UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

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

For the transition period from to

Commission File Number: 001-40477

Better Choice Company Inc.

(Exact name of registrant as specified in its charter)

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

12400 Race Track Road

Tampa, Florida 33626

(212) 896-1254

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Indicate by 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.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

Indicate by 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 ☒

The number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date was: 1,933,139 shares of $0.001 par value common stock outstanding as of November 13, 2024.

Better Choice Company Inc.

TABLE OF CONTENTS

	Part I
1.	Unaudited Condensed Consolidated Financial Statements	5
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
3.	Quantitative and Qualitative Disclosures About Market Risk	28
4.	Controls and Procedures	28
	Part II
1.	Legal Proceedings	30
1A.	Risk Factors	30
2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
3.	Defaults Upon Senior Securities	30
4.	Mine Safety Disclosures	30
5.	Other Information	30
6.	Exhibits	31
	Signatures	32

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;

●	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;

Table of Contents

●	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 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;

●	inflationary pressures;

●

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

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

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

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

NOTE REGARDING TRADEMARKS

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

Table of Contents

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)

	2024			2023			2024			2023
	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Net sales	$	11,372		$	13,117		$	27,817		$	32,890
Cost of goods sold		6,854			8,681			17,432			21,625
Gross profit		4,518			4,436			10,385			11,265
Operating expenses:
Selling, general and administrative		5,645			7,052			14,703			19,721
Total operating expenses		5,645			7,052			14,703			19,721
Loss from operations		(1,127	)		(2,616	)		(4,318	)		(8,456	)
Other income (expense):
Interest income (expense), net		6			(344	)		(536	)		(952	)
Change in fair value of warrant liabilities		—			1,339			—			1,339
Gain on extinguishment of debt and accounts payable		2,645			—			6,206			—
Total other income, net		2,651			995			5,670			387
Income (loss) before income taxes		1,524			(1,621	)		1,352			(8,069	)
Income tax (benefit) expense		(2	)		—			3			—
Net income (loss)	$	1,526		$	(1,621	)	$	1,349		$	(8,069	)
Weighted average number of shares outstanding, basic		2,085,715			703,990			1,257,006			697,271
Weighted average number of shares outstanding, diluted		2,085,715			703,990			1,257,006			697,271
Net income (loss) per share, basic	$	0.73		$	(2.30	)	$	1.07		$	(11.57	)
Net income (loss) per share, diluted	$	0.73		$	(2.30	)	$	1.07		$	(11.57	)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Better Choice Company Inc.

Unaudited Condensed Consolidated Balance Sheets

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

	September 30, 2024			December 31, 2023
Assets
Cash and cash equivalents	$	4,743		$	4,455
Accounts receivable, net		5,726			4,354
Note receivable		1,450			—
Inventories		3,930			6,611
Prepaid expenses and other current assets		477			812
Total Current Assets		16,326			16,232
Fixed assets, net		158			230
Right-of-use assets, operating leases		78			120
Goodwill		405			—
Other assets		205			155
Total Assets	$	17,172		$	16,737
Liabilities & Stockholders’ Equity
Current Liabilities
Accounts payable	$	3,217		$	6,928
Accrued and other liabilities		1,631			2,085
Credit facility, net		1,944			1,741
Term loan, net		—			2,881
Operating lease liability		60			57
Total Current Liabilities		6,852			13,692
Non-current Liabilities
Operating lease liability		21			67
Total Non-current Liabilities		21			67
Total Liabilities		6,873			13,759
Stockholders’ Equity
Common Stock, $0.001 par value, 200,000,000 shares authorized, 1,755,139 & 729,026 shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively		2			1
Additional paid-in capital		330,290			324,319
Accumulated deficit		(319,993	)		(321,342	)
Total Stockholders’ Equity		10,299			2,978
Total Liabilities and Stockholders’ Equity	$	17,172		$	16,737

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Better Choice Company Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Dollars in thousands, except shares)

	Shares			Amount		Capital		Deficit			Equity
	Common Stock					Additional Paid-In		Accumulated			Total Stockholders’
	Shares			Amount		Capital		Deficit			Equity
Balance as of December 31, 2023		729,026		$	1	$	324,319	$	(321,342	)	$	2,978
Share-based compensation		42,088			—		518		—			518
Share issuance		6,818			—		58		—			58
Equity issued in business combinations		45,629			—		400		—			400
Shares issued in lieu of fractional shares		89			—		—		—			—
Net loss		—			—		—		(2,830	)		(2,830	)
Balance as of March 31, 2024		823,650		$	1	$	325,295	$	(324,172	)	$	1,124
Share-based compensation		22,727			—		160		—			160
Share issuance		69,952			—		—		—			—
Net income		—			—		—		2,654			2,654
Balance as of June 30, 2024		916,329		$	1	$	325,455	$	(321,518	)	$	3,938
Share-based compensation		—			—		84		—			84
Share and warrant issuance, net of offering costs of $0.5 million		739,000			1		4,751		—			4,752
Warrant exercises		100,000			—		—		—			—
Share repurchases		(192	)		—		—		(1	)		(1	)
Net income		—			—		—		1,526			1,526
Balance as of September 30, 2024		1,755,137		$	2	$	330,290	$	(319,993	)	$	10,299

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance as of December 31, 2022		668,870	$	1		320,099	$	(298,572	)	$	21,528
Share-based compensation		24,247		—		861		—			861
Net loss available to common stockholders		—		—		—		(3,484	)		(3,484	)
Balance as of March 31, 2023		693,117	$	1	$	320,960	$	(302,056	)	$	18,905
Share-based compensation		1,818		—		284		—			284
Net loss available to common stockholders		—		—		—		(2,964	)		(2,964	)
Balance as of June 30, 2023		694,935	$	1	$	321,244	$	(305,020	)	$	16,225
Balance		694,935	$	1	$	321,244	$	(305,020	)	$	16,225
Share-based compensation		34,091		—		475		—			475
Net loss available to common stockholders		—		—		—		(1,621	)		(1,621	)
Net income (loss)		—		—		—		(1,621	)		(1,621	)
Balance as of September 30, 2023		729,026	$	1	$	321,719	$	(306,641	)	$	15,079
Balance		729,026	$	1	$	321,719	$	(306,641	)	$	15,079

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Better Choice Company Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

	2024			2023
	Nine Months Ended
	September 30,
	2024			2023
Cash Flow from Operating Activities:
Net income (loss)	$	1,349		$	(8,069	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		99			1,262
Amortization of debt issuance costs		34			165
Loss on disposal of fixed assets		—			11
Share-based compensation		762			1,620
Change in fair value of warrants liabilities		—			(1,339	)
Gain on extinguishment of debt and accounts payable		(6,206	)		—
PIK interest expense on term loan		238			—
Accreted interest expense on term loan		153			—
Other		59			(6	)
Bad debt expense		143			—
Income tax provision		3			—
Changes in operating assets and liabilities:
Accounts receivable		(1,513	)		(1,831	)
Inventories		2,681			2,716
Prepaid expenses and other assets		284			(225	)
Accounts payable		(1,073	)		4,875
Accrued and other liabilities		(202	)		(73	)
Cash Used in Operating Activities	$	(3,189	)	$	(894	)
Cash Flow from Investing Activities:
Capital expenditures	$	(29	)	$	(10	)
Issuance of note receivable		(1,450	)		—
Cash Used in Investing Activities	$	(1,479	)	$	(10	)
Cash Flow from Financing Activities:
Proceeds from revolving line of credit		—			6,764
Payments on revolving line of credit		—			(16,291	)
Proceeds from Alphia Facility		—			2,792
Payment of loan issuance costs		—			(242	)
Proceeds from warrant liabilities		—			2,208
Proceeds from equity offering		4,752			—
Proceeds from Wintrust Facility		8,975			—
Payments on Wintrust Facility		(8,771	)		—
Cash Provided by (Used in) Financing Activities	$	4,956		$	(4,769	)
Net increase (decrease) in cash and cash equivalents	$	288		$	(5,673	)
Total cash and cash equivalents, beginning of period		4,455			9,473
Total cash and cash equivalents, end of period	$	4,743		$	3,800

Supplemental schedule of cash flow information:
Cash paid for interest during the period		244			489
Disclosure of non-cash financing activities:
Term loan forgiveness, refer to Note 8 - Debt		3,235			—
Forgiveness of PIK interest on term loan, refer to Note 8 - Debt		493			—
Write off of debt issuance costs		168			—

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

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.

Reverse stock split

On March 8, 2024, the Company’s Board of Directors approved a reverse stock split of the Company’s issued and outstanding shares of common stock at a ratio of 1-for-44, effective March 20, 2024 (the “Reverse Stock Split”). In addition, the exercise prices of the Company’s underlying common stock purchase warrants and stock options were proportionately adjusted at the applicable reverse stock split ratio in accordance with the terms of such instruments. Proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split, other than as a result of the rounding up of fractional shares. In connection with the Reverse Stock Split, 70,041 shares of common stock were issued in lieu of fractional shares.

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

July 2024 public offering

On July 29, 2024, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with ThinkEquity LLC (the “Underwriter”), for an underwritten public offering (the “Offering”) of 639,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a public offering price of $3.00 per share and pre-funded warrants to purchase 1,028,000 shares of Common Stock (the “Pre-Funded Warrants” and together with the Shares, the “Securities”) at a public offering price of $2.99 per Pre-Funded Warrant, for aggregate gross proceeds of approximately $5.0 million prior to deducting approximately $0.5 million of underwriting discounts, commissions, and other offering expenses. In addition, the Company granted the Underwriter a 45-day option to purchase an additional 100,000 shares of Common Stock, at the public offering price per share, less the underwriting discounts and commissions, to cover over-allotments (the “Over-allotment Option”). The Company also issued representative warrants to purchase 83,350 shares of common stock (equal to 5% of the total number of shares sold in the public offering). The representative warrants will be exercisable at $3.75 per share, a per share exercise price equal to 125% of the public offering price per share of common stock sold in the offering. The Company has determined these warrants are equity classified in accordance with Topic 480. Refer to Note 12 - Warrants for more information. The Securities were offered and sold to the public pursuant to the Company’s registration statement on Form S-1 (File No. 333-280714), filed by the Company with the Securities and Exchange Commission on July 8, 2024, as amended, which became effective on July 29, 2024. The sale of the Securities in connection with the Offering closed on July 31, 2024.

On August 2, 2024, pursuant to and in compliance with the terms and conditions of the Underwriting Agreement and the Offering, the Underwriters provided notice that they would exercise the Over-allotment Option to purchase 100,000 shares of Common Stock at $3.00 per share. The sale of 100,000 shares of Common Stock in connection with the exercise of the Over-Allotment Option closed on August 2, 2024. The Company has received gross proceeds of approximately $5.3 million for the Offering to date, including in connection with the exercise of the Over-Allotment Option, prior to deducting $0.5 million of underwriting discounts and commissions and offering expenses payable by the Company.

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, 2023 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, 2023, filed with the SEC.

Table of Contents

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 consolidated 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 three and nine months ended September 30, 2024 and 2023, the financial position as of September 30, 2024 and December 31, 2023 and the cash flows for the nine months ended September 30, 2024 and 2023.

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 historically incurred losses and expects to continue to generate operating losses and consume cash resources in the near term. These conditions raise substantial doubt about the Company’s 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 pay our short-term obligations. The Company will need to either raise additional capital or obtain additional financing to maintain sufficient liquidity. There can be no assurance that the Company will be successful in raising additional capital, 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 or sell certain assets.

The Company has implemented and continues to implement plans to achieve operating profitability, including various margin improvement initiatives, the consolidation of and introduction of new co-manufacturers, the optimization of pricing strategy and ingredient profiles, and new product innovation. 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.

Share repurchases

In April 2024, the Company’s board of directors authorized and approved a stock repurchase plan (the “Repurchase Plan”) for up to $5.0 million of the currently outstanding shares of the Company’s common stock through December 31, 2024. Repurchased shares are immediately retired and returned to unissued status. During the nine months ended September 30, 2024, 190 shares were repurchased.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statement of operations. The Pre-Funded and Representative Warrants (as defined in Note 12) are equity classified.

Table of Contents

Advertising

The Company charges advertising costs to expense as incurred and such charges are included in selling, general and administrative (“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 records these costs as advertising expenses. Advertising costs were $2.3 million and $4.7 million for the three and nine months ended September 30, 2024, respectively. Advertising costs were $2.4 million and $6.1 million for the three and nine months ended September 30, 2023, respectively.

Reclassification

Certain prior period amounts within the condensed consolidated statements of operations related to share-based compensation, previously presented as a separate line item, have been reclassified into selling, general and administrative expense to conform with current period presentation. All share-based compensation in the current and prior periods is a selling, general and administrative expense.

New Accounting Standards

Recently adopted

There were no new standards that would have an impact on the condensed consolidated financial statements for the nine months ended September 30, 2024.

In November 2023, FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting, establishing improvements to reportable segments disclosures to enhance segment reporting under Topic 280. This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments. This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and the amendments should be applied retrospectively to all periods presented in the financial statements. We are currently evaluating the impact on our financial statement disclosures.

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. The Company closed its DTC channel effective June 1, 2024 and expired the loyalty program as of June 30, 2024. Net sales for the period ended June 1, 2024 was $2.0 million.

Table of Contents

Revenue channels

The Company groups its revenue channels into three categories: Digital, which includes the sale of product to online retailers such as Amazon and Chewy, as well as DTC sales, which included the sale of product through the Company’s website through June 1, 2024; Brick & Mortar, which primarily includes the sale of product to Pet Specialty retailers, independent pet stores, and regional distributors; and International, which includes the sale of product to foreign distribution partners and to select international retailers (transacted in U.S. dollars).

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
Digital ⁽¹⁾	$	3,539	31	%	$	4,478	34	%	$	12,418	45	%	$	14,646	45	%
International ⁽²⁾		7,070	62	%		6,390	49	%		13,593	49	%		12,575	38	%
Brick & Mortar ⁽³⁾		763	7	%		2,249	17	%		1,806	6	%		5,669	17	%
Net Sales	$	11,372	100	%	$	13,117	100	%	$	27,817	100	%	$	32,890	100	%

(1)

The Company’s Digital channel includes two wholesale customers that amounted to greater than 10% of the Company’s total net sales for the three and nine months ended September 30, 2024 and 2023, and represented $3.4 million and $10.0 million of net sales for the three and nine months ended September 30, 2024, and $3.1 million and $10.0 million of net sales during the three and nine months ended September 30, 2023, respectively. Additionally, DTC sales within the Digital channel amounted to greater than 10% of the Company’s total net sales for the three and nine months ended September 30, 2023. DTC sales within the Digital channel were approximately $1.3 million and $4.3 million for the three and nine months ended September 30, 2023, respectively. As of June 1, 2024, the Company has exited its DTC channel in an effort to improve profitability. The Company historically reported the sales in this channel as E-commerce and DTC separately and has been consolidated into one revenue stream as of September 30, 2024.

(2)

One of the Company’s International customers amounted to greater than 10% of the Company’s total net sales during the three months and nine months ended September 30, 2024 and 2023, and represented $6.0 million and $11.2 million of net sales for the three and nine months ended September 30, 2024, and $6.0 million and $11.0 million of net sales for the three and nine months ended September 30, 2023, respectively.

(3)

None of the Company’s Brick & Mortar customers represented greater than 10% of net sales for the three and nine months ended September 30, 2024 or September 30, 2023. For the three and nine months ended September 30, 2023, Petco was included within the Brick & Mortar channel. Beginning in Q1 2024, Petco is presented within Digital as a result of the strategic exit out of Petco stores, while remaining on Petco.com.

Note 3 - Inventories

Inventories are summarized as follows (in thousands):

Schedule of Inventories

	September 30, 2024		December 31, 2023
Food, treats and supplements	$	3,142	$	5,498
Inventory packaging and supplies		788		1,113
Inventories	$	3,930	$	6,611

Note 4 – Note receivable

On September 3, 2024, the Company entered into a definitive agreement to acquire SRx Health Solutions Inc. (“SRx” or the “Borrower”) in an all-stock transaction, subject to customary closing conditions. On August 15, 2024, the Company entered into a Convertible Promissory Note (the “Convertible Note”) with SRx, whereby SRx promises to repay the principal amount of $1.5 million with an interest rate of 25% per annum. As the Holder of this Convertible Note, the Company can convert the total amount owed, including unpaid interest and fees, into shares of SRx stock. The Company can elect to convert the principal of the Convertible Note plus accrued and unpaid interest into shares of the Company’s common stock upon an Event of Default, given the Event of Default is not cured within the applicable cure period. The Convertible Note matures two days after the Business Combination between SRx and the Company is consummated or upon termination of the business combination. The issuance price reflects the perceived value of both the note receivable component and the embedded conversion option, which is initially determined based on market expectations. As there have not been drastic changes in market conditions or the Borrower’s financial standing, the transaction price at issuance approximates the fair value of the note receivable on September 30, 2024. Accrued interest on the Convertible Note was less than $0.1 million and is recorded in prepaid expenses and other current assets on September 30, 2024.

The Convertible Note has been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in other comprehensive income/(loss) (“OCI”).

In conjunction with the Convertible Note, the Company entered into a Services Agreement whereby the Company is to provide financial planning, reporting and analysis services, utilizing the Company’s in-house financial organization. In exchange for such services, the Company shall receive $0.02 million per month, payable on the last day of the month in which services are provided, commencing on September 30, 2024. Income related to the Services Agreement was $0.02 million at September 30, 2024 and is accrued for within prepaid expenses and other current assets on the consolidated balance sheets, and as other income in the consolidated statements of operations. The Company does not have a variable nor controlling financial interest in SRx as it does not have the power to direct significant activities of SRx that most significantly impact SRx’s economic performance. Additionally, the Company does not have an obligation to absorb the losses of, or the right to receive benefits from, SRx that could potentially be significant to SRx. Therefore, SRx is not consolidated as of September 30, 2024.

On September 20, 2024, the Company entered into a revolving credit facility (“Promissory Note”) with SRx whereby SRx may borrow, repay, and reborrow in accordance with the terms set out in the Promissory Loan Agreement, not to exceed $750,000 (USD) at any time outstanding with an interest rate of 12% per annum. The Borrower shall make payments of principal in accordance with the Repayment Schedule set forth in the agreement. Interest under the Promissory Note shall be due and payable in monthly installments until the Promissory Note matures on March 20, 2025.

There was no outstanding principal as of September 30, 2024 and accrued interest of less than $0.01 million is included within prepaid expenses and other current assets as of September 30, 2024.

Table of Contents

Note 5 – Prepaid expenses and other current assets

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

	September 30, 2024		December 31, 2023
Prepaid product registrations	$	165	$	451
Other prepaid expenses and other current assets		312		361
Total Prepaid expenses and other current assets	$	477	$	812

Note 6 - Fixed assets

Fixed assets consist of the following (in thousands):

Schedule of Fixed Assets

	Estimated Useful Life	September 30, 2024			December 31, 2023
Equipment	2 - 5 years	$	26		$	18
Furniture and fixtures	2 - 5 years		221			221
Computer software, including website development	2 - 3 years		199			187
Computer equipment	1 - 2 years		116			108
Total fixed assets			562			534
Accumulated depreciation			(404	)		(304	)
Fixed assets, net		$	158		$	230

Depreciation expense was $0.02 million and $0.05 million for the three and nine months ended September 30, 2024, respectively. Depreciation expense was $0.04 million and $0.12 million for the three and nine months ended September 30, 2023, respectively.

Note 7 – Accrued and other liabilities

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

SEC Form 10-Q filed by Better Choice Company Inc.