |
BTTR |
NYSE American |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well‑known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files.) Yes ☒ No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non‑accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b‑2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by a check mark whether the registrant is a shell company
(as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No
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The number of shares outstanding of each of the registrant’s
classes of common stock as of the latest practicable date was:
30,541,148 shares of $0.001 par value common stock outstanding as
of May 12, 2023.
Better Choice Company Inc.
TABLE OF CONTENTS
FORWARD‑LOOKING STATEMENTS
This report contains forward-looking statements that are subject to
risks and uncertainties. All statements other than statements of
historical fact included in this report are forward-looking
statements. Forward-looking statements discuss our current
expectations and projections relating to our financial condition,
results of operations, plans, objectives, future performance and
business. You can identify forward-looking statements by the fact
that they do not relate strictly to historical or current facts.
These statements may include words such as “aim,” “anticipate,”
“believe,” “can,” “could,” “estimate,” “expect,” “forecast,”
“intend,” “likely,” “may,” “outlook,” “plan,” “potential,”
“project,” “projection,” “seek,” “should,” “will,” “would,” the
negatives thereof and other words and terms of similar meaning in
connection with any discussion of the timing or nature of future
operating or financial performance or other events. They appear in
a number of places throughout this report and include statements
regarding our intentions, beliefs or current expectations
concerning, among other things, our results of operations,
financial condition, liquidity, prospects, growth, strategies and
the industry in which we operate. All forward-looking statements
are subject to risks and uncertainties that may cause actual
results to differ materially from those that we expected,
including, but not limited to, those summarized below:
•our
ability to continue as a going concern;
•the
impact of damage to or interruption of our information technology
systems due to cyber-attacks or other circumstances beyond our
control;
•the
continued 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
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 continued 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.
•Per
section 9.3(H) of the WinTrust Credit Facility referenced in Note
8, Halo is restricted on its ability to pay dividends and make
payments to the Company as defined in the loan and security
agreement. This impacts the Company’s ability to pay dividends to
its shareholders, as the Company depends on its subsidiaries for
transfers of funds to support professional fees and its holding
company status. As referenced in Note 1, the Company is required to
maintain a restricted cash balance of $6.3 million as of March 31,
2023 and December 31, 2022, respectively, in connection with the
Wintrust Credit Facility.”
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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Net sales |
$ |
9,237 |
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$ |
17,014 |
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Cost of goods sold |
5,996 |
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12,307 |
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Gross profit |
3,241 |
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4,707 |
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Operating expenses: |
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Selling, general and administrative |
5,635 |
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7,577 |
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Share-based compensation |
861 |
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1,091 |
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Total operating expenses |
6,496 |
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8,668 |
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Loss from operations |
(3,255) |
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(3,961) |
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Other expenses: |
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Interest expense, net |
(229) |
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(76) |
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Total other expense, net |
(229) |
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(76) |
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Net loss before income taxes |
(3,484) |
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(4,037) |
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Income tax expense |
— |
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3 |
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Net loss available to common stockholders |
$ |
(3,484) |
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$ |
(4,040) |
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Weighted average number of shares outstanding, basic |
30,475,068 |
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29,289,504 |
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Weighted average number of shares outstanding, diluted |
30,475,068 |
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29,289,504 |
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Net loss per share available to common stockholders,
basic |
$ |
(0.11) |
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$ |
(0.14) |
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Net loss per share available to common stockholders,
diluted |
$ |
(0.11) |
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$ |
(0.14) |
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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)
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March 31, 2023 |
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December 31, 2022 |
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Assets |
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Cash and cash equivalents |
$ |
1,649 |
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$ |
3,173 |
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Restricted cash |
6,300 |
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6,300 |
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Accounts receivable, net |
6,317 |
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6,744 |
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Inventories, net |
8,883 |
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10,257 |
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Prepaid expenses and other current assets |
1,044 |
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1,051 |
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Total Current Assets |
24,193 |
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27,525 |
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Fixed assets, net |
332 |
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375 |
|
|
Right-of-use assets, operating leases |
160 |
|
|
173 |
|
|
Intangible assets, net |
9,678 |
|
|
10,059 |
|
|
|
|
|
|
Other assets |
782 |
|
|
544 |
|
|
Total Assets |
$ |
35,145 |
|
|
$ |
38,676 |
|
|
Liabilities & Stockholders’ Equity |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
$ |
3,128 |
|
|
$ |
2,932 |
|
|
Accrued and other liabilities |
1,487 |
|
|
2,596 |
|
|
|
|
|
|
|
|
|
|
Operating lease liability |
53 |
|
|
52 |
|
|
Total Current Liabilities |
4,668 |
|
|
5,580 |
|
|
Non-current Liabilities |
|
|
|
|
Line of credit, net |
11,462 |
|
|
11,444 |
|
|
|
|
|
|
|
|
|
|
Operating lease liability |
110 |
|
|
124 |
|
|
Total Non-current Liabilities |
11,572 |
|
|
11,568 |
|
|
Total Liabilities |
16,240 |
|
|
17,148 |
|
|
Stockholders’ Equity |
|
|
|
|
Common Stock, $0.001 par value, 200,000,000 shares authorized,
30,497,148 & 29,430,267 shares issued and outstanding as of
March 31, 2023 and December 31, 2022,
respectively
|
30 |
|
|
29 |
|
|
|
|
|
|
Additional paid-in capital |
320,931 |
|
|
320,071 |
|
|
Accumulated deficit |
(302,056) |
|
|
(298,572) |
|
|
Total Stockholders’ Equity |
18,905 |
|
|
21,528 |
|
|
Total Liabilities and Stockholders’ Equity |
$ |
35,145 |
|
|
$ |
38,676 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(Deficit)
(Dollars in thousands, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Accumulated
Deficit |
|
Total
Stockholders’
Equity |
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2022 |
29,430,267 |
|
|
$ |
29 |
|
|
$ |
320,071 |
|
|
$ |
(298,572) |
|
|
$ |
21,528 |
|
|
Share-based compensation |
1,066,881 |
|
|
— |
|
|
861 |
|
|
— |
|
|
861 |
|
|
Share issuance |
— |
|
|
1 |
|
|
(1) |
|
|
— |
|
|
— |
|
|
Net loss available to common stockholders |
— |
|
|
— |
|
|
— |
|
|
(3,484) |
|
|
(3,484) |
|
|
Balance as of March 31, 2023 |
30,497,148 |
|
|
30 |
|
|
320,931 |
|
|
(302,056) |
|
|
18,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Accumulated
Deficit |
|
Total
Stockholders’
Equity |
|
Shares |
|
Amount |
|
|
|
|
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 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
Better Choice Company Inc.
Unaudited Condensed Consolidated Statements of Cash
Flows
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
2023 |
|
2022 |
|
Cash Flow from Operating Activities: |
|
|
|
|
Net loss available to common stockholders |
$ |
(3,484) |
|
|
$ |
(4,040) |
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Depreciation and amortization |
424 |
|
|
409 |
|
|
Amortization of debt issuance costs and discounts |
19 |
|
|
— |
|
|
Share-based compensation |
861 |
|
|
1,091 |
|
|
Inventory reserve |
(682) |
|
|
222 |
|
|
Loss on disposal of assets |
11 |
|
|
— |
|
|
Other |
— |
|
|
15 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
427 |
|
|
(2,925) |
|
|
Inventories |
2,056 |
|
|
(3,260) |
|
|
Prepaid expenses and other assets |
(230) |
|
|
81 |
|
|
Accounts payable and accrued liabilities |
(924) |
|
|
728 |
|
|
Other |
49 |
|
|
12 |
|
|
Cash Used in Operating Activities |
$ |
(1,473) |
|
|
$ |
(7,667) |
|
|
Cash Flow from Investing Activities: |
|
|
|
|
Capital expenditures |
$ |
(10) |
|
|
$ |
(150) |
|
|
Cash Used in Investing Activities |
$ |
(10) |
|
|
$ |
(150) |
|
|
Cash Flow from Financing Activities: |
|
|
|
|
Payments on short-term financing arrangement |
$ |
(41) |
|
|
$ |
— |
|
|
Proceeds from revolving lines of credit |
— |
|
|
2,500 |
|
|
Payments on term loans |
— |
|
|
(200) |
|
|
Debt issuance costs |
— |
|
|
(7) |
|
|
Cash (Used in) Provided by Financing Activities |
$ |
(41) |
|
|
$ |
2,293 |
|
|
Net decrease in cash and cash equivalents and restricted
cash |
$ |
(1,524) |
|
|
$ |
(5,524) |
|
|
Total cash and cash equivalents and restricted cash, beginning of
period |
9,473 |
|
|
28,942 |
|
|
Total cash and cash equivalents and restricted cash, end of
period |
$ |
7,949 |
|
|
$ |
23,418 |
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the quarter for: |
|
|
|
|
|
|
|
|
Interest |
$ |
237 |
|
|
$ |
67 |
|
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 U.S.
("GAAP"). Accordingly, the Condensed Consolidated Balance Sheet as
of December 31, 2022 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, 2022, 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 condensed 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 March 31,
2023 and 2022, the financial position as of March 31, 2023 and
December 31, 2022 and the cash flows for the three months
ended March 31, 2023 and 2022.
Going concern considerations
The Company is subject to risks common in the pet wellness consumer
market including, but not limited to, dependence on key personnel,
competitive forces, successful marketing and sale of its products,
the successful protection of its proprietary technologies, ability
to grow into new markets, and compliance with government
regulations. The Company has continually incurred losses, has an
accumulated deficit and is currently subject to certain financial
covenants, which requires maintaining a minimum liquidity (as
defined in the Wintrust Credit Facility below) of no less than
$8.5 million tested as of the last day of each fiscal quarter.
Our continued operating losses along with this financial covenant
create substantial doubt about the Company’s ability to continue as
a going concern for a period of twelve months from the date these
condensed consolidated financial statements are issued. The Company
does not currently expect it will be able to generate sufficient
cash flow from operations to maintain sufficient liquidity to meet
the required financial covenant in certain periods prior to
maturity giving the lender the right to call the debt. The Company
will need to either raise additional capital or obtain additional
financing, and/or secure future waivers or amendments from its
lenders, or accomplish some combination of these items to maintain
sufficient liquidity. There can be no assurance that the Company
will be successful in raising additional capital, securing future
waivers and/or amendments from its lenders, renewing or refinancing
its existing debt or securing new financing. If the Company is
unsuccessful in doing so, it may need to reduce the scope of its
operations, repay amounts owed to its lenders or sell certain
assets.
The Company is continuing to implement plans to achieve operating
profitability, as well as implementing other strategic objectives
to address liquidity. The accompanying consolidated financial
statements have been prepared assuming the Company will continue as
a going concern, which contemplates the realization of assets and
payments of liabilities in the
ordinary course of business. Accordingly, the consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount of and classification of liabilities that may result should
the Company be unable to continue as a going concern.
Summary of significant accounting policies
For additional information, please refer to the most recently filed
Annual Report regarding the Company's summary of significant
accounting policies.
Cash and cash equivalents
Cash and cash equivalents include demand deposits held with banks
and highly liquid investments with original maturities of ninety
days or less at acquisition date. Cash and cash equivalents are
stated at cost, which approximates fair value because of the
short-term nature of these instruments. The Company's cash
equivalents are held in government money market funds and at times
may exceed federally insured limits. For purposes of reporting cash
flows, the Company considers all cash accounts that are not subject
to withdrawal restrictions or penalties to be cash and cash
equivalents. At March 31, 2023 and December 31, 2022, the
Company had $6.4 million and $8.0 million, respectively,
in money market funds all of which were held in cash.
Restricted cash
The Company was required to maintain a restricted cash balance of
$6.3 million as of March 31, 2023 and December 31,
2022, respectively, in connection with the Wintrust Credit
Facility.
Advertising
The Company charges advertising costs to expense as incurred and
such charges are included in SG&A expense. 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 $1.4 million and $2.3 million for the three
months ended March 31, 2023 and 2022,
respectively.
New Accounting Standards
Recently 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. The new
standard did not have a material impact on the condensed
consolidated financial statements for the three months ended March
31, 2023.
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 March 31, |
|
|
2023 |
|
2022 |
|
E-commerce
(1)
|
|
$ |
3,895 |
|
|
42 |
% |
|
$ |
3,824 |
|
|
22 |
% |
|
Brick & Mortar
(3)
|
|
1,709 |
|
|
19 |
% |
|
4,334 |
|
|
26 |
% |
|
DTC |
|
1,322 |
|
|
14 |
% |
|
1,933 |
|
|
11 |
% |
|
International
(2)
|
|
2,311 |
|
|
25 |
% |
|
6,923 |
|
|
41 |
% |
|
Net Sales |
|
$ |
9,237 |
|
|
100 |
% |
|
$ |
17,014 |
|
|
100 |
% |
(1)The
Company's E-commerce channel includes two customers and one
customer that amounted to greater than 10% of the Company's total
net sales for the three months ended March 31, 2023, and 2022,
respectively. These customers had $3.8 million of net sales
for the three months ended March 31, 2023 and an aggregate of
$2.2 million of net sales for the three months ended
March 31, 2022, respectively.
(2)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 months ended March 31, 2023 and
March 31, 2022 and represented $2.1 million and
$5.8 million of net sales, respectively.
(3)The
Company's Brick & Mortar channel includes $1.8 million of
net sales from one customer that amounted to greater than 10% of
the Company's total net sales for the three months ended
March 31, 2022. None of the Company's Brick & Mortar
customers represented greater than 10% of net sales during the
three months ended March 31, 2023.
Note 3 - Inventories
Inventories are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
Food, treats and supplements |
$ |
8,578 |
|
|
$ |
10,212 |
|
|
Inventory packaging and supplies |
1,277 |
|
|
1,699 |
|
|
|
|
|
|
Total Inventories |
9,855 |
|
|
11,911 |
|
|
Inventory reserve |
(972) |
|
|
(1,654) |
|
|
Inventories, net |
$ |
8,883 |
|
|
$ |
10,257 |
|
Note 4 – Prepaid expenses and other current assets
Prepaid expenses and other current assets are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
|
|
|
Total Prepaid expenses and other current assets |
$ |
1,044 |
|
|
$ |
1,051 |
|
Note 5 - Fixed assets
Fixed assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Life |
|
March 31, 2023 |
|
December 31, 2022 |
|
Equipment |
2 - 5 years
|
|
$ |
10 |
|
|
$ |
7 |
|
|
Furniture and fixtures |
2 - 5 years
|
|
221 |
|
|
221 |
|
|
Computer software, including website development |
2 - 3 years
|
|
187 |
|
|
187 |
|
|
Computer equipment |
1 - 2 years
|
|
110 |
|
|
129 |
|
|
Total fixed assets |
|
|
528 |
|
|
544 |
|
|
Accumulated depreciation |
|
|
(196) |
|
|
(169) |
|
|
Fixed assets, net |
|
|
$ |
332 |
|
|
$ |
375 |
|
Depreciation expense was $0.04 million and $0.03 million for the
three months ended March 31, 2023 and March 31, 2022,
respectively.
Note 6 – Accrued and other liabilities
Accrued and other liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
Accrued taxes |
100 |
|
|
110 |
|
|
Accrued payroll and benefits |
646 |
|
|
688 |
|
|
Accrued trade promotions and advertising |
175 |
|
|
567 |
|
|
Accrued interest |
88 |
|
|
84 |
|
|
Accrued commissions |
— |
|
|
385 |
|
|
Deferred revenue |
388 |
|
|
336 |
|
|
Short-term financing |
41 |
|
|
165 |
|
|
Other |
49 |
|
|
261 |
|
|
Total accrued and other liabilities |
$ |
1,487 |
|
|
$ |
2,596 |
|
Note 7 – Intangible assets
Intangible assets
The Company’s intangible assets (in thousands) and related useful
lives (in years) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
Estimated useful life |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net carrying
amount |
|
Accumulated
amortization |
|
Net carrying
amount |
|
Customer relationships |
7 |
|
$ |
7,190 |
|
|
$ |
(3,371) |
|
|
$ |
3,819 |
|
|
$ |
(3,115) |
|
|
$ |
4,075 |
|
|
Trade name |
15 |
|
7,500 |
|
|
(1,641) |
|
|
5,859 |
|
|
(1,516) |
|
|
5,984 |
|
|
Total intangible assets |
|
|
$ |
14,690 |
|
|
$ |
(5,012) |
|
|
$ |
9,678 |
|
|
$ |
(4,631) |
|
|
$ |
10,059 |
|
Amortization expense was $0.4 million for the for the three months
ended March 31, 2023 and March 31, 2022,
respectively.
The estimated future amortization of intangible assets over the
remaining weighted average useful life of 8.6 years is as follows
(in thousands):
|
|
|
|
|
|
|
Remainder of 2023 |
$ |
1,145 |
|
|
2024 |
1,527 |
|
|
2025 |
1,527 |
|
|
2026 |
1,494 |
|
|
2027 |
500 |
|
|
Thereafter |
3,485 |
|
|
|
$ |
9,678 |
|
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. There were no indicators of
impairment of the intangible assets as of March 31,
2023.
Note 8 – Debt
The components of the Company’s debt consist of the following (in
thousands):
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|
|
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|
|
March 31, 2023 |
|
December 31, 2022 |
|
Amount |
|
Rate |
|
Maturity
date |
|
Amount |
|
Rate |
|
Maturity
date |
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit, net |
$ |
11,462 |
|
|
(1) |
|
10/31/2024 |
|
$ |
11,444 |
|
|
(1) |
|
10/31/2024 |
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|
|
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|
|
Less current portion |
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total long-term debt |
$ |
11,462 |
|
|
|
|
|
|
$ |
11,444 |
|
|
|
|
|
(1)Interest
at a variable rate of the daily U.S. Federal Funds Rate plus 375
basis points with an interest rate floor of 3.75% per
annum.
Term loan 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. The
Company applied extinguishment accounting to the outstanding
balances of the previous term loan and ABL Facility and recorded a
loss on extinguishment of debt of $0.4 million during 2021.
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 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 March 31, 2023, the line of credit outstanding
under the Wintrust Credit Facility was $11.5 million, net of
debt issuance costs of less than $0.2 million. As of
December 31, 2022, the line of credit outstanding was
$11.4 million, net of debt issuance costs of less than
$0.2 million. 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.
As of March 31, 2023, the Company was in compliance with all
debt covenant requirements and there were no events of
default.
Future Debt Maturities
Future debt maturities as of March 31, 2023 and for succeeding
years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year ending December 31: |
|
|
|
2024 |
|
$ |
11,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
$ |
— |
|
|
Total |
|
$ |
11,462 |
|
Note 9 – Commitments and contingencies
The Company had no material purchase obligations as of
March 31, 2023 or December 31, 2022.
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 10 – Warrants
The following summarizes the Company's outstanding warrants to
purchase shares of the Company's common stock as of and for the
years ended March 31, 2023 and December 31,
2022:
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|
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|
|
|
|
|
Warrants |
|
Weighted Average Exercise Price |
|
|
|
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|
|
|
|
|
|
Warrants outstanding as of December 31, 2022 |
9,433,584 |
|
|
$ |
5.92 |
|
|
Issued |
— |
|
|
$ |
— |
|
|
Exercised |
— |
|
|
$ |
— |
|
|
Terminated/Expired |
— |
|
|
$ |
— |
|
|
Warrants outstanding as of March 31, 2023 |
9,433,584 |
|
|
$ |
5.92 |
|
There was no intrinsic value associated with the outstanding
warrants as of March 31, 2023 and December 31, 2022,
respectively.
Note 11 – Share-based compensation
During the three months ended March 31, 2023 and
March 31, 2022, the Company recognized $0.9 million and
$1.1 million, respectively, of share-based compensation
expense.
On November 11, 2019, the Company received shareholder approval for
the Amended and Restated 2019 Incentive Award Plan (the “Amended
2019 Plan”). The Amended 2019 Plan provides for the grant of stock
options, stock appreciation rights, restricted stock awards,
restricted stock units, other stock or cash-based awards or a
dividend equivalent award. The Amended 2019 Plan authorized the
issuance of 1,083,334 shares of common stock which was increased to
1,500,000 after the Halo acquisition; the Amended 2019 Plan also
provides for an annual increase on the first day of each calendar
year beginning on January 1, 2020 and ending on and including
January 1, 2029, equal to the lesser of (A) 10% of the shares of
common stock outstanding (on an as-converted basis) on the last day
of the immediately preceding fiscal year and (B) such smaller
number of shares of common stock as determined by the Board;
provided, however, not more than 9,000,000 shares of common stock
shall be authorized for issuance. The authorized shares for
issuance was increased to 2,700,000 on January 1, 2021, increased
to 5,614,637 on January 1, 2022 and again increased to 8,557,663 on
January 1, 2023.
Stock options
The following table provides detail of the options granted and
outstanding (dollars in thousands):
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|
|
|
|
|
Options |
|
Weighted Average
Exercise Price |
|
Weighted Average Remaining Contractual Life (Years) |
|
Aggregate Intrinsic Value |
|
|
|
|
|
|
|
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|
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|
|
|
Options outstanding as of December 31, 2022 |
|
3,071,187 |
|
|
$ |
5.39 |
|
|
7.2 |
|
$ |
— |
|
|
Granted |
|
— |
|
|
— |
|
|
|
|
|
|
Forfeited/Expired |
|
(178,656) |
|
|
4.05 |
|
|
|
|
|
|
Options outstanding as of March 31, 2023 |
|
2,892,531 |
|
|
$ |
5.47 |
|
|
6.3 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of March 31, 2023 |
|
2,355,436 |
|
|
$ |
5.67 |
|
|
5.8 |
|
$ |
— |
|
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).
Restricted Stock Awards
In February 2022, the Company granted 218,345 shares of restricted
common stock to members of its board of directors under the Amended
2019 Plan as compensation for annual board service. These
restricted stock awards were immediately vested and, as such, the
Company recorded share-based compensation expense of
$0.5 million upon issuance.
During the fourth quarter of 2022, the Company granted 65,555
shares of restricted common stock to a member of its board of
directors for service as interim CEO. These restricted stock awards
were immediately vested and, as such, the Company recorded
share-based compensation expense of less than $0.1 million
upon issuance.
In January 2023, the Company granted 892,860 shares of restricted
common stock to members of its board of directors under the Amended
2019 Plan as compensation for annual board service. These
restricted stock awards were immediately vested and, as such, the
Company recorded share-based compensation expense of
$0.5 million upon issuance.
In January 2023, the Company granted 200,000 shares of restricted
common stock to certain executives and employees under the Amended
2019 Plan as performance bonus compensation totaling
$0.1 million. These restricted stock awards were issued on the
grant date with a one year cliff vesting condition and the Company
will recognize the expense over the vesting period.
During the first quarter of 2023, the Company granted 18,021 shares
of restricted common stock to a member of its board of directors
for service as interim CEO. These restricted stock awards were
immediately vested and, as such, the Company recorded share-based
compensation expense of less than $0.1 million upon
issuance.
Note 12 – Employee benefit plans
The Company has a qualified defined contribution 401(k) plan, which
covers substantially all of its employees. Participants are
entitled to make pre-tax and/or Roth post-tax contributions up to
the annual maximums established by the IRS. The Company matches
participant contributions pursuant to the terms of the plan, which
contributions are limited to a percentage of the participant’s
eligible compensation. The Company made contributions related to
the plan and recognized expense of less than $0.1 million during
the three months ended March 31, 2023 and 2022,
respectively.
Note 13 – Related party transactions
Director Fees
The Company pays quarterly board of director fees. As of
March 31, 2023 and December 31, 2022, $0.1 million
of these director fees were in accounts payable on the Condensed
Consolidated Balance Sheets, respectively.
Marketing Support Services
On March 7, 2023, the Company entered into an agreement with
Believeco to provide marketing support services for an interim
period. A member of the Company's board of directors is a partner
at Believeco. As of March 31, 2023 marketing expense related
to Beleiveco totaled $0.01 million.
Note 14 – Income taxes
For the three months ended March 31, 2023 and March 31,
2022, the Company recorded income tax provision of less than
$0.1 million. For the three months ended March 31, 2023
and 2022, the Company's effective tax rate was less than 1%,
respectively. 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 three months ended March 31, 2023 and
March 31, 2022.
Note 15 – Concentrations
Major suppliers
The Company sourced approximately 81% of its inventory purchases
from three vendors for the three months ended March 31, 2023.
The Company sourced approximately 72% of its inventory purchases
from three vendors for the three months ended March 31,
2022.
Major customers
Accounts receivable from three customers represented 95% of
accounts receivable as of March 31, 2023. Accounts receivable
from three customers represented 88% of accounts receivable as of
December 31, 2022. Four customers represented 70% of
gross sales for the three months ended March 31, 2023. Four
customers represented 67% of gross sales for the three months ended
March 31, 2022.
Credit risk
As of March 31, 2023 and December 31, 2022, the Company’s
cash and cash equivalents were deposited in accounts at several
financial institutions and may maintain some balances in excess of
federally insured limits. The Company maintains its cash and cash
equivalents with high-quality, accredited financial institutions
and, accordingly, such funds are subject to minimal credit risk.
The Company has not experienced any losses historically in these
accounts and believes it is not exposed to significant credit risk
in its cash and cash equivalents.
Note 16 – Loss per share
The Company presents loss per share on a basic and diluted basis.
Basic loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding ("WASO")
during the period. For the three months ended March 31, 2023
and 2022, the Company’s basic and diluted net loss per share
attributable to common stockholders are the same as the Company
generated a net loss and common stock equivalents are excluded from
diluted net loss per share as they have an anti-dilutive
impact.
For the three months ended March 31, 2023, potentially
dilutive securities not included in the calculation of diluted net
loss per share, because to do so would be anti-dilutive, are as
follows: 9,433,583 of stock equivalent warrants, 2,892,531 of stock
equivalent employee stock options and 6,412 of stock equivalent
other options. For the three months ended March 31, 2022,
potentially dilutive securities not included in the calculation of
diluted net loss per share, because to do so would be
anti-dilutive, are as follows: 9,433,583 of stock equivalent
warrants, 3,200,271 of stock equivalent employee stock options and
6,412 of stock equivalent other options.
The following table sets forth basic and diluted net (loss)
earnings per share attributable to common stockholders for the
three months ended March 31, 2023 and 2022 (in thousands,
except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2023 |
|
2022 |
|
Numerator: |
|
|
|
|
Net loss |
$ |
(3,484) |
|
|
$ |
(4,040) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Adjustment due to warrant modifications |
— |
|
|
— |
|
|
Adjusted net loss available to common stockholders |
$ |
(3,484) |
|
|
$ |
(4,040) |
|
|
Denominator: |
|
|
|
|
Basic WASO |
30,475,068 |
|
|
29,289,504 |
|
|
Dilutive common stock equivalents |
— |
|
|
— |
|
|
Diluted WASO |
30,475,068 |
|
|
29,289,504 |
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders,
basic |
$ |
(0.11) |
|
|
$ |
(0.14) |
|
|
Net loss per share attributable to common stockholders,
diluted |
$ |
(0.11) |
|
|
$ |
(0.14) |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Note 17 – Subsequent events
Subsequent to March 31, 2023, on May 1, 2023, the Company borrowed
an additional $1.9 million from the WinTrust Credit
Facility.
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. A description of material factors known to us
that may cause our results to vary or may cause management to
deviate from its current plans and expectations, is set forth under
“Risk Factors.” See “Cautionary Note Regarding Forward-Looking
Statements.” The following discussion should also be read in
conjunction with our audited consolidated financial statements
including the notes thereto appearing elsewhere in this filing.
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; Direct to Consumer (“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 Chief Executive Officer ("CEO"), effective
September 14, 2022. Also on September 13, 2022, we announced that
Lionel F. Conacher was appointed as Interim CEO, effective
September 14, 2022.
On March 2, 2023, we announced that Robert Sauermann was resigning
from his role as Chief Operating Officer ("COO"), effective March
17, 2023. On March 21, 2023, we announced that Sharla Cook was
resigning from her role as Chief Financial Officer, effective April
3, 2023. Also on March 21, 2023, we announced that Carolina
Martinez was appointed as Interim CFO, effective April 3,
2023.
Results of Operations for the Years Ended March 31, 2023 and
2022
The following table sets forth our consolidated results for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Change |
|
2023 |
|
2022 |
|
$ |
|
% |
|
Net sales |
|
$ |
9,237 |
|
|
$ |
17,014 |
|
|
$ |
(7,777) |
|
|
(46) |
% |
|
Cost of goods sold |
|
5,996 |
|
|
12,307 |
|
|
(6,311) |
|
|
(51) |
% |
|
Gross profit |
|
3,241 |
|
|
4,707 |
|
|
(1,466) |
|
|
(31) |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
5,635 |
|
|
7,577 |
|
|
(1,942) |
|
|
(26) |
% |
|
Share-based compensation |
|
861 |
|
|
1,091 |
|
|
(230) |
|
|
(21) |
% |
|
Total operating expenses |
|
6,496 |
|
|
8,668 |
|
|
(2,172) |
|
|
(25) |
% |
|
Loss from operations |
|
(3,255) |
|
|
(3,961) |
|
|
706 |
|
|
18 |
% |
|
Other expenses: |
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
(229) |
|
|
(76) |
|
|
(153) |
|
|
(201) |
% |
|
Total other expense, net |
|
(229) |
|
|
(76) |
|
|
(153) |
|
|
(201) |
% |
|
Net loss before income taxes |
|
(3,484) |
|
|
(4,037) |
|
|
553 |
|
|
(14) |
% |
|
Income tax expense |
|
— |
|
|
3 |
|
|
(3) |
|
|
(100) |
% |
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders |
|
$ |
(3,484) |
|
|
$ |
(4,040) |
|
|
$ |
556 |
|
|
(14) |
% |
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 March 31, |
|
2023 |
|
2022 |
|
E-commerce
(1)
|
|
$ |
3,895 |
|
|
42 |
% |
|
$ |
3,824 |
|
|
22 |
% |
|
Brick & Mortar
(3)
|
|
1,709 |
|
|
19 |
% |
|
4,334 |
|
|
26 |
% |
|
DTC |
|
1,322 |
|
|
14 |
% |
|
1,933 |
|
|
11 |
% |
|
International
(2)
|
|
2,311 |
|
|
25 |
% |
|
6,923 |
|
|
41 |
% |
|
Net Sales |
|
$ |
9,237 |
|
|
100 |
% |
|
$ |
17,014 |
|
|
100 |
% |
(1)The
Company's E-commerce channel includes two customers and one
customer that amounted to greater than 10% of the Company's total
net sales for the three months ended March 31, 2023, and 2022,
respectively. These customers had $3.8 million of net sales
for the three months ended March 31, 2023 and an aggregate of
$2.2 million of net sales for the three months ended
March 31, 2022, respectively.
(2)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 months ended March 31, 2023 and
March 31, 2022 and represented $2.1 million and
$5.8 million of net sales, respectively.
(3)The
Company's Brick & Mortar channel includes $1.8 million of net
sales from one customer that amounted to greater than 10% of the
Company's total net sales for the three months ended March 31,
2022. None of the Company's Brick & Mortar customers
represented greater than 10% of net sales during the three months
ended March 31, 2023.
Net sales decreased $(7.8) million, or (46)%, to $9.2 million for
the three months ended March 31, 2023 compared to $17.0
million for the three months ended March 31, 2022. The
decrease is attributable to the launch of Halo Elevate® in the
first quarter of 2022 which resulted in a strong quarter for the
Brick & Mortar channel last year. The decrease in the
E-commerce and DTC channels is driven by the intentional
reduction
in new customer acquisition and retention marketing spend in 2022
in connection with our strategic rebranding of TruDog under the
Halo umbrella and the Halo Holistic™ relaunch. Our revenue growth
has been negatively impacted in the first quarter of 2023 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 March 31, 2023, gross profit
decreased $1.5 million, or 31%, to $3.2 million compared to $4.7
million during the three months ended March 31, 2022. Gross
margin increased 7% to 35% for the three months ended
March 31, 2023 compared to 28% for the three months ended
March 31, 2022. The decrease in gross profit was attributable
to our product sales mix, and a decrease in total sales volume of
2.5 million pounds in the first quarter of 2023 when compared to
the first quarter of 2022 due to our Halo Elevate® launch in the
prior year. The increase in gross margin was driven by an average
6% decrease in direct cost per pound sold in the first quarter of
2023. Additionally, we implemented a 12.5% sales price increase on
our Halo Elevate® products in the first quarter of 2023. We
continue to benefit in both omnichannel sales price increases, as
well as cost savings from having transitioned from some of our
primary suppliers and co-manufacturers during 2022.
We continue to actively work with our co-manufacturing and freight
partners to generate future cost savings and realize improved gross
margins in future periods. 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 Selling, general and administrative ("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 March 31, 2023,
sales and marketing costs decreased approximately $(1.1) million or
(37)%, to $1.8 million from $2.9 million during the three months
ended March 31, 2022. The decrease was driven primarily by
lower 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 during 2022.
•Employee
compensation and benefits
decreased approximately $0.4 million or 20% during the three months
ended March 31, 2023 to $1.6 million from $2.0 million during
the three months ended March 31, 2022. The decrease was
primarily related to a reduction in employee headcount, partially
offset by higher severance costs during the first quarter of
2022.
•Freight,
which is primarily related to the shipping of DTC orders to
customers,
decreased $(0.1) million or 22% during the three months ended
March 31, 2023 to $0.3 million
from $0.4 million during the three months ended March 31,
2022. Freight costs are generally decreasing due to lower DTC sales
as described above.
•Non-cash
charges
including depreciation, amortization, disposal or sale of assets
and bad debt expense increased slightly by less than $0.2 million
or 4% to $0.4 million during the three months ended March 31,
2023 from $0.4 million
during the three months ended March 31, 2022. The increase was
driven by disposals of certain assets during 2023, 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 the three months ended March 31,
2023, other general and administrative costs decreased $0.4
million, or 21% to $1.4 million compared to $1.8 million during the
three months ended March 31, 2022. The decrease was driven by
lower international consulting fees, lower travel fees and lower
product development costs during the three months ended
March 31, 2023, compared to the three months ended
March 31, 2022.
Share-based compensation includes expenses related to equity awards
issued to employees and non-employee directors. During the three
months ended March 31, 2023, Share-based compensation
decreased $(0.2) million, or 21%, to $0.9 million, as compared to
share-based compensation of $1.1 million during the three months
ended March 31, 2022. The decrease is driven by reduction of
senior management headcount resulting in cancellations of options
during 2023, partially offset by common stock issued for board
service and accelerated vesting of a certain stock option grant
during 2022, interim CEO service compensation and additional option
grants.
Interest expense, net
During the three months ended March 31, 2023, interest expense
increased less than $0.2 million, or 201% to $0.2 million from $0.1
million for the three months ended March 31, 2022. Interest
expense for the three months ended March 31, 2023 is comprised
of interest on our Wintrust Credit Facility and the amortization of
debt issuance costs which was refinanced during 2022.
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 months ended
March 31, 2023 and March 31, 2022, we recorded income tax
benefit of less than $0.1 million, which relates to
indefinite-lived assets. The effective tax rate for the three
months ended March 31, 2023 and 2022 was less than 1%,
respectively, 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 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, we issued and sold 8,000,000
shares of common stock at a price of $5.00 per share. On July 1,
2021 we received total net proceeds of approximately
$36.1 million from the IPO, after deducting underwriting
discounts and commissions of $2.8 million, and offering costs
of approximately $1.1 million. On March 31, 2023 and
December 31, 2022, we had cash and cash equivalents and
restricted cash of $7.9 million and $9.5 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 March 31, 2023, 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 margin from time to time 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.
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 December 31, 2022
and thereafter to comply with our financial covenants. We have
historically incurred losses and expect to continue to generate
operating losses and consume cash resources in the near term. These
conditions raise substantial doubt about our ability to continue as
a going concern for a period of twelve months from the date these
interim condensed consolidated financial statements are issued,
meaning that we may be unable to generate sufficient operating cash
flows to maintain compliance with our financial covenant giving the
lender the right to call the debt. 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. As of March 31, 2023, we were in compliance with
all debt covenant requirements and there were no events of
default.
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 and there remains doubt about our
ability to continue as a going concern, investors or other
financing sources may be unwilling to provide additional funding on
commercially reasonable terms or at all. If we are unable to raise
the 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.
A summary of our cash flows is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2023 |
|
2022 |
|
Cash flows (used in) provided by: |
|
|
|
|
Operating activities |
$ |
(1,473) |
|
|
$ |
(7,667) |
|
|
Investing activities |
(10) |
|
|
(150) |
|
|
Financing activities |
(41) |
|
|
2,293 |
|
|
Net decrease in cash and cash equivalents |
$ |
(1,524) |
|
|
$ |
(5,524) |
|
Cash flows from operating activities
Cash used in operating activities decreased $6.2 million, or 81%,
during the three months ended March 31, 2023 compared to the
three months ended March 31, 2022. The decrease in cash used
in operating activities was primarily driven by significant
fluctuations in our working capital, including a comparative
decrease in our inventory balance of $5.3 million as we built
inventory during 2022 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 $(2.9)
million for the three months ended March 31, 2023 compared to
$(2.3) million for the comparable prior three month
period.
Cash flows from investing activities
Cash used in investing activities was less than $0.1 million during
the three months ended March 31, 2023 and $0.2 million during
the three months ended March 31, 2022. The cash used in
investing activities is related to capital
expenditures.
Cash flows from financing activities
Cash used in financing activities was less than (0.1) million,
during the three months ended March 31, 2023 and cash provided
by financing activities was $2.3 million during the three months
ended March 31, 2022. The cash used in financing activities
for the three months ended March 31, 2023 was related to
payments on short-term financing agreements. The cash provided by
financing activities for the three months ended March 31, 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 $0.2
million.
Wintrust Credit Facility
On January 6, 2021, Halo entered into a credit facility with Old
Plank Trail Community Bank, N.A., an affiliate of Wintrust,
consisting of a $6.0 million term loan and a $6.0 million revolving
line of credit, each scheduled to mature on January 6, 2024. The
Wintrust Credit Facility is secured by a general guaranty and
security interest on the assets, including the intellectual
property of us and our subsidiaries. We have also pledged all of
the capital stock of Halo held by us as additional
collateral.
The Wintrust Credit Facility subjects us 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. For the test as of December 31, 2021, we
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.
Additionally, on March 25, 2022, we entered into the second
amendment to the Wintrust Credit Facility, which removed the
financial covenant to maintain a fixed charge coverage ratio and
included a new financial covenant to maintain a minimum liquidity,
as well updated the rate at which the Wintrust Credit Facility bore
interest.
Furthermore, on October 24, 2022, we entered into the third
amendment to the Wintrust Credit Facility which provided for an
increase to the revolving line of credit, set the amount of Halo's
obligation to pledge a deposit account with Wintrust to a fixed
amount throughout the remainder of the term and provided updates to
the interest rate, maturity date and minimum liquidity amount
associated with the financial covenant. As of March 31, 2023,
our indebtedness consisted of a revolving credit facility. For
detail about the terms, covenants and restrictions contained in the
Wintrust Credit Facility, see "Note 8 - Debt" to our interim
condensed consolidated financial statements included in this
Quarterly Report.
Contractual Commitments and Obligations
We are contractually obligated to make future cash payments for
various items, including debt arrangements, certain purchase
obligations, as well as the lease arrangement for our office. See
"Note 8 - Debt" to our interim condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q for more
information about our debt obligations. Our purchase obligations
include certain ongoing marketing projects, software subscriptions
as well as in-transit or in-production purchase orders with our
suppliers, for which amounts vary depending on the purchasing
cycle. The majority of our software subscriptions are not under
long-term contracts, and we do not have long-term contracts or
commitments with any of our suppliers beyond active purchase
orders. These purchase obligations were not material as of the date
of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results
of operations are based upon our 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
judgements that affect the reported amounts of assets, liabilities,
net sales, costs and expenses and related disclosures. We believe
that the estimates, assumptions and judgments involved in the
accounting policies described in our Annual Report for the year
ended December 31, 2022 have the greatest potential impact on
our financial statements and, therefore, we consider these 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. 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, 2022.
Share-Based Compensation
Share-based compensation expense is measured based on the estimated
fair value of awards granted to employees, directors, officers and
consultants on the grant date. Forfeitures are accounted for as
they occur, therefore there are no forfeiture related estimates
required.
The fair value of an option award is estimated on the date of grant
using the Black–Scholes option valuation model, which requires the
development of input assumptions, as described in "Note 11 -
Share-based compensation". Determining the appropriate fair value
model and calculating the fair value of share-based payment awards
requires the input of the subjective assumptions described in "Note
11 - Share-based compensation". The assumptions used in calculating
the fair value of share-based payment awards represent management’s
best estimates, which involve inherent uncertainties and the
application of management’s judgment.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and is not required to provide the information under
this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our interim chief
executive officer (our principal executive officer) and our interim
chief financial officer (our principal financial officer) evaluated
the effectiveness of our disclosure controls and procedures as of
the quarter ended March 31, 2023. Based upon that evaluation,
our principal executive officer and principal financial officer
concluded that, as of March 31, 2023, our disclosure controls
and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal controls over
financial reporting identified in connection with the Evaluation
that occurred during the quarter ended March 31, 2023 that has
materially affected, or is reasonably likely to materially affect,
those controls.
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to litigation and other
proceedings that arise in the ordinary course of our business.
Subject to the inherent uncertainties of litigation and although no
assurances are possible, we believe that there are no pending
lawsuits or claims that, individually or in the aggregate, will
have a material adverse effect on our business, financial condition
or our yearly results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors described
under the heading “Risk Factors” in our Annual Report filed on
March 28, 2023. While we believe there have been no material
changes from the risk factors previously disclosed, you should
carefully consider, in addition to the other information set forth
in this report, the risk factors discussed in our Annual Report
that could materially affect our business, financial condition or
future results. The risks described in our Annual Report are not
the only risks facing our Company. In addition to risks and
uncertainties inherent in forward-looking statements contained in
this 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.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
The following exhibits are filed herewith.
EXHIBIT INDEX
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Exhibit |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing date |
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8-K |
333-161943 |
2.1 |
05/10/2019 |
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8-K |
333-161943 |
2.2 |
05/10/2019 |
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Exhibit |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing date |
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8-K |
333-161943 |
2.3 |
05/10/2019 |
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8-K |
333-161943 |
2.4 |
05/10/2019 |
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8-K |
333-161943 |
2.1 |
12/26/2019 |
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10-Q |
001-40477 |
2.6 |
08/11/2022 |
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10-Q |
333-161943 |
3.1 |
04/15/2019 |
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10-Q |
333-161943 |
3.2 |
04/15/2019 |
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8-K |
333-161943 |
3.1 |
03/20/2019 |
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10-KT |
333-161943 |
3.5 |
07/25/2019 |
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8-K |
333-161943 |
99.1 |
07/30/2020 |
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10-Q |
333-161943 |
3.4 |
04/15/2019 |
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10-Q |
333-161943 |
3.5 |
04/15/2019 |
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8-K |
333-161943 |
3.1 |
10/02/2020 |
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8-K |
001-40477 |
3.10 |
08/11/2022 |
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10-Q |
001-40477 |
3.10 |
08/11/2022 |
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8-K |
333-161943 |
4.2 |
11/15/2019 |
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10-Q |
333-161943 |
10.6 |
01/31/2020 |
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10-Q |
333-161943 |
4.8 |
01/31/2020 |
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10-Q |
333-161943 |
4.10 |
01/31/2020 |
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8-K |
333-161943 |
10.1 |
04/30/2019 |
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8-K |
333-161943 |
10.1 |
11/15/2019 |
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10-K |
333-161943 |
10.19 |
05/04/2020 |
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S-1 |
333-234349 |
10.7 |
10/28/2019 |
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10-Q |
333-161943 |
4.11 |
06/25/2020 |
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10-Q |
333-161943 |
4.13 |
06/25/2020 |
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8-K |
333-161943 |
10.5 |
07/21/2020 |
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8-K |
333-161943 |
4.1 |
10/02/2020 |
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8-K |
333-161943 |
10.1 |
10/02/2020 |
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S-1/A |
333-251241 |
4.22 |
02/16/2021 |
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S-1/A |
333-251241 |
4.23 |
02/16/2021 |
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Exhibit |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing date |
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S-1 |
333-234349 |
10.8 |
10/28/2019 |
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8-K/A |
333-161943 |
10.2 |
01/05/2021 |
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10-K |
333-161943 |
10.12 |
03/30/2021 |
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10-K |
333-161943 |
10.13 |
03/30/2021 |
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10-K |
333-161943 |
10.14 |
03/30/2021 |
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8-K |
333-161943 |
10.1 |
01/11/2021 |
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8-K |
333-161943 |
10.3 |
01/11/2021 |
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8-K |
333-161943 |
10.4 |
01/11/2021 |
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8-K |
333-161943 |
10.5 |
01/11/2021 |
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8-K |
333-161943 |
10.6 |
01/11/2021 |
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8-K |
001-40477 |
10.1 |
08/17/2021 |
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8-K |
001-40477 |
10.2 |
08/17/2021 |
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8-K |
001-40477 |
10.3 |
08/17/2021 |
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10-K |
001-40477 |
10.14 |
03/29/2022 |
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8-K |
001-40477 |
10.1 |
10/25/2022 |
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8-K |
001-40477 |
10.2 |
10/25/2022 |
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8-K |
001-40477 |
10.3 |
10/25/2022 |
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10-Q |
001-40477 |
10.18 |
11/10/2022 |
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10-Q |
001-40477 |
10.19 |
11/10/2022 |
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8-K |
001-40477 |
10.1 |
03/21/2023 |
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8-K |
001-40477 |
10.1 |
03/21/2023 |
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10-K |
001-40477 |
21.1 |
03/28/2023 |
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Exhibit |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing date |
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101 * |
The following materials from the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2023 formatted in
Inline Extensible Business Reporting Language ("iXBRL"): (i) the
Condensed Consolidated Statements of Operations, (ii) the Condensed
Consolidated Balance Sheets, (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. |
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104 * |
Cover page from the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2023, formatted in iXBRL (included as
Exhibit 101). |
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†Indicates
a management contract or any compensatory plan, contract or
arrangement.
* Filed or furnished herewith.
# Certain schedules and similar attachments
to this agreement have been omitted in accordance with Item
601(b)(5) of Regulation S-K. The Company will furnish copies of any
schedules or similar attachments to the SEC upon
request.
*** Certain information in this document has
been excluded pursuant to Regulation S-K, Item 601(b)(10). Such
excluded information is not material and would likely cause
competitive harm to the registrant if publicly
disclosed.
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.
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BETTER CHOICE COMPANY INC. |
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Date: May 12, 2023 |
By: |
/S/ LIONEL F. CONACHER |
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Lionel F. Conacher |
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Interim Chief Executive Officer
(Principal Executive Officer) |
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Date: May 12, 2023 |
By: |
/S/ CAROLINA MARTINEZ |
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Carolina Martinez |
|
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Interim Chief Financial Officer
(Principal Financial and Accounting Officer) |
Better Choice (AMEX:BTTR)
Graphique Historique de l'Action
De Août 2023 à Sept 2023
Better Choice (AMEX:BTTR)
Graphique Historique de l'Action
De Sept 2022 à Sept 2023
