SEC Company Response from SRx Health Solutions, Inc. (SRXH) (CIK 0001471727) (SRXH) — Jul 12, 2019
SRx Health Solutions, Inc. (SRXH) (CIK 0001471727)
Date: July 12, 2019 · CIK: 0001471727 · Accession: 0001140361-19-012862
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-161943
Referenced dates: June 17, 2019
Letter
VIA EDGAR TRANSMISSION Division of Corporation Finance Attention: Joseph Klinko and Lily Dang Filed December 21, 2018 Form 8-K filed May 10, 2019 Form 8-K filed May 23, 2019 File No. 333-161943
Dear Mr. Kelly and Ms. Dang:
On behalf of Better Choice Company Inc., a Delaware corporation (the “Company” or “BCC”), we are transmitting this letter in response to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”)
by letter dated June 17, 2019 with respect to the Company’s Form 10-K for the Fiscal Year ended August 31, 2018, filed on December 21, 2018, Form 8-K, filed on May 10, 2019 and Form 8-K, filed on May 23, 2019.
The bold and numbered paragraphs below correspond to the numbered paragraphs in the Staff’s letter and are followed by the Company’s responses. The responses provided herein are based on information provided to Latham & Watkins LLP by the Company.
Form 8-K filed May 10, 2019
Item 2.01 - Completion of Acquisition or Disposition of Assets, page 2
1.
We note that on May 6, 2019, you acquired Bona Vida, Inc. and TruPet LLC in exchange for common shares. Given the number of shares issued in each transaction, it appears that you will need to disclose the information prescribed by Item 5.01 on Form 8-K, and identify the accounting acquirer in accordance with FASB ASC 805-10-25-4 and 5, and FASB ASC 805-40, which pertains to reverse acquisitions.
July 12, 2019
Page 2
You should disclose how you intend to account for these transactions, and the date that you will file the historical financial statements of the businesses acquired, along with a pro forma presentation illustrating the effects of the transactions, to comply with Rule 8-04 and Rule 8-05 of Regulation S-X, and Item 9.01 of Form 8-K.
Response: The Company respectfully advises the Staff that it intends to file a Form 8-K containing the disclosure required by Item 5.01 concurrently with the submission of this letter and in accordance with our analysis below, identifying TruPet LLC as the accounting acquiror. The Company also advises the Staff that it intends to file the historical financial statements of each of Bona Vida, Inc. and TruPet LLC, along with a pro forma presentation illustrating the effects of the Business Combinations (as defined below) to comply with Rule 8-04 and Rule 8-05 of Regulation S-X, and Item 9.01 of Form 8-K, no later than July 22, 2019.
Please submit the analyses that you perform in your application of this guidance. If you believe that either entity does not meet the definition of a business, tell us how you considered the attributes listed in Rule 11-01(d) of Regulation S-X, and provide us with all schedules referenced among Representations and Warranties in the Agreement and Plan of Merger with Bona Vida, Inc. at Exhibit 2.1, and/or the Securities Exchange Agreement with TruPet LLC at Exhibit 2.3, as applicable, and submit the financial statements that were provided to you by these entities, as referenced in those exhibits.
Response: The Company respectfully acknowledges the Staff’s comment and notes that based upon the guidance described in ASC 805-10-25-4 and 5 and as more fully described below, the Company has concluded that TruPet LLC is the “accounting acquirer” in the Business Combinations (as defined below). In addition, pursuant to the guidance in ASC 805-40, the Company believes the Business Combinations meet the requirements for reverse merger accounting.
Background of the Business Combinations
The Business Combinations (as defined below) included the Company and two additional entities:
TruPet, LLC: TruPet, LLC, formed in 2013, manufactures and markets dry raw diet meals, treats and supplements for dogs and cats. During the calendar year ended December 31, 2018, TruPet LLC had sales of approximately $15 million; gross assets of approximately $6 million; cash of approximately $4 million; approximately $10 million in debt and equity; and an operating loss of approximately $6 million.
July 12, 2019
Page 3
Bona Vida, Inc.: Bona Vida, Inc., formed in 2018, develops brand and product verticals within the animal CBD supplement space. During the calendar year ended December 31, 2018, Bona Vida, Inc. had zero sales; gross assets of approximately $1.2 million; raised approximately $2.5 million in capital; and an operating loss of approximately $3 million.
On May 6, 2019, the Company closed the acquisitions of Bona Vida, Inc. and TruPet LLC pursuant to the terms of the Agreement and Plan of Merger, dated as of February 28, 2019 (as amended to date, the “Bona Vida Merger Agreement”) and the Securities Exchange Agreement, dated as of February 2, 2019 (as amended to date, the “TruPet Exchange Agreement”), respectively. The acquisitions were consummated by exchanging the Company’s common stock for 93.3% of the outstanding equity interests of TruPet LLC and all of the outstanding equity interests of Bona Vida, Inc., respectively (collectively, the “Business Combinations”). Simultaneous with the closing of the Business Combinations, the Company closed a private placement of its common stock and warrants to purchase its common stock for gross proceeds of $17,184,872 (the “Private Placement”). The Private Placement included the participation of a large pool of accredited investors (49) at a fair market value of $3 per share.
As a result of the Business Combinations and the Private Placement, the Company’s ownership was comprised of the following as of May 6, 2019:
Stockholder Group
Shares Issued
Percentage Ownership
Former members of TruPet LLC
14,079,606
34.4
%
Legacy stockholders of the Company
3,134,030
7.7
%
Investors in the Private Placement
5,728,325
14.0
%
Former stockholders of Bona Vida, Inc.
18,003,273
44.0
%
Total
40,945,235
%
Identification of Accounting Acquirer
With respect to the Staff’s request that the Company identify the accounting acquirer in accordance with FASB ASC 805-10-25-4 and 5, and FASB ASC 805-40, the Company notes that based upon the guidance described in ASC 805-10-25-4 and 5, the Company has concluded that TruPet LLC is the “accounting acquirer” in the Business Combinations.
The Company based this conclusion on the following facts and circumstances:
July 12, 2019
Page 4
The relative voting rights in the combined entity after the Business Combinations.
According to 805-10-55-12(a), the accounting acquirer usually is the entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities. The relative voting rights are determined with respect to the stockholders of the combined entity.
As of the date of the closing of the Business Combinations, the total number of shares of common stock held in the combined entity divided among the three standalone entities being combined was as follows:
•
Bona Vida, Inc. - 44.0%
•
TruPet LLC - 34.4%
•
BCC - 21.6%
The percentage of shares held by BCC is comprised of 7.7% legacy shareholders and 14.0% of new investors pursuant to a Private Placement financing which closed simultaneously with the Business Combinations. The former Chairman of the Board of Directors of BCC, Mike Young, initiated the Private Placement and the closing of the Private Placement was subject to the completion of the Business Combinations.
Although Bona Vida, Inc. had the largest percentage of ownership immediately after the Business Combinations, Blue Sky Holdings Trust, which is an entity beneficially owned by Lori Taylor (the current Co-CEO of the Company), and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common stock, respectively, for a total of 23% ownership, and are the two largest current stockholders of the Company. Both Blue Sky Holdings Trust and John Word III held membership interests in TruPet LLC prior to the Business Combinations. The trustee of Blue Sky Holdings Trust is Lori Taylor who is Co-CEO and a director of the combined entity and had a vote in the composition of the board of directors and the management team of the combined entity.
The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest.
According to 805-10-55-12(b), the acquirer usually is the entity whose single owner or organized group of owners holds the largest voting interest in the combined entity. The relative voting rights are determined with respect to the stockholders of the combined entity.
July 12, 2019
Page 5
As noted above, Blue Sky Holdings Trust, which is beneficially owned by Lori Taylor, and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common stock, respectively, and are the two largest stockholders of the Company. Both Blue Sky Holdings Trust and John Word III held membership interests in TruPet LLC prior to the Business Combinations.
The composition of the governing body of the combined entity.
According to 805-10-55-12(c), the acquirer usually is the entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. The stockholders holding the largest percentage of outstanding stock of a particular entity generally have the greatest ability to elect or appoint or to remove a majority of the members of the governing body.
As of the date of the closing of the Business Combinations, Blue Sky Holdings Trust, which is beneficially owned by Lori Taylor, and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common stock, respectively, and are the two largest stockholders of the Company. Both Blue Sky Holdings Trust and John Word III held membership interests in TruPet LLC prior to the Business Combinations.
In addition, the composition of the board of directors of the Company following the Business Combinations was as follows:
•
Michael Galego, Chairman (former Chairman of the board of directors of Bona Vida, Inc.)
•
Michael Young (former Chairman of the board of directors of the Company)
•
Lori Taylor (former member of the board of managers of TruPet LLC)
•
Damian Dalla-Longa (former member of the board of directors of Bona Vida, Inc.)
•
Jeff Davis (former member of the board of managers of TruPet LLC)
The composition of the senior management of the combined entity.
According to 805-10-55-12(d), the acquirer usually is the entity whose former management controls the management of the combined entity.
The senior management of the Company following the Business Combinations is divided evenly among former members of management at Bona Vida, Inc. and TruPet LLC.
The terms of the exchange of equity interests.
July 12, 2019
Page 6
According to 805-10-55-12(d), the acquirer usually is the entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities.
As of the date of the closing of the Business Combinations, the Company’s quoted market price on the OTCQB was $6.00 per share. However, the Company also closed the Private Placement on the same date, in which it sold 5,728,325 shares of its common stock and warrants to purchase its common stock to accredited third party investors at a price of $3.00 per share. Since the shares of the Company’s common stock are not widely traded (the average trading volume during the period from May 6, 2019 to May 10, 2019 was approximately 900 to 18,000 shares of common stock traded per day), the Company believes $3.00 per share represents a more accurate fair market value of the price per share of its common stock at the date of the closing of the Business Combinations.
Number of Shares
Share Price
Total Consideration
Bona Vida, Inc.
18,003,273
$
3.00
54,009,819
TruPet LLC
14,079,606
$
3.00
42,238,818
Private Placement Investment Business Combination
5,728,325
$
3.00
17,184,975
Better Choice Company Inc. (date prior to closing)
3,134,030
$
3.00
9,402,090
Total
40,945,235
$
122,835,702
On May 3, 2019 (day prior to combinations), BCC common stock was trading at $6.00 per share, with volume of 31,742 shares traded.
According to 805-10-55-13, the acquirer usually is the entity whose relative size (measured in, for example, assets, revenues, or earnings), is significantly larger than that of the other combining entity or entities. TruPet LLC was the largest entity by most accounting metrics as of the closing of the Business Combinations.
For example, as of 4/30/19 (immediately prior to the closing of the Business Combinations), the breakdown of total assets and revenue of each of the standalone entities being combined was as follows:
•
TruPet LLC
o
Total Assets - $2,586,890
o
Revenue - $4,978,038
•
Show Raw Text
CORRESP
1
filename1.htm
53rd at Third
885 Third Avenue
New York, New York 10022-4834
Tel: +1.212.906.1200 Fax: +1.212.751.4864
www.lw.com
FIRM / AFFILIATE OFFICES
Beijing
Moscow
Boston
Munich
Brussels
New York
Century City
Orange County
July 12, 2019
Chicago
Paris
Dubai
Riyadh
Düsseldorf
San Diego
Frankfurt
San Francisco
Hamburg
Seoul
Hong Kong
Shanghai
Houston
Silicon Valley
London
Singapore
Los Angeles
Tokyo
Madrid
Washington, D.C.
Milan
VIA EDGAR TRANSMISSION
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 4720
Washington, D.C. 20549
Attention: Joseph Klinko and Lily Dang
Re:
Better Choice Company Inc.
Form 10-K for the Fiscal Year ended August 31, 2018
Filed December 21, 2018
Form 8-K filed May 10, 2019
Form 8-K filed May 23, 2019
File No. 333-161943
Dear Mr. Kelly and Ms. Dang:
On behalf of Better Choice Company Inc., a Delaware corporation (the “Company” or “BCC”), we are
transmitting this letter in response to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”)
by letter dated June 17, 2019 with respect to the Company’s Form 10-K for the Fiscal Year ended August 31, 2018, filed on December 21, 2018, Form 8-K, filed on May 10, 2019 and Form 8-K, filed on May 23, 2019.
The bold and numbered paragraphs below correspond to the numbered paragraphs in the Staff’s letter and are followed by the Company’s responses. The responses provided herein are based on information provided to Latham
& Watkins LLP by the Company.
Form 8-K filed May 10, 2019
Item 2.01 - Completion of Acquisition or Disposition of Assets, page 2
1.
We note that on May 6, 2019, you acquired Bona Vida, Inc. and TruPet LLC in exchange for common shares. Given the number of shares issued in each transaction, it appears that you will need to disclose the
information prescribed by Item 5.01 on Form 8-K, and identify the accounting acquirer in accordance with FASB ASC 805-10-25-4 and 5, and FASB ASC 805-40, which pertains to reverse acquisitions.
July 12, 2019
Page 2
You should disclose how you intend to account for these transactions, and the date that you will file the historical financial statements of the businesses acquired, along with a pro forma presentation
illustrating the effects of the transactions, to comply with Rule 8-04 and Rule 8-05 of Regulation S-X, and Item 9.01 of Form 8-K.
Response: The Company respectfully advises the Staff that it intends to file a Form 8-K containing the disclosure required by
Item 5.01 concurrently with the submission of this letter and in accordance with our analysis below, identifying TruPet LLC as the accounting acquiror. The Company also advises the Staff that it intends to file the historical financial statements
of each of Bona Vida, Inc. and TruPet LLC, along with a pro forma presentation illustrating the effects of the Business Combinations (as defined below) to comply with Rule 8-04 and Rule 8-05 of Regulation S-X, and Item 9.01 of Form 8-K, no later
than July 22, 2019.
Please submit the analyses that you perform in your application of this guidance. If you believe that either entity does not meet the definition of a business, tell us how you considered the attributes
listed in Rule 11-01(d) of Regulation S-X, and provide us with all schedules referenced among Representations and Warranties in the Agreement and Plan of Merger with Bona Vida, Inc. at Exhibit 2.1, and/or the Securities Exchange Agreement with TruPet
LLC at Exhibit 2.3, as applicable, and submit the financial statements that were provided to you by these entities, as referenced in those exhibits.
Response: The Company respectfully acknowledges the Staff’s comment and notes that based upon the guidance described in ASC
805-10-25-4 and 5 and as more fully described below, the Company has concluded that TruPet LLC is the “accounting acquirer” in the Business Combinations (as defined below). In addition, pursuant to the guidance in ASC 805-40, the Company believes
the Business Combinations meet the requirements for reverse merger accounting.
Background of the Business Combinations
The Business Combinations (as defined below) included the Company and two additional entities:
TruPet, LLC: TruPet, LLC, formed in 2013, manufactures and markets dry raw diet meals, treats and supplements for dogs and cats. During the calendar year ended December 31, 2018, TruPet LLC had sales of approximately
$15 million; gross assets of approximately $6 million; cash of approximately $4 million; approximately $10 million in debt and equity; and an operating loss of approximately $6 million.
July 12, 2019
Page 3
Bona Vida, Inc.: Bona Vida, Inc., formed in 2018, develops brand and product verticals within the animal CBD supplement space. During the calendar year ended December 31, 2018, Bona Vida, Inc. had zero sales; gross
assets of approximately $1.2 million; raised approximately $2.5 million in capital; and an operating loss of approximately $3 million.
On May 6, 2019, the Company closed the acquisitions of Bona Vida, Inc. and TruPet LLC pursuant to the terms of the Agreement and Plan of Merger, dated as of February 28, 2019 (as amended to date, the “Bona Vida Merger Agreement”) and the Securities Exchange Agreement, dated as of February 2, 2019 (as amended to date, the “TruPet Exchange
Agreement”), respectively. The acquisitions were consummated by exchanging the Company’s common stock for 93.3% of the outstanding equity interests of TruPet LLC and all of the outstanding equity interests of Bona Vida, Inc., respectively
(collectively, the “Business Combinations”). Simultaneous with the closing of the Business Combinations, the Company closed a private placement of its common stock and warrants to purchase
its common stock for gross proceeds of $17,184,872 (the “Private Placement”). The Private Placement included the participation of a large pool of
accredited investors (49) at a fair market value of $3 per share.
As a result of the Business Combinations and the Private Placement, the Company’s ownership was comprised of the following as of May 6, 2019:
Stockholder Group
Shares Issued
Percentage Ownership
Former members of TruPet LLC
14,079,606
34.4
%
Legacy stockholders of the Company
3,134,030
7.7
%
Investors in the Private Placement
5,728,325
14.0
%
Former stockholders of Bona Vida, Inc.
18,003,273
44.0
%
Total
40,945,235
100
%
Identification of Accounting Acquirer
With respect to the Staff’s request that the Company identify the accounting acquirer in accordance with FASB ASC 805-10-25-4 and 5, and FASB ASC 805-40, the Company notes that based upon the guidance described in ASC
805-10-25-4 and 5, the Company has concluded that TruPet LLC is the “accounting acquirer” in the Business Combinations.
The Company based this conclusion on the following facts and circumstances:
July 12, 2019
Page 4
The relative voting rights in the combined entity after the Business Combinations.
According to 805-10-55-12(a), the accounting acquirer usually is the entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners
retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities. The relative voting rights are determined with
respect to the stockholders of the combined entity.
As of the date of the closing of the Business Combinations, the total number of shares of common stock held in the combined entity divided among the three standalone entities being combined was as follows:
•
Bona Vida, Inc. - 44.0%
•
TruPet LLC - 34.4%
•
BCC - 21.6%
The percentage of shares held by BCC is comprised of 7.7% legacy shareholders and 14.0% of new investors pursuant to a Private Placement financing which closed simultaneously with the Business Combinations. The former
Chairman of the Board of Directors of BCC, Mike Young, initiated the Private Placement and the closing of the Private Placement was subject to the completion of the Business Combinations.
Although Bona Vida, Inc. had the largest percentage of ownership immediately after the Business Combinations, Blue Sky Holdings Trust, which is an entity beneficially owned by Lori Taylor (the current Co-CEO of the
Company), and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common stock, respectively, for a total of 23% ownership, and are the two largest current stockholders of the Company. Both Blue Sky Holdings Trust and John
Word III held membership interests in TruPet LLC prior to the Business Combinations. The trustee of Blue Sky Holdings Trust is Lori Taylor who is Co-CEO and a director of the combined entity and had a vote in the composition of the board of directors
and the management team of the combined entity.
The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting
interest.
According to 805-10-55-12(b), the acquirer usually is the entity whose single owner or organized group of owners holds the largest voting interest in the combined entity. The relative voting rights are determined with
respect to the stockholders of the combined entity.
July 12, 2019
Page 5
As noted above, Blue Sky Holdings Trust, which is beneficially owned by Lori Taylor, and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common stock, respectively, and are the two largest
stockholders of the Company. Both Blue Sky Holdings Trust and John Word III held membership interests in TruPet LLC prior to the Business Combinations.
The composition of the governing body of the combined entity.
According to 805-10-55-12(c), the acquirer usually is the entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. The stockholders
holding the largest percentage of outstanding stock of a particular entity generally have the greatest ability to elect or appoint or to remove a majority of the members of the governing body.
As of the date of the closing of the Business Combinations, Blue Sky Holdings Trust, which is beneficially owned by Lori Taylor, and John Word III, own approximately 12.9% and 10.1% of the outstanding shares of common
stock, respectively, and are the two largest stockholders of the Company. Both Blue Sky Holdings Trust and John Word III held membership interests in TruPet LLC prior to the Business Combinations.
In addition, the composition of the board of directors of the Company following the Business Combinations was as follows:
•
Michael Galego, Chairman (former Chairman of the board of directors of Bona Vida, Inc.)
•
Michael Young (former Chairman of the board of directors of the Company)
•
Lori Taylor (former member of the board of managers of TruPet LLC)
•
Damian Dalla-Longa (former member of the board of directors of Bona Vida, Inc.)
•
Jeff Davis (former member of the board of managers of TruPet LLC)
The composition of the senior management of the combined entity.
According to 805-10-55-12(d), the acquirer usually is the entity whose former management controls the management of the combined entity.
The senior management of the Company following the Business Combinations is divided evenly among former members of management at Bona Vida, Inc. and TruPet LLC.
The terms of the exchange of equity interests.
July 12, 2019
Page 6
According to 805-10-55-12(d), the acquirer usually is the entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities.
As of the date of the closing of the Business Combinations, the Company’s quoted market price on the OTCQB was $6.00 per share. However, the Company also closed the Private Placement on the same date, in which it sold
5,728,325 shares of its common stock and warrants to purchase its common stock to accredited third party investors at a price of $3.00 per share. Since the shares of the Company’s common stock are not widely traded (the average trading volume during
the period from May 6, 2019 to May 10, 2019 was approximately 900 to 18,000 shares of common stock traded per day), the Company believes $3.00 per share represents a more accurate fair market value of the price per share of its common stock at the
date of the closing of the Business Combinations.
Number of Shares
Share Price
Total Consideration
Bona Vida, Inc.
18,003,273
$
3.00
54,009,819
TruPet LLC
14,079,606
$
3.00
42,238,818
Private Placement Investment Business Combination
5,728,325
$
3.00
17,184,975
Better Choice Company Inc. (date prior to closing)
3,134,030
$
3.00
9,402,090
Total
40,945,235
$
122,835,702
On May 3, 2019 (day prior to combinations), BCC common stock was trading at $6.00 per share, with volume of 31,742 shares traded.
According to 805-10-55-13, the acquirer usually is the entity whose relative size (measured in, for example, assets, revenues, or earnings), is significantly larger than that of the other combining entity or entities.
TruPet LLC was the largest entity by most accounting metrics as of the closing of the Business Combinations.
For example, as of 4/30/19 (immediately prior to the closing of the Business Combinations), the breakdown of total assets and revenue of each of the standalone entities being combined was as follows:
•
TruPet LLC
o
Total Assets - $2,586,890
o
Revenue - $4,978,038
•