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

Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Restatement of Financial Statements

Note 2 - Restatement of Financial Statements

9 Months Ended

May 31, 2018

Accounting Changes and Error Corrections [Abstract]

Accounting Changes and Error Corrections [Text Block]

Note 2 – Restatement of Financial Statements

The purpose of the restatement is to correct errors in the Company’s previously issued financial statements for the period ended May 31, 2018 in connection with the accounting for (i) discontinued operations, (ii) derivative liabilities, and (iii) conversion and restructure of convertible notes payable. Generally, some of the entries regarding discontinued operation activities that occurred subsequent to May 31, 2018 were recorded in the period ended May 31, 2018. Those entries are not recorded in the amended financial statements for the period ended May 31, 2018.

The following notes describe the specific changes to each line item of the financial statements. For purposes of these notes, “as originally filed” means the financial statements for the three and months ended May 31, 2018 as filed in the Company’s Form 10-Q on August 29, 2018, and “as amended” means the financial statement for the three and nine months ended May 31, 2018 as filed in this amended Form 10-Q/A.

The effects of the restatement on the Company’s consolidated balance sheet as of May 31, 2018 are as follows:

	May 31, 2018
	As Previously			Restatement
	Reported			Adjustment			Note			As Restated
Current assets - discontinued operations	$	3,897,293		$	(3,887,878	)		(1	)	$	9,415
Total current assets	$	4,210,563		$	(3,887,878	)		(1	)	$	322,685
Total Assets	$	4,210,563		$	(3,887,878	)		(1	)	$	322,685
Accounts payable and accrued liabilities	$	182,726		$	(117,534	)		(2	)	$	65,192
Derivative liability	$	880,192		$	1,280,613			(3	)	$	2,160,805
Current liabilities - discontinued operations	$	5,594,700		$	11,641,297			(4	)	$	17,235,997
Total current liabilities	$	6,909,785		$	12,804,376			(5	)	$	19,714,161
Additional paid-in capital	$	6,444,585		$	(3,094,777	)		(6	)	$	3,349,808
Accumulated deficit	$	(9,224,295	)	$	(13,597,477	)		(7	)	$	(22,821,772	)
Total stockholders' equity (deficit)	$	(2,699,222	)	$	(16,692,254	)		(8	)	$	(19,391,476	)
Total liabilities and stockholders' equity (deficit)	$	4,210,563		$	(3,887,878	)		(9	)	$	322,685

The effects of the restatement on the Company’s consolidated statement of operations for the three and nine months ended May 31, 2018 are as follows:

	Three Months Ended May 31, 2018
	As Previously			Restatement
	Reported			Adjustment					As Restated

Interest expense	$	(797,258	)	$	430,467		(10	)	$	(366,791	)
Gain (loss) on restructuring of debt	$	10,226		$	1,162,767		(11	)	$	1,172,993
Gain (loss) on conversion of debt	$	-		$	(139,325	)	(12	)	$	(139,325	)
Change in fair value of derivative liability	$	(456,043	)	$	(492,089	)	(13	)	$	(948,132	)
Total other income (expense), net	$	(1,243,075	)	$	(961,820	)	(14	)	$	(281,255	)
Net loss from continuing operations	$	(1,482,586	)	$	(961,820	)	(15	)	$	(520,764	)
Net income (loss) from discontinued operations	$	(3,571,043	)	$	(13,928,166	)	(13	)	$	(17,499,209	)
Consolidated Net loss	$	(5,053,629	)	$	(12,966,344	)	(14	)	$	(18,019,973	)
Net loss per share - continuing operations: basic and diluted	$	(0.02	)	$	(0.01	)			$	(0.01	)
Net loss per share - discontinued operations: basic and diluted	$	(0.04	)	$	(0.17	)			$	(0.22	)
Weighted average shares outstanding - basic and diluted		79,683,842			-					79,683,842

	Nine Months Ended May 31, 2018
	As Previously			Restatement
	Reported			Adjustment			Note			As Restated
Interest expense	$	(1,702,312	)	$	816,325		(10a		)	$	(885,987	)
Gain (loss) on restructuring of debt	$	149,549		$	877,711		(11a		)	$	1,027,260
Gain (loss) on conversion of debt	$	-		$	(474,649	)	(12a		)	$	(474,649	)
Change in fair value of derivative liability	$	(601,048	)	$	(888,700	)	(13a		)	$	(1,489,748	)
Total other income (expense), net	$	(2,153,811	)	$	(330,687	)	(14a		)	$	(1,823,124	)
Net loss from continuing operations	$	(2,544,780	)	$	(330,687	)	(15a		)	$	(2,214,091	)
Net income (loss) from discontinued operations	$	(3,571,043	)	$	(13,928,166	)		(13	)	$	(17,499,209	)
Consolidated Net loss	$	(6,115,823	)	$	(13,597,477	)		(14	)	$	(19,713,300	)
Net loss per share - continuing operations: basic and diluted	$	(0.03	)	$	(0.01	)				$	(0.03	)
Net loss per share - discontinued operations: basic and diluted	$	(0.05	)	$	(0.18	)				$	(0.22	)
Weighted average shares outstanding - basic and diluted		79,039,656			-						79,039,656

The effects of the restatement on the Company’s consolidated statement of cash flows nine months ended May 31, 2018 are as follows:

	Nine Months Ended May 31, 2018
	As Previously			Restatement
	Reported			Adjustment			Note			As Restated

Net loss - continuing operations	$	(2,544,780	)	$	330,689			(15a	)	$	(2,214,091	)
Derivative expense	$	1,056,966		$	880,462			(18	)	$	1,937,428
Amortization of discount on convertible debt	$	1,033,549		$	(682,689	)		(19	)	$	350,860
Gain on note exchange	$	(149,549	)	$	(877,711	)		(20	)	$	(1,027,260	)
Loss on conversion of debt	$	-		$	474,649			(21	)	$	474,649
Accounts payable and accrued liabilities	$	226,426		$	(494,182	)		(22	)	$	(267,756	)
Net cash used in operating activities - continuing operations	$	(336,429	)	$	(368,782	)		(23	)	$	(705,211	)
Net cash used in operating activities - discontinued operations	$	(367,327	)	$	368,782			(23	)	$	1,455
Net increase in cash and cash equivalents - continuing operations	$	665,071		$	(368,782	)		(23	)	$	296,289
Net increase in cash and cash equivalents - discontinued operations	$	(367,327	)	$	368,782			(23	)	$	1,455

(1) $3,887,878: Write-off of the balance of the note receivable related to discontinued operations recorded during the period ended May 31, 2018 in the financial statements as originally filed, not recorded during the period ended May 31, 2018 as amended.

(2) ($117,534): Accrued interest on the loan payable related to discontinued operations charged to continuing operations in the financial statements as originally filed, charged to discontinued operations in the financial statements as amended.

(3) $1,280,613: (i) $570,953: A derivative liability associated with a convertible note payable was charged to additional paid-in capital in the financial statements as originally filed, and charged to derivative liability in the financial statements as amended; (ii) $177,499: A derivative liability associated with the issuance of 500,000 warrants was not recorded in the financial statements as originally filed, and charged to derivative liability in the financial statements as amended; (iii) $532,161: mark to market of the derivative liability associated with 2,054,405 warrants not recorded in the financial statements as originally filed, charged to derivative liability in the financial statements as amended.

(4) $11,641,297: (i) $7,988,090: Fair value of derivative liabilities in connection with 25,000,000 warrants were charged to additional paid-in capital in the financial statements as originally filed, charged to derivative liability in the financial statements as amended; (ii) $3,535,673: Revaluation of the derivative liability associated with the 25,000,000 warrants not recorded in the financial statements as originally filed, charged to derivative liability in the financial statements as amended; (iii) $117,534: Accrued interest on the loan payable related to discontinued operations charged to continuing operations in the financial statements as originally filed, charged to discontinued operations as amended.

(5) $12,804,376: Net of (2), (3), and (4) above.

(6) $3,094,777: (i) $570,953: Fair value of the derivative liability associated with a convertible note payable was charged to additional paid-in capital in the financial statements as originally filed, and charged to derivative liability in the financial statements as amended; (ii) $7,988,090: Fair value of a derivative liability in connection with 25,000,000 warrants in the amount of was charged to additional paid-in capital in the financial statements as originally filed, and charged to derivative liability in the financial statements as amended; (iii) $6,387,081: Fair value of 15,000,000 warrants cancelled in August, 2018, charged to additional paid-in capital in the financial statements as originally filed; not recorded in the financial statements as amended; (iv) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $922,815.

(7) $13,597,477: (i) $4,490,270 write-off of note receivable associated with discontinued operations in the amended financial statement, not in the financial statements as filed; (ii) $3,535,673 revaluation of derivative liability related to 25,000,000 warrants as of May 31, 2018 in the amended financial statements, not in the financial statements as originally filed; (iii) $177,499 derivative expense – excess value of the derivative liability associated with 500,000 warrants in the amended financial statements, not in the financial statements as originally filed; (iv) $532,161 mark to market 2,054,405 warrants in the amended financial statements, not in the financial statements as originally filed; (v) $602,392: revaluation of Bitcoin at August 21, 2018 made in original financial statements, not in amended financial statements; (vi) $6,387,081: gain on cancellation of 15,000,000 warrants recorded in the financial statements as originally filed, not in the amended financial statements; (vii) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $922,815.

(8) $16,692,254: Net of (6) and (7) above.

(9) $3,887,878: Net of (5) and (8) above.

(10) $430,467: (i) $117,534 interest on note payable charged to continuing operations in the financial statements as originally filed, moved to discontinued operations in the amended financial statements; (ii) $177,499: derivative in excess of principal amount of note associated with 500,000 warrants in amended financial statements, not recorded in financial statements as originally filed; (iii) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $490,432.

(10a) $816,325: (i) $117,534 interest on note payable charged to continuing operations in the financial statements as originally filed, moved to discontinued operations in the amended financial statements; (ii) $177,499: derivative in excess of principal amount of note associated with 500,000 warrants in amended financial statements, not recorded in financial statements as originally filed; (iii) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $876,290.

(11) $1,162,767: net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $1,162,767.

(11a) $877,711: net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $877,711.

(12) $139,325: net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $139,325.

(12a) $474,649: net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $474,649.

(13) $492,089: (i) $119,964 revaluation of derivative liability associated with 500,000 warrants in the amended financial statement, not in the financial statements as originally filed; (ii) $412,197 revaluation of derivative liability associated with 1,554,405 warrants in the amended financial statement, not in the financial statements as originally filed; (iii) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $40,072.

(13a) $888,700: (i) $119,964 revaluation of derivative liability associated with 500,000 warrants in the amended financial statement, not in the financial statements as originally filed; (ii) $412,197 revaluation of derivative liability associated with 1,554,405 warrants in the amended financial statement, not in the financial statements as originally filed; (iii) net effect of changes in connection with accounting for conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes: $356,539.

(14): $961,820: Net of (10), (11), (12), and (13) above.

(14a): $330,687: Net of (10a), (11a), (12a), and (13a) above.

(15) $961,820: Same as (14) above.

(15a): $330,687: Same as (15a) above.

(16) $13,928,166: (i) $4,490,270 Write off of note receivable in amended financial statements, not in financial statements as originally filed; (ii) $3,535,673 Revaluation of derivative liability associated with 25,000,000 warrants at May 31, 2018 in amended financial statements, not in financial statements as originally filed; (iii) $602,392 Revaluation of Bitcoin at August 21, 2018 in financial statements as originally filed, not in amended financial statements; (iv) $6,387,081 gain on cancellation of 15,000,000 warrants in financial statements as originally filed, not in amended financial statements; (v) $117,534 interest on note payable in discontinued operations in financial statements as amended, in continuing operations in financial statements as originally filed.

(17) $12,966,344: Total of (15) and (16) above.

(17a) $13,957,477: Net of (15a) and (16) above.

(18) $880,462: (i) $111,281 revaluation of non-warrant derivative liabilities at 11.30.17; (ii) $259,491: revaluation of non-warrant derivative liabilities at 02.28.18; (iii) $119,964: $119,964 revaluation of derivative liability associated with 500,000 warrants in the amended financial statement, not in the financial statements as originally filed; (iv) $412,197: revaluation of derivative liability associated with 1,554,405 warrants in the amended financial statement, not in the financial statements as originally filed; derivative in excess of principal amount of note associated with 500,000 warrants in amended financial statements, not recorded in financial statements as originally filed; (v) $22,592: net change attributable to accounting change for gain or loss due to conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes.

(19) $682,689: Net change attributable to accounting change for gain or loss due to conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes.

(20) $877,711: Net change attributable to accounting change for gain or loss due to conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes.

(21): $474,649: Net change attributable to accounting change for gain or loss due to conversion of convertible notes payable and accrued interest to equity, and restructure of certain convertible notes.

(22) $494,181: Amount transferred to discontinued operations in the financial statements as amended.

(23) $368,782: Sum of (15a), (18), (19), (20), (21), and (22) above.

The impacts of the restatement has been reflected throughout these financial statements, including the applicable footnotes, as appropriate.