Better Choice Company Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

Acquisitions

9 Months Ended

Sep. 30, 2020

Acquisition of Halo

On October 15, 2019, the Company entered into a Stock Purchase Agreement (the “Agreement”) to acquire Halo and the acquisition (the “Halo Acquisition”) was completed on December 19, 2019 (“Halo Acquisition Date”) for $38.2 million. The consideration was subject to customary adjustments for Halo’s net working capital, cash, and indebtedness, and consisted of a combination of cash consideration ($20.5 million), shares of the Company’s common stock ($3.9 million), seller notes ($15.0 million), and seller warrants ($0.3 million).

The Halo Acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price was allocated to the identifiable assets and liabilities based on their estimated fair values at the Halo Acquisition Date. The determination of the preliminary purchase price allocation to specific assets acquired and liabilities assumed is incomplete for Halo. The preliminary purchase price allocation may change in future periods as the fair value estimates of assets and liabilities and the valuation of the related tax assets and liabilities are completed. The preliminary purchase price allocation is summarized as follows:


Dollars in thousands
Total purchase price	$	38,244
Assets
Property and equipment	260
Accounts receivable	5,540
Inventories	5,160
Intangible assets	14,690
Other assets	329
Total assets	25,979
Liabilities
Accounts payable	4,628
Accrued liabilities	1,553
Long term liability	168
Total liabilities	6,349
Net assets acquired	19,630
Goodwill	$	18,614

The intangible assets acquired relate to customer relationships and trade name. Acquired customer relationships are finite-lived intangible assets and are amortized over their estimated life of 7 years using the straight-line method, which approximates the customer attrition rate, reflecting the pattern of economic benefits associated with these assets. The trade name is a finite-lived intangible asset and is being amortized over its estimated life of 15 years using the straight-line method, which reflects the pattern of economic benefits associated with this asset.

The excess of purchase price over the fair value amounts assigned to the identifiable assets acquired and liabilities assumed represents goodwill from the acquisition. The Company believes the factors that contributed to goodwill include the acquisition of a talented workforce and administrative cost synergies. The Company does not expect any portion of this goodwill to be deductible for tax purposes. See "Note 9 - Intangible assets, royalties, and goodwill" for more information.

Reverse Acquisitions of Better Choice and Bona Vida by TruPet

On May 6, 2019, Better Choice Company completed the reverse acquisitions of TruPet and Bona Vida whereby TruPet is considered the acquirer for accounting and financial reporting purposes. The acquisitions were accounted for as asset acquisitions.

The purchase price for Better Choice Company was $37.9 million and has been allocated based on an estimate of the fair value of Better Choice Company’s assets acquired and liabilities assumed with the remainder recorded as an expense. The loss on acquisition of Better Choice Company’s net liabilities is $39.6 million.

The purchase price for Bona Vida was $108.6 million and the estimated purchase price has been allocated based on an estimate of the fair value of assets acquired and liabilities assumed. The excess of the purchase price over the net assets acquired has been recorded as an expense. The loss on acquisition of Bona Vida’s net assets is $107.8 million.

On May 6, 2019, the fair value of assets and liabilities acquired was:


Dollars in thousands	Better Choice Company		Bona Vida		Total
Total purchase price	$	37,949	$	108,620	$	146,569
Net Assets (Liabilities) Acquired:
Assets
Cash and cash equivalents	7		384		391
Restricted cash	—		25		25
Accounts receivable	—		69		69
Inventories	—		95		95
Prepaid expenses and other current assets	32		348		380
Intangible assets	986		—		986
Other assets	—		74		74
Total assets	1,025		995		2,020
Liabilities
Warrant derivative liability	(2,130)		—		(2,130)
Accounts payable & accrued liabilities	(544)		(153)		(697)
Total liabilities	(2,674)		(153)		(2,827)
Net assets (liabilities) acquired	(1,649)		842		(807)
Loss on acquisitions	$	(39,598)	$	(107,778)	$	(147,376)

In connection with the preparation of the Company’s condensed consolidated financial statements for the period ended September 30, 2019, the Company identified an error in the condensed consolidated financial statements for the six month period ended June 30, 2019 related to the overstatement of loss on acquisitions of $2.6 million in the condensed consolidated statement of operations and comprehensive loss. This was primarily due to a change in the estimated purchase price, which also resulted in errors in the statement of stockholders’ deficit and statement of cash flows. The errors were all corrected during the three-month period ended September 30, 2019. The Company believes the correction of these errors is not material to the condensed consolidated financial statements as of and for the period ended September 30, 2019.