Better Choice pany (BTTR) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements This section presents unaudited condensed consolidated financial statements and detailed notes for specified periods Unaudited Condensed Consolidated Statements of Operations This section provides the unaudited condensed consolidated statements of operations for the specified periods Consolidated Statements of Operations (Dollars in thousands, except share and per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Net sales | $11,865 | $13,200 | $45,394 | $35,019 | | Gross profit | $4,165 | $4,438 | $13,599 | $12,612 | | Loss from operations | $(6,404) | $(3,967) | $(14,626) | $(12,302) | | Net (loss) income available to common stockholders | $(6,547) | $(3,456) | $(14,954) | $8,470 | | Net (loss) income per share, basic | $(0.22) | $(0.12) | $(0.51) | $0.48 | | Net (loss) income per share, diluted | $(0.22) | $(0.12) | $(0.51) | $0.34 | Unaudited Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets as of September 30, 2022, and December 31, 2021 Consolidated Balance Sheets (Dollars in thousands) | Metric | September 30, 2022 | December 31, 2021 | |:---|:---|:---|\n| Total Current Assets | $34,928 | $43,919 | | Total Assets | $64,700 | $74,660 | | Total Current Liabilities | $8,934 | $7,341 | | Total Liabilities | $19,325 | $16,785 | | Total Stockholders' Equity | $45,375 | $57,875 | Unaudited Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity for periods ended September 30, 2022, and December 31, 2021 Changes in Stockholders' Equity (Dollars in thousands except shares) | Metric | December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | |:---|:---|:---|:---|:---|\n| Total Stockholders' Equity | $57,875 | $54,926 | $51,360 | $45,375 | | Share-based compensation | — | $1,091 | $801 | $562 | | Net loss available to common stockholders | — | $(4,040) | $(4,367) | $(6,547) | | Accumulated Deficit | $(259,256) | $(263,296) | $(267,663) | $(274,210) | Unaudited Condensed Consolidated Statements of Cash Flows This section outlines unaudited condensed consolidated cash flows for the nine months ended September 30, 2022, and 2021 Consolidated Statements of Cash Flows (Dollars in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|\n| Cash Used in Operating Activities | $(17,972) | $(8,320) | | Cash Used in Investing Activities | $(198) | $(124) | | Cash Provided by Financing Activities | $1,843 | $37,716 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(16,327) | $29,272 | | Total cash and cash equivalents and restricted cash, end of period | $12,615 | $33,261 | Notes to the Condensed Consolidated Financial Statements This section provides detailed notes explaining the company's business, accounting policies, and specific financial line items Note 1 - Nature of business and summary of significant accounting policies Better Choice Company Inc. is a pet health and wellness company, with financial statements prepared under GAAP - Better Choice Company Inc. is a pet health and wellness company focused on providing pet products and services under its Halo brand, including foods, treats, toppers, dental products, chews, and supplements for dogs and cats[33] - Advertising costs were $4.8 million for the three months ended September 30, 2022, and $10.0 million for the nine months ended September 30, 2022, with $2.1 million related to the amortization of a prepaid advertising contract with iHeart for both periods[38] - The Company's board approved a share repurchase program on May 10, 2022, authorizing up to $3.0 million of common stock repurchases through December 31, 2022; however, no shares were repurchased during the nine months ended September 30, 2022[42] Note 2 - Revenue Revenue is recognized net of discounts across E-commerce, Brick & Mortar, DTC, and International channels Net Sales by Revenue Channel (in thousands) | Channel | Three Months Ended Sep 30, 2022 | % of Total | Three Months Ended Sep 30, 2021 | % of Total | Nine Months Ended Sep 30, 2022 | % of Total | Nine Months Ended Sep 30, 2021 | % of Total | |:---|:---|:---|:---|:---|:---|:---|:---|:---|\n| E-commerce | $3,530 | 30% | $4,742 | 36% | $11,035 | 24% | $11,644 | 33% | | Brick & Mortar | $1,342 | 11% | $1,816 | 14% | $9,632 | 21% | $5,408 | 16% | | DTC | $1,371 | 12% | $2,363 | 18% | $5,066 | 11% | $7,140 | 20% | | International | $5,622 | 47% | $4,279 | 32% | $19,661 | 44% | $10,827 | 31% | | Net Sales | $11,865 | 100% | $13,200 | 100% | $45,394 | 100% | $35,019 | 100% | - International sales represented the largest revenue channel, accounting for 47% of total net sales for the three months ended September 30, 2022, and 44% for the nine months ended September 30, 2022[47] - One International customer in China contributed significantly, representing $5.3 million (three months) and $16.6 million (nine months) of net sales, exceeding 10% of total net sales for both periods in 2022[46] Note 3 - Inventories Net inventories significantly increased due to food, treats, and supplements, with a higher reserve from rebranding Inventories (in thousands) | Category | September 30, 2022 | December 31, 2021 | |:---|:---|:---|\n| Food, treats and supplements | $10,948 | $4,666 | | Inventory packaging and supplies | $1,414 | $1,028 | | Total Inventories | $12,362 | $5,694 | | Inventory reserve | $(751) | $(449) | | Inventories, net | $11,611 | $5,245 | - The increase in the Company's inventory reserve is attributable to its rebranding initiatives[49] Note 4 - Prepaid expenses and other current assets Prepaid expenses and other current assets decreased due to full utilization of a prepaid advertising contract Prepaid Expenses and Other Current Assets (in thousands) | Category | September 30, 2022 | December 31, 2021 | |:---|:---|:---|\n| Prepaid advertising contract with iHeart | $0 | $2,095 | | Other prepaid expenses and other current assets | $1,108 | $845 | | Total Prepaid expenses and other current assets | $1,108 | $2,940 | - The Company utilized the remaining advertising services under its prepaid contract with iHeart during the three months ended September 30, 2022[50] Note 5 - Accrued and other liabilities Accrued and other liabilities increased, primarily due to higher trade promotions, advertising, and short-term financing Accrued and Other Liabilities (in thousands) | Category | September 30, 2022 | December 31, 2021 | |:---|:---|:---|\n| Accrued taxes | $107 | $139 | | Accrued payroll and benefits | $870 | $755 | | Accrued trade promotions and advertising | $662 | $119 | | Accrued interest | $45 | $25 | | Accrued commissions | $281 | $0 | | Deferred revenue | $297 | $225 | | Short-term financing | $289 | $0 | | Other | $558 | $616 | | Total accrued and other liabilities | $3,109 | $1,879 | Note 6 - Goodwill and intangible assets Goodwill remained stable with no impairment recorded, despite triggering events, while intangible assets also showed no impairment - Goodwill was $18.6 million as of September 30, 2022, and December 31, 2021, with no accumulated impairment loss[53] - The Company performed a quantitative goodwill assessment as of July 1, 2022, and a qualitative analysis as of September 30, 2022, concluding no impairment despite a decline in stock price and a change in CEO[53] Intangible Assets (in thousands) | Category | Estimated Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization (Sep 30, 2022) | Net Carrying Amount (Sep 30, 2022) | Net Carrying Amount (Dec 31, 2021) | |:---|:---|:---|:---|:---|:---|\n| Customer relationships | 7 | $7,190 | $(2,858) | $4,332 | $5,102 | | Trade name | 15 | $7,500 | $(1,391) | $6,109 | $6,484 | | Total intangible assets | | $14,690 | $(4,249) | $10,441 | $11,586 | Note 7 - Debt Total debt increased, with the credit facility amended to increase the revolving line and adjust financial covenants Components of Debt (in thousands) | Debt Type | Maturity Date | September 30, 2022 Amount | December 31, 2021 Amount | |:---|:---|:---|:---|\n| Term loan, net | 1/6/2024 | $4,777 | $5,414 | | Line of credit, net | 1/6/2024 | $7,375 | $4,856 | | Total debt | | $12,152 | $10,270 | | Less current portion | | $1,922 | $855 | | Total long term debt | | $10,230 | $9,415 | - The Third Wintrust Amendment, executed in October 2022, increased the revolving line of credit from $7.5 million to $13.5 million and set the minimum liquidity covenant to $6.3 million (previously $8.5 million for Sep 30, 2022)[60] - As of September 30, 2022, the Company was in compliance with all debt covenant requirements following the Third Wintrust Amendment[60] Note 8 - Commitments and contingencies No material purchase obligations or legal proceedings that would adversely affect financial position were reported - The Company had no material purchase obligations as of September 30, 2022, or December 31, 2021[61] - 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[61] Note 9 - Warrants Outstanding warrants to purchase common stock remained unchanged, with no associated intrinsic value Outstanding Warrants to Purchase Common Stock | Metric | Warrants | Weighted Average Exercise Price | |:---|:---|:---|\n| Warrants outstanding as of December 31, 2021 | 9,433,584 | $5.92 | | Issued | — | $— | | Exercised | — | $— | | Terminated/Expired | — | $— | | Warrants outstanding as of September 30, 2022 | 9,433,584 | $5.92 | - There was no intrinsic value associated with the outstanding warrants as of September 30, 2022, and December 31, 2021[63] Note 10 - Share-based compensation Share-based compensation expense decreased due to prior-year accelerated vesting, with new grants in 2022 Share-based Compensation Expense (in thousands) | Period | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Share-based compensation expense | $0.6 | $0.7 | $2.5 | $3.5 | - During the nine months ended September 30, 2022, the Company granted 611,000 stock options under the Amended 2019 Plan[65] - In February 2022, 218,345 shares of common stock were granted to board members, resulting in $0.5 million of share-based compensation expense upon issuance[66] Note 11 - Income taxes Minimal income tax expense was recorded, with an effective tax rate below 1% due to losses offset by a valuation allowance - Minimal income tax expense was recorded for the three and nine months ended September 30, 2022, and no income tax expense for the same periods in 2021[67] - The effective tax rate was less than 1% for 2022 and 0% for 2021, 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[67] Note 12 - Related party transactions Related party transactions primarily involved quarterly board of director fees, with $0.1 million in accounts payable - $0.1 million of director fees were included in accounts payable as of September 30, 2022, and December 31, 2021[69] Note 13 - Concentrations The company has significant concentrations in its supply chain and customer base, with a few vendors and customers dominating - Approximately 70% of inventory purchases were sourced from three vendors for the nine months ended September 30, 2022[70] - Accounts receivable from three customers represented 96% of total accounts receivable as of September 30, 2022[71] - Four customers represented 70% of gross sales for the nine months ended September 30, 2022[71] Note 14 - (Loss) earnings per share Basic and diluted net loss per share were identical due to anti-dilutive common stock equivalents during net loss periods Basic and Diluted Net (Loss) Earnings Per Share (in thousands, except share and per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Adjusted net (loss) income available to common stockholders | $(6,547) | $(3,456) | $(14,954) | $8,068 | | Basic WASO | 29,364,712 | 29,466,520 | 29,339,918 | 16,799,796 | | Net (loss) earnings per share, basic | $(0.22) | $(0.12) | $(0.51) | $0.48 | | Diluted WASO | 29,364,712 | 29,466,520 | 29,339,918 | 23,685,351 | | Net (loss) earnings per share, diluted | $(0.22) | $(0.12) | $(0.51) | $0.34 | - For periods with a net loss, basic and diluted net loss per share are identical because common stock equivalents are excluded from diluted EPS as they have an anti-dilutive impact[73] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, business overview, market trends, and growth strategy Overview and Outlook Better Choice Company, a pet health and wellness firm, aims for industry leadership with premium Halo brand products - Better Choice Company 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, primarily under the Halo brand umbrella[78][79] - The company sells premium and super-premium products through E-commerce, Brick & Mortar, Direct-to-Consumer (DTC), and International channels, leveraging a differentiated omni-channel strategy[79] The Global Pet Food and Treat Market The U.S. leads the pet food market, while Asia, particularly China, offers significant growth for premium products - The U.S. pet food and treats market accounted for approximately $39 billion in consumer sales in 2019, representing 36% of the total U.S. pet care market[80] - The 'Pet Boom' post-COVID-19, driven by millennial and Gen-Z households, has led to a dramatic increase in forecasted growth for the pet care industry, with these demographics showing a preference for premium products and online/specialty retailers[82] - Globally, Asia is the second-largest market for pet products, with China representing the largest growth opportunity, where the premium dry dog and cat food market is anticipated to grow at a 20% CAGR and 28% CAGR, respectively, from 2015 through 2025[82] Our Growth Strategy Growth strategy emphasizes innovation, an omni-channel approach, pet humanization, and expansion into the Asian market - The company maintains a robust and growing pipeline of new products, aiming to quickly bring innovations to market while benefiting from existing customer relationships and economies of scale[83] - A differentiated omni-channel strategy allows the company to design and sell products tailored for specific channels, maximize gross margin, and adapt to changing market dynamics[83] - The strategy includes capitalizing on the continuing trends of pet humanization and targeting the significant macro-growth opportunity in the Asian pet food industry, particularly in China[83] Recent Corporate Developments Scott Lerner resigned as CEO on September 14, 2022, with Lionel F. Conacher appointed Interim CEO - Scott Lerner stepped down from his role as CEO, effective September 14, 2022[84] - Lionel F. Conacher was appointed as Interim CEO, effective September 14, 2022[84] Results of Operations This section details financial performance for the three and nine months ended September 30, 2022, versus 2021 Consolidated Results of Operations (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | Change (3 Months) | % Change (3 Months) | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | Change (9 Months) | % Change (9 Months) | |:---|:---|:---|:---|:---|:---|:---|:---|:---|\n| Net sales | $11,865 | $13,200 | $(1,335) | (10)% | $45,394 | $35,019 | $10,375 | 30% | | Cost of goods sold | $7,700 | $8,762 | $(1,062) | (12)% | $31,795 | $22,407 | $9,388 | 42% | | Gross profit | $4,165 | $4,438 | $(273) | (6)% | $13,599 | $12,612 | $987 | 8% | | Total operating expenses | $10,569 | $8,405 | $2,164 | 26% | $28,225 | $24,914 | $3,311 | 13% | | Loss from operations | $(6,404) | $(3,967) | $(2,437) | (61)% | $(14,626) | $(12,302) | $(2,324) | (19)% | | Total other (expense) income, net | $(142) | $511 | $(653) | (128)% | $(324) | $20,772 | $(21,096) | (102)% | | Net (loss) income before income taxes | $(6,546) | $(3,456) | $(3,090) | (89)% | $(14,950) | $8,470 | $(23,420) | 277% | | Net (loss) income available to common stockholders | $(6,547) | $(3,456) | $(3,091) | (89)% | $(14,954) | $8,470 | $(23,424) | 277% | Net sales Net sales decreased 10% for three months but increased 30% for nine months, driven by Brick & Mortar and International growth Net Sales by Revenue Channel (in thousands) | Channel | 3 Months Sep 30, 2022 | % of Total | 3 Months Sep 30, 2021 | % of Total | 9 Months Sep 30, 2022 | % of Total | 9 Months Sep 30, 2021 | % of Total | |:---|:---|:---|:---|:---|:---|:---|:---|:---|\n| E-commerce | $3,530 | 30% | $4,742 | 36% | $11,035 | 24% | $11,644 | 33% | | Brick & Mortar | $1,342 | 11% | $1,816 | 14% | $9,632 | 21% | $5,408 | 16% | | DTC | $1,371 | 12% | $2,363 | 18% | $5,066 | 11% | $7,140 | 20% | | International | $5,622 | 47% | $4,279 | 32% | $19,661 | 44% | $10,827 | 31% | | Net Sales | $11,865 | 100% | $13,200 | 100% | $45,394 | 100% | $35,019 | 100% | - Net sales decreased by $1.3 million (10%) for the three months ended September 30, 2022, primarily due to softness in E-commerce and DTC channels and a reduction in Brick & Mortar as the company exited select grocery chains[89] - Net sales increased by $10.4 million (30%) for the nine months ended September 30, 2022, driven by growth in the Brick & Mortar channel (Halo Elevate® launch) and the International channel[89] Gross profit Gross profit decreased 6% for three months but margin rose to 35%; for nine months, profit increased 8% but margin fell to 30% Gross Profit and Margin (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Gross profit | $4,165 | $4,438 | $13,599 | $12,612 | | Gross profit margin | 35% | 34% | 30% | 36% | - The increase in gross profit margin for the three months ended September 30, 2022, was driven by cost savings from transitioning dry kibble production for the International channel to a new co-manufacturer[94] - The decrease in gross profit margin for the nine months ended September 30, 2022, was primarily due to cost increases from primary suppliers due to broad-scale inflation and an inventory write-off related to Halo Holistic™ rebranding initiatives[94] Operating expenses Total operating expenses increased due to higher sales and marketing costs and employee compensation, partially offset by lower share-based compensation Operating Expenses (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Selling, general and administrative | $10,007 | $7,745 | $25,771 | $21,397 | | Share-based compensation | $562 | $660 | $2,454 | $3,517 | | Total operating expenses | $10,569 | $8,405 | $28,225 | $24,914 | - Sales and marketing costs increased by approximately $1.9 million (54%) for the three months and $3.9 million (49%) for the nine months ended September 30, 2022, driven by non-cash amortization of prepaid radio advertisement services and increased marketing spend in the International channel[95] - Share-based compensation decreased by $0.1 million (15%) for the three months and $1.0 million (30%) for the nine months ended September 30, 2022, primarily due to accelerated vesting of certain stock option grants in 2021[97] Interest expense, net Interest expense was flat for three months but significantly decreased for nine months due to prior-year convertible note interest Interest Expense, Net (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Interest expense, net | $(142) | $(79) | $(324) | $(3,148) | - Interest expense decreased by $2.8 million for the nine months ended September 30, 2022, compared to 2021, mainly due to the absence of payable-in-kind interest on previous senior subordinated convertible notes and the accretion of debt discounts from 2021[98] Gain on extinguishment of debt, net A net gain on extinguishment of debt was recorded in 2021, primarily from PPP loan forgiveness, with no 2022 activity Gain on Extinguishment of Debt, Net (in thousands) | Metric | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|\n| Gain on extinguishment of debt, net | $0 | $457 | - A net gain on extinguishment of debt of $0.5 million was recognized for the nine months ended September 30, 2021, primarily due to the forgiveness of PPP loans[99] Change in fair value of warrant liabilities A significant gain from warrant liability fair value change occurred in 2021 due to IPO reclassification, with no 2022 activity Change in Fair Value of Warrant Liabilities (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Change in fair value of warrant liabilities | $0 | $590 | $0 | $23,463 | - Upon consummation of the IPO on July 1, 2021, common stock warrants were reclassified to equity, leading to a $23.463 million gain from the change in fair value of warrant liabilities for the nine months ended September 30, 2021[100] Income taxes Minimal income tax expense was recorded, with an effective tax rate below 1% due to losses offset by a valuation allowance Income Tax Expense (in thousands) | Metric | 3 Months Sep 30, 2022 | 3 Months Sep 30, 2021 | 9 Months Sep 30, 2022 | 9 Months Sep 30, 2021 | |:---|:---|:---|:---|:---|\n| Income tax expense | $1 | $0 | $4 | $0 | - Minimal income tax expense was recorded for the three and nine months ended September 30, 2022, and no income tax expense for the same periods in 2021[67] - The effective tax rate was less than 1% for the three and nine months ended September 30, 2022, and 0% for the same periods in 2021, differing from the U.S. federal statutory rate of 21% because losses are fully offset by a valuation allowance due to uncertainty of realizing tax benefits from NOLs[102] Liquidity and capital resources Cash and cash equivalents decreased significantly; the company expects debt covenant compliance and going concern status Summary of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|\n| Operating activities | $(17,972) | $(8,320) | | Investing activities | $(198) | $(124) | | Financing activities | $1,843 | $37,716 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(16,327) | $29,272 | - Cash and cash equivalents and restricted cash decreased from $28.9 million as of December 31, 2021, to $12.6 million as of September 30, 2022[103] - The company expects to be in compliance with its minimum liquidity debt covenant of $8.5 million and does not anticipate substantial doubt about its ability to continue as a going concern, supported by high working capital and ongoing profitability initiatives[103] Cash flows from operating activities Cash used in operating activities increased significantly due to working capital fluctuations, including higher inventory and marketing Cash Used in Operating Activities (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|\n| Cash Used in Operating Activities | $(17,972) | $(8,320) | - Cash used in operating activities increased by $9.7 million (116%) for the nine months ended September 30, 2022, compared to the same period in 2021[105] - The increase in cash used was primarily driven by an $8.3 million increase in inventory to support the Halo Elevate® launch and the rebranding of TruDog and Halo Holistic™, along with increased marketing spend[105] Cash flows from investing activities Cash used in investing activities slightly increased, primarily due to capital expenditures for fixed assets Cash Used in Investing Activities (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|\n| Cash Used in Investing Activities | $(198) | $(124) | - Cash used in investing activities was $0.2 million for the nine months ended September 30, 2022, primarily for capital expenditures[106] Cash flows from financing activities Cash provided by financing activities significantly decreased, with 2022 mainly from credit line proceeds versus 2021 IPO proceeds Cash Provided by Financing Activities (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---|\n| Cash Provided by Financing Activities | $1,843 | $37,716 | - Cash provided by financing activities decreased from $37.7 million in 2021 to $1.8 million in 2022 for the nine-month periods[107] - The significant decrease was due to 2021 including $36.2 million from IPO proceeds, $4.1 million from private placements, and $1.7 million from warrant exercises, which did not recur in 2022[107] Indebtedness The company's indebtedness comprises a term loan and revolving credit facility, with further details in Note 7 - As of September 30, 2022, the company's indebtedness consisted of a term loan and a revolving credit facility[108] Critical Accounting Estimates Financial statements rely on significant estimates, particularly for goodwill impairment, with no material changes noted - The preparation of financial statements requires management to make estimates, assumptions, and judgments, with goodwill impairment being a critical accounting estimate[109][110] - No material changes to critical accounting estimates were made compared to the Annual Report for the year ended December 31, 2021, except for the removal of the going concern risk factor[109] Goodwill Impairment Goodwill is annually evaluated for impairment using qualitative and quantitative assessments, with no impairment recorded - Goodwill is evaluated for impairment at least annually at the reporting unit level, or whenever events or circumstances indicate that the fair value of a reporting unit is below its carrying value[110] - Fair value measurements used in the impairment review of goodwill are Level 3 measurements, involving significant estimates and assumptions[110][112] - Despite a decline in stock price and a change in CEO, the company concluded that the fair value of the reporting unit was more-likely-than-not above its carrying value, and no goodwill impairment charge was recorded as of September 30, 2022[112] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[113] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[114] - There were no changes in internal control over financial reporting during the fiscal quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[115] PART II – OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. Legal Proceedings The company is not aware of any legal proceedings or claims that would materially adversely affect its business - The company is not currently aware of any legal proceedings or claims that are believed to have a material adverse effect on its business, financial condition, or operating results[118] ITEM 1A. Risk Factors No material changes to risk factors were noted, except for the removal of going concern risk and new impairment charges - No material changes from the risk factors described in the Annual Report, except for the removal of the going concern risk factor[119] - A new risk factor emphasizes the potential for significant charges to earnings if goodwill or amortizable intangible assets become impaired, negatively impacting results of operations[120] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases were made during the quarter, with $3.0 million remaining available under the program Common Stock Repurchases (Three Months Ended September 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs | |:---|:---|:---|:---|:---|\n| July 1, 2022 to July 31, 2022 | — | $— | — | $3,000,000 | | August 1, 2022 to August 31, 2022 | — | $— | — | $3,000,000 | | September 1, 2022 to September 30, 2022 | — | $— | — | $3,000,000 | | Total | — | $— | — | | - No common stock repurchases were made during the three months ended September 30, 2022[121] - Approximately $3.0 million remains available under the share repurchase program[121] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[122] ITEM 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the company[122] ITEM 5. Other Information No other information was reported under this item - No other information was reported[122] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, certificates, and certifications - The section lists all exhibits filed with the Form 10-Q, including merger agreements, certificates of incorporation, bylaws, loan and security agreements, and various certifications[125][126][128]