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YERBAÉ BRANDS CORP.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
YERBAÉ BRANDS CORP.
UNAUDITED CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(In United States dollars, except share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | $ | $ | ||||||
| NONCURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Right of use asset | ||||||||
| Total noncurrent assets | $ | $ | ||||||
| Total assets | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable, current portion | ||||||||
| Note payable, related party | ||||||||
| Lease liability, current portion | ||||||||
| Total current liabilities | $ | $ | ||||||
| NONCURRENT LIABILITIES | ||||||||
| Notes payable, non-current portion | ||||||||
| Lease liability, non-current portion | ||||||||
| Total noncurrent liabilities | $ | $ | ||||||
| Total liabilities | $ | $ | ||||||
| SHAREHOLDERS’ DEFICIENCY | ||||||||
| Preferred shares - authorized, issued and outstanding as of both September 30, 2024 and December 31, 2023 | $ | $ | ||||||
| Common shares - without par value, and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total deficiency | $ | ( | ) | $ | ( | ) | ||
| Total Liabilities & shareholders’ deficiency | $ | $ | ||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
| 3 |
YERBAÉ BRANDS CORP.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(In United States dollars, except share data)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Sales, advertising and marketing | ||||||||||||||||
| Total expenses | $ | $ | $ | $ | ||||||||||||
| Net loss before other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 4 |
YERBAÉ BRANDS CORP.
UNAUDITED CONDENSED INTERIM STATEMENT OF SHAREHOLDERS’ DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND SEPTEMBER 30, 2023
(In United States dollars, except share data)
| Common Stock | Additional | Accumulated | ||||||||||||||||||
| Shares | Amount | Paid-In Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | | $ | ( | ) | $ | ( | ) | |||||||||||
| Recapitalization | ( | ) | ||||||||||||||||||
| Convertible debt conversion into common shares | ||||||||||||||||||||
| Shares issued as compensation in connection with financings | ( | ) | ( | ) | ||||||||||||||||
| Warrant issuance | ||||||||||||||||||||
| Performance shares issued in connection with Merger | ||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Warrant issuance | - | |||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock compensation expense | - | |||||||||||||||||||
| Convertible debt conversion into common shares | ||||||||||||||||||||
| Shares issued for equity raise | ||||||||||||||||||||
| Performance shares issued | - | |||||||||||||||||||
| Warrant issuance | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock compensation expense | - | |||||||||||||||||||
| Shares issued-Special Warrants | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 5 |
YERBAÉ BRANDS CORP.
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(In United States dollars)
For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation | ||||||||
| Performance shares granted upon consummation of RTO | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of equipment | ( | ) | ||||||
| Lease expense | ( | ) | ||||||
| Accretion expense | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued interest | ||||||||
| Accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from the sale of equipment | ||||||||
| Recapitalization | ||||||||
| Net cash flows provided by investing activities: | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from debt instruments and notes payable | ||||||||
| Payments on debt instruments and notes payable | ( | ) | ( | ) | ||||
| Proceeds from note - related party | ||||||||
| Warrants exercised | ||||||||
| Fees on Convertible note | ( | ) | ||||||
| Proceeds from issuance of common stock and warrants | ||||||||
| Net cash flows provided by (used in) financing activities: | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | ( | ) | $ | ( | ) | ||
| Conversion of notes payable to common stock | $ | $ | ||||||
| Reverse takeover transaction | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 6 |
YERBAÉ BRANDS CORP.
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
(Unaudited)
NOTE 1 - NATURE AND DESCRIPTION OF BUSINESS
Yerbaé
Brands Corp. (“Yerbaé” and, together with its subsidiary, the “Company”. “we”, or “us”)
is a corporation existing under the Business Corporations Act (British Columbia) (“BCBCA”). Yerbaé’s
principal subsidiaries are Yerbaé Brands Co. (“Yerbaé USA”) and Yerbaé LLC of which Yerbaé owns
On May 19, 2022, Yerbaé (formerly Kona Bay Technologies Inc. (“Kona Bay”)) entered into a definitive arrangement agreement and plan of merger, as amended on August 31, 2022 and February 8, 2023, with Yerbaé USA, Kona Bay Technologies (Delaware) Inc. (“Merger Sub”), a wholly-owned Delaware subsidiary of the Company, 1362283 B.C. Ltd. (“FinCo”), a wholly-owned British Columbia subsidiary of Kona Bay, Todd Gibson and Karrie Gibson, pursuant to which Kona Bay proposed to complete a business combination with Yerbaé USA via the acquisition of all of the issued and outstanding securities of Yerbaé USA from the securityholders (collectively, the “Original Yerbaé Securityholders”) of Yerbaé USA (the “Transaction”). The Transaction was subject to the approval of the TSX Venture Exchange (“TSXV”) and constituted a reverse takeover of Kona Bay by Yerbaé USA as defined in TSXV Policy 5.2 – Change of Business and Reverse Takeovers.
On February 8, 2023, Yerbaé completed the Transaction with Yerbaé USA by way of a reverse merger conducted pursuant to: (i) the provisions of the Delaware General Corporations Law (“DGCL”) in which Merger Sub merged with and into Yerbaé USA, and (ii) a plan of arrangement conducted pursuant to the provisions of the BCBCA, which resulted in the amalgamation of Kona Bay with FinCo. In connection with the closing of the Transaction, Yerbaé (formerly, Kona Bay Technologies Inc.) consolidated its issued and outstanding common shares (each, a “Common Share”) on the basis of 5.8 pre-consolidation Common Shares for every one post-consolidation Common Share and changed its name from “Kona Bay Technologies Inc.” to “Yerbaé Brands Corp.”
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include Yerbaé and its subsidiaries and include the accounts of all majority owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation. The Company had the following wholly-owned consolidated subsidiaries as of September 30, 2024:
| Subsidiary | Date of Incorporation | Jurisdiction of Incorporation | Ownership Percentage | Direct or Indirect Ownership | ||||
| Yerbaé Brands Co. | Direct | |||||||
| Yerbaé LLC(1) | Indirect |
| (1) |
These unaudited condensed interim consolidated financial statements should be read in conjunction with the company’s latest consolidated annual financial statements for the period ended December 31, 2023 that was filed in our Form 10 filed with the SEC on July 19, 2024. In general, disclosure provided in these unaudited condensed interim consolidated financial statements do not repeat the disclosure provided in the Company’s most recent audited consolidated annual financial statements. However, these unaudited condensed interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented.
| 7 |
Going Concern
Yerbaé’s evaluation of its ability to continue as a going concern requires it to evaluate its future sources and uses of cash sufficient to fund its currently expected operations in conducting business activities one year from the date its unaudited condensed interim consolidated financial statements are issued. Yerbaé evaluates the probability associated with each source and use of cash resources in making its going concern determination.
Due to our recurring losses, the ongoing challenging market conditions for beverage companies and our limited cash balance as of September 30, 2024, management believes that it is probable that the Company will be unable to meet its obligations as they come due within one year after the date that the unaudited condensed interim consolidated financial statements are issued. While the Company is attempting to plan additional financings, including equity and debt, which are intended to mitigate the conditions or events that raise substantial doubt about our ability to continue as a going concern, those financings may not occur. If the financings do not occur, management will try and implement alternative arrangements, and such arrangements could have a potentially significant negative impact on the current net asset value of the Company. These alternatives include: (1) raising additional capital by means other than those planned through equity and/or debt financing; and/or (2) entering into new commercial relationships to help fund future expenses.
As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements within one year after the date that the financial statements are issued, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.
Management Estimates
The preparation of the unaudited condensed interim consolidated financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the unaudited condensed interim consolidated financial statements and accompanying notes. These estimates are based on historical experience and various other assumptions that management believes to be reasonable under the circumstances, including the potential future effects of macroeconomic trends and events, such as inflation and interest rate levels; supply chain disruptions; uncertainty from potential recessionary effects; climate-related matters; market, industry and regulatory factors, including permitting issues; global events, such as the ongoing military conflicts in Ukraine and the middle east; and public health matters. These estimates form the basis for making judgments about the Company’s operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. While management believes that such estimates are reasonable when considered in conjunction with the Company’s unaudited condensed interim consolidated financial position and results of operations taken as a whole, actual results could differ from these estimates.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Note
In accordance with Rule 10-01(a)(5) of Regulation S-X, the Company has not provided summary of significant accounting policy disclosure which would substantially duplicate the disclosure contained in our most recent annual report included in our Form 10 filed with the Securities and Exchange Commission (the “SEC”) on July 19, 2024.
Inventory
Inventory is valued at the lower of cost or net realizable value with cost determined on a first-in/first-out basis. The cost of inventory includes material and manufacturing costs. Inventoriable costs are expensed to cost of goods sold on the unaudited condensed interim consolidated statement of operations in the same period as finished products are sold. The amount of any write-down of inventory to net realizable value and all losses of inventory are recognized as an expense in the period when the write-down or loss. No write downs were recognized during the three and nine month interim reporting periods ended September 30, 2024 or September 30, 2023. Further, we establish a reserve related to shrinkage. The reserve is adjusted at the end of each reporting period as needed.
| 8 |
Long-Lived Assets
Management regularly reviews property and equipment and other long-lived assets for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is an indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. No impairments were recognized during the three and nine month interim periods ended September 30, 2024 or September 30, 2023.
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the Company’s own assumptions. While the Company does not have any financial instruments that are measured to fair value on a recurring or non-recurring basis, it does have financial instruments, such as cash, notes payable, and the line of credit as of both September 30, 2024, and December 31, 2023.
The Company’s financial instruments as of September 30, 2024 included cash, accounts receivables, accounts payable, related party notes payable and notes payable. The stated amounts of cash, accounts receivables and accounts payable represent fair value due to the short-term nature of the instruments. Further, the stated amount of the related party notes payable and notes payable, which are classified as level 3 instruments, also represent fair value due the notes being issued at currently prevailing market rates.
Notes Payable
The Company recognizes its note payables in accordance with the guidance in ASC 470 Debt. When there is no stated interest rate on the note payable, or the note payable includes an original issue discount, the Company determines the interest rate utilizing the interest method outlined in ASC 835 Interest. In accordance with the ASC topic, original issue discounts are recognized as a debt discount and amortized to interest expense over the estimated life of the loan. Finally, note payables are classified as either current or non-current in accordance with the guidance in ASC 210 Balance Sheet and ASC 470 Debt.
| 9 |
Recent Accounting Pronouncements
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures-In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. Yerbaé expects this ASU to only impact its disclosures with no impact to the Company’s results of operations, cash flows and financial condition.
Income Taxes (Topic 740): Improvements to Income Tax Disclosures-In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025, and continuing to provide the pre-ASU disclosures for the prior periods or may apply the amendments retrospectively by providing the revised disclosures for all period presented. Yerbaé expects this ASU to only impact its disclosures with no impact to the Company’s results of operations, cash flows, and financial condition.
NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company is in the business of manufacturing plant-based beverages and derives its revenues from one primary source-product sales. Revenue from contracts with customers is recognized when control of the goods are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.
The Company recognizes revenue in accordance with the five-step model outlined in ASC 606-Revenue from Contracts with Customers. Specifically, the Company recognizes revenue from the sale of Yerbaé product to our customers by applying the following steps:
| 1. | Identify the contract(s) with a customer | |
| 2. | Identify the performance obligations in the contract | |
| 3. | Determine the transaction price | |
| 4. | Allocate the transaction price to the performance obligations in the contract | |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation |
The Company’s contracts with customers contain a single performance obligation consisting of providing Yerbaé energy drinks. As it pertains to the single performance obligation, the Company does not recognize any contract assets or contract liabilities as it does not: (1) have a right to consideration in exchange for goods or services that the entity has transferred to a customer when the right is conditioned on something other than the passage or (2) receive payment prior to performing.
The Company typically satisfies its performance obligations at a point time upon the occurrence of delivery of the product to the customer. Further, payment is typically received within 60 days after product delivery and does not include a significant financing component.
| 10 |
The Company’s contracts with customers include variable consideration including customer rebates and quick pay discounts. The Company estimates variable consideration, which it does not consider to be constrained, using either the most likely amount or expected value methods depending on the type of variable consideration.
The Company only provides refunds for products that are damaged during delivery to the customer. However, instances of refunds are rare and have not historically had a material impact on the Company’s results of operations. Finally, Yerbaé has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.
In addition to variable consideration, the Company also provides payments to certain customers for slotting fees. In accordance with the guidance in ASC 606-10-32, the Company determined that the payment is not in exchange for a distinct good or service and it is therefore recognized as a reduction to the transaction price. As the slotting fee payment covers the life of the contract with a customer, the initial payment is recognized as an asset and is amortized as a reduction to revenue on a rational and reasonable basis over the estimated life of the contract.
Costs to Obtain a Contract with a Customer
The Company does not recognize any assets related to either costs to obtain or fulfil a contract with a customer. We incur certain delivery costs prior to transferring control of Yerbaé product to our customers (i.e. outbound freight). In accordance with the guidance in ASC 606-10-25, those costs are recognized as a fulfilment cost as they are provided prior to transferring control of the Yerbaé product to our customer (i.e. akin to shipping and handling). Further, the costs are classified in general and administrative within the unaudited condensed interim consolidated statement of operations.
NOTE 4 - REVERSE RECAPITALIZATION
On February 8, 2023, Yerbaé completed the Transaction with Yerbaé USA by way of a reverse merger conducted pursuant to: (i) the provisions of the Delaware General Corporations Law (“DGCL”) in which Merger Sub merged with and into Yerbaé USA, and (ii) a plan of arrangement conducted pursuant to the provisions of the BCBCA, which resulted in the amalgamation of Kona Bay with FinCo. In connection with the Closing, Yerbaé (formerly, Kona Bay Technologies Inc.) consolidated its issued and outstanding common shares (each, a “Common Share”) on the basis of 5.8 pre-consolidation Common Shares for each one post-consolidation Common Share and changed its name from “Kona Bay Technologies Inc.” to “Yerbaé Brands Corp.”. In accounting for the Transaction, the Company determined that Kona Bay was a shell company (as that term has been defined in Rule 405 of the United States Securities Act of 1933) as prior to the merger they had no operations and assets consisting solely of cash and cash equivalents. Thus, pursuant to section 12100 of the United States Securities and Exchange Commission’s (“SEC”) financial reporting manual, the Company concluded that: (1) the Transaction should be accounted for as “a reverse takeover equivalent to the issuance of Common Shares by the Company for the net monetary assets of Kona Bay”; and (2) the Company should be considered the accounting acquirer/legal acquiree in the Transaction. As the Company concluded that Yerbaé USA was the accounting acquirer/legal acquiree in the transaction, the historical results of the combined company (prior the merger) represent the historical results of Yerbaé USA.
The
recognition and measurement for the acquisition of Kona Bay, was analogized to the guidance in ASC 805-40 Reverse Acquisitions which
requires that the accounting acquirer measure the fair value of the consideration transferred based on the number of common shares the
legal target would have had to issue in order to retain a specified ownership in the combined Company (the “deemed issuance”).
Yerbaé intended to retain and
| Allocation Table | ||||
| ($ in millions) | ||||
| Fair value of consideration paid | $ | |||
| Net assets acquired (cash) | ( | ) | ||
| Charge to additional paid in capital | $ | |||
| 11 |
In
addition, the Company presented the acquisition of Kona Bay as a “recapitalization” line item in our statement of changes
in shareholders equity reflecting: (1) the number of Kona Bay’s outstanding common shares immediately prior to the transaction;
and (2) the approximately $
NOTE 5 - INVENTORY
Inventory consists of the following for the fiscal periods presented:
September 30, 2024 | December 31, 2023 | |||||||
| Raw material | $ | $ | ||||||
| Finished goods | ||||||||
| Reserve for shrinkage | ( | ) | ( | ) | ||||
| TOTAL | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist primarily of vehicles. Depreciation is computed on a straight-line method over an estimated useful life of the asset of approximately five years.
September 30, 2024 | December 31, 2023 | |||||||
| Vehicles, gross | $ | $ | ||||||
| Vehicles, accumulated depreciation | ( | ) | ( | ) | ||||
| Vehicles, net | $ | $ | ||||||
Depreciation
expense totalled $
| 12 |
NOTE 7 – ACCRUED EXPENSES
Accrued expenses consist of the following as of the following dates:
September 30, 2024 | December 31, 2023 | |||||||
| Payroll and related costs | $ | $ | ||||||
| Credit card expenses | ||||||||
| Interest | ||||||||
| Other accrued expenses | ||||||||
| TOTAL | $ | $ | ||||||
| 13 |
NOTE 8 – NOTES PAYABLE
Notes payable consisted of the following:
September 30, 2024 | December 31, 2023 | |||||||
| Convertible notes payable to multiple investors in the amount of $ | ||||||||
| Various notes payable in | ||||||||
| Short term note payable due to Amazon Lending originated December 26, 2023 maturing | $ | $ | ||||||
| Note payable to MaximCash Solutions for $ | ||||||||
| Note payable to an unrelated third party for $ | ||||||||
| Note payable to an unrelated third party for $ | ||||||||
| Note payable to an unrelated third party for $ | ||||||||
| Related party note payable to a director of the Company for $ | ||||||||
| Related party note payable to a director of the Company for $ | ||||||||
| Total notes payable | ||||||||
| Less current maturities | ( | ) | ( | ) | ||||
| Total notes payable, non-current portion | $ | $ | ||||||
Loans Issued Prior to 2024
Convertible Notes
On
April 13, 2023, Yerbaé closed the first tranche (the “First Tranche”) of its brokered debenture unit (each, a “Debenture
Unit”) offering which consisted of Debenture Units for gross proceeds of $
| 14 |
Each
Debenture Unit consisted of: (i) one (1) convertible debenture (each, a “Debenture”) in the principal amount of $
In
accounting for the Debentures, the Company concluded the conversion option should not be bi-furcated from the debt host as it was considered
indexed to the company’s stock in accordance with ASC 815-40. Further, the Company also concluded that the detachable warrants
should be classified in equity as they: (1) were not within the scope of ASC 480-10; and (2) should be considered indexed to the Company’s
Common Shares. In accordance with ASC 470-20, the Company recognized both the Debentures and detachable warrants at their relative fair
values. This resulted in the recognition of a debt discount that is being amortized to interest expense over the life of the Debenture
Units. During the three and nine months ended September 30, 2024, the Company recorded accretion expense of $
Motor Vehicle Loan
During
2023, the Company entered into various notes payable related to vehicles with monthly instalments ranging from $
Amazon Lending
During
2023, the Company entered into a financing arrangement with Amazon Lending, maturing
Ampla and Oxford Financing
On
May 16, 2023, Yerbaé replaced their finance provider Ampla LLC (“Ampla”) and secured a new accounts receivable and
inventory of $
Loans Issued During the Nine Months Ended September 30, 2024
Unrelated Third-Party Loans
On
September 16, 2024, the Company entered into an agreement with a private lender whereby the lender agreed to loan an aggregate of up
to $
On
August 26, 2024, the Company entered into an agreement with a lender whereby the lender agreed to loan an aggregate of up to $
On July 5, 2024, the Company entered
into a loan agreement with MaximCash solutions for $
During
June of 2024, the Company entered into a loan agreement with Parafin for $
Related Party Loans
These loans are described in Note 11.
| 15 |
Yerbaé is authorized to issue an number of Common Shares without par value and preferred shares (each, a “Preferred Share”) without par value.
For the interim period ended September 30, 2024, and annual period ended December 31, 2023, the Company had the following equity transactions:
On May 19, 2022, Yerbaé (formerly Kona Bay) entered into the Arrangement Agreement with Yerbaé USA, Merger Sub, FinCo, Todd Gibson and Karrie Gibson, with respect to the Transaction. On February 8, 2023, Yerbae completed its Transaction with Yerbaé USA by way of a reverse takeover. conducted pursuant to: (i) the provisions of the DGCL in which Merger Sub merged with and into Yerbaé USA, and (ii) a plan of arrangement conducted pursuant to the provisions of the BCBCA. In connection with the Closing, and changed its name from “Kona Bay Technologies Inc.” to “Yerbaé Brands Corp.”. Total Common Shares issued relating to the reverse takeover that were issued to former Kona Bay shareholders was Common Shares with a fair value of $.
At
the time of Closing, an aggregate of Common Shares were issued and outstanding of which: Common Shares were issued
to the former Yerbaé shareholders (inclusive of an aggregate of Common Shares issued to former holders of an aggregate
of $
In
addition, the options to purchase shares of common stock (each, a “Yerbaé USA Share”) of Yerbaé USA
which were outstanding immediately prior to closing of the Transaction were cancelled and the holders thereof were granted an aggregate
of options to purchase Common Shares (each, an “Option”),
In
connection with the closing of the Transaction, the parties paid customary advisory fees to an eligible arm’s length third party
finder (the “Finder”), in consideration for the Finder’s services in facilitating the identification, negotiation and
implementation of the Transaction which consisted of the issuance of Common Shares with a fair value of $
On
July 17 2023, Yerbaé announced a non-brokered private placement of units (each, a “Unit”) of the Company at a price
of $ per Unit for aggregate gross proceeds of up to $
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Yerbae
entered into an agreement, as amended on June 19, 2023 (the “FORCE Family Agreement”) with FORCE Family Office Inc. (“FORCE”).
Under the terms of the FORCE agreement, FORCE will provide certain business development and corporate strategies services to enhance
the Company’s growth and market positioning. In consideration for the services to be provided by FORCE, the Company agreed to pay
FORCE an aggregate consulting fee of $
On November 16, 2023, Yerbaé issued Common Shares upon the exercise of warrants. On November 24, 2023, Yerbaé issued Common Shares at a deemed price of US$ per Common Share to FORCE pursuant to the terms of the FORCE Family Agreement.
On December 29, 2023, Yerbaé granted, effective January 1, 2024, an aggregate of Options, RSUs and PSUs. . . .
During
the year ended December 31, 2023, $
During
the year ending December 31, 2023, the Company received proceeds of $
On
January 16, 2024, the Company issued, in connection with the exercise by one eligible warrant holder (the “Eligible Holder”)
who participated in the Company’s warrant exercise incentive program an aggregate of
On
January 22, 2024, the Company issued, in connection with the exercise by one eligible warrant holder, an aggregate of
On
January 30, 2024, the Company issued, in connection with the exercise by one eligible warrant holder, an aggregate of
On March 12, 2024, the Company issued an aggregate of Common Shares at a deemed issue price of $pursuant to the vesting of certain performance share units (each, a “PSU”) and restricted share units (each, a “RSU”), as to PSUs and RSUs.
On
April 8, 2024, the Company issued an aggregate of common shares and share purchase warrants pursuant to the exercise
and terms of special warrants originally issued pursuant to the closing of a special warrants offering which closed on December
6, 2023. The proceeds of the special warrants of approximately $
During the three months ended September 30, 2024, there was a total of warrants expired unexercised.
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Performance Shares
During the three months ended March 31, 2023, the Company granted an aggregate million Performance Shares to the CEO and COO upon consummation of the Transaction. These Performance Shares are held in escrow and are to be released upon the completion of certain performance-based incentives related to the listing of the Common Shares on the TSX Venture Exchange (“TSXV”), future equity financings, and certain trailing gross revenue targets. As of September 30, 2024, million performance shares have been released and the remainder are still in escrow as not all of the performance criteria have been achieved.
During the three months ended March 31, 2023, the Company granted an aggregate million Performance Shares to external parties in connection with the Transaction. of these Performance Shares were released upon completion of the Transaction. The remaining Performance Shares were subject to escrow until completion, within twelve months of the Listing Date, by the Company of a financing of a minimum aggregate of $ (excluding the proceeds from the Concurrent Financing) at a valuation of the Company equal to a minimum of $. These performance criteria were met during the year ended December 31, 2023, and, as such, all of the performance shares were released from escrow as of December 31, 2023.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average number of Common Shares in issue | ||||||||||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| As At | ||||
| September 30, 2024 | ||||
| Restricted stock units(1) | ||||
| Performance share units(1) | ||||
| Performance shares | ||||
| Stock options | ||||
| Warrants | ||||
| Convertible debt | ||||
| (1) |
NOTE 11 – RELATED PARTIES
On January 30, 2023, the Company
entered into a loan agreement with a director of the Company. An aggregate of $
On
July 1, 2024, the Company entered into a loan agreement with a director of the Company, whereby the director loaned the Company
$
On
August 26, 2024, the Company entered into a loan agreement with a director of the Company, whereby the director loaned the Company $
NOTE 12 - INCOME TAXES
The Company recognized pre-tax accounting losses for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024, any deferred tax assets, which have been recognized primarily as a result of loss carry forwards, have been fully offset by a valuation allowance. As such, for both the three and nine months ended September 30, 2024 and September 30, 2023, there were no significant variations in the relationship between income tax expense and pretax accounting income.
NOTE 13 - COST OF SALES
Cost of sales is primarily comprised of materials, including in-bound freight, and rent related to the Company’s manufacturing facilities. The breakdown for the items within costs of sales was the following for the periods presented:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Materials | $ | $ | $ | $ | ||||||||||||
| Warehouse rent (non-lease) | ||||||||||||||||
| Cost of goods sold | $ | $ | $ | $ | ||||||||||||
NOTE 14 – GENERAL AND ADMINISTRATIVE
General and administrative consisted of the following expenses during the periods presented:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Share-based compensation | $ | $ | $ | $ | ||||||||||||
| Outbound freight | ||||||||||||||||
| Employee benefits | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Office expenses | ||||||||||||||||
| Performance shares granted upon consummation of RTO | ||||||||||||||||
| Other | ||||||||||||||||
| Total general and administrative expenses | $ | $ | $ | $ | ||||||||||||
NOTE 15 - COMMITMENTS & CONTINGENCIES
Litigation
During the ordinary course of the Company’s business, it is subject to various claims and litigation. Management believes that the outcome of such claims or litigation will not have a material adverse effect on the Company’s unaudited condensed interim consolidated financial position, results of operations or cash flow.
Commitments
The Company has unconditional purchase obligations for certain raw materials, such as ingredients and bottles. However, none of the contracts related to the purchase obligations are entered into for a period greater than one year.
NOTE 16 - SUBSEQUENT EVENTS
As
discussed in Note 9, the Company entered into a loan agreement with MaximCash Solutions during July of 2024 to borrow $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Form 10, as filed with the U.S. SEC on July 19, 2024, any of which may cause our Company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers should carefully review and consider the various disclosures made by us in the Form 10 filed with the SEC on July 19, 2024, this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
Use of United States Generally Accepted Accounting Principles (“GAAP”) Financial Measures
We use United States GAAP financial measures, unless otherwise noted. All of the GAAP financial measures used by us in this report relate to the inclusion of financial information. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this quarterly report. All references to dollar amount in this section are in United States dollars, unless expressly stated otherwise.
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Overview
Yerbaé was founded by Todd Gibson and Karrie Gibson in 2016 to create plant-based energy drinks containing yerba mate, a South American herb and a natural source of caffeine. Yerbaé’s first beverage was launched in the first quarter of 2017.
Yerbaé is engaged in the development, marketing, sale, and distribution of plant-based energy beverages that do not contain calories, carbohydrates, or sugar. Yerbaé’s line of beverages are blended with non-GMO plant-based ingredients and offer the benefits of yerba mate and white tea; sustainably sourced from Brazil and other growing regions in South America.
Yerbaé beverages are created to provide products targeted at consumers focused on health, wellness, and fitness and seeking healthier beverages as an alternative to existing energy drinks. The products are formulated to provide a more refreshing taste than coffee, with additional benefits to existing sodas and sparkling waters, along with healthier ingredients than traditional energy drinks. Yerbaé’s products complement a variety of healthy lifestyles, such as non-GMO, Keto, Vegan, Kosher, Paleo and gluten-free diets.
The accompanying unaudited condensed interim consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company had an accumulated deficit of $41.5 million and $34.5 million as of September 30, 2024, and December 31, 2023, respectively. Further, the Company had cash and cash equivalents of approximately $0.3 million and $1.0 million as of September 30, 2024, and December 31, 2023, respectively. The Company’s primary focus in recent months has been and will continue to be supporting the manufacturing of its products which requires capital and resources. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. Based on the Company’s currently available cash resources, current and forecasted level of operations, and forecasted cash flows for the 12-month period subsequent to the date of issuance of these unaudited condensed interim consolidated financial statements, the Company will require additional funding to continue to progress its operational obligations as they come due. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements through financing, operations, or other transactions, including third party loans.
Management’s discussion and analysis of financial condition and results of operations
Liquidity and Capital Resources
As of September 30, 2024, and December 31, 2023, the Company had a working capital deficit of $5,095,669 and surplus of $843,478, respectively. The Company has incurred losses since inception and as of September 30, 2024, and December 31, 2023, had an accumulated deficit of approximately $41.5 million and $34.5 million, respectively. The Company’s objective in managing its capital is to ensure that there is sufficient liquidity to finance and grow its operations, maximize the preservation of capital, provide adequate capital to fund its business objectives, and deliver competitive returns on invested capital. To fund its activities, the Company has primarily relied on private placement financing, warrant exercises, loans and other forms of debt. The material debt financing and loan transactions were as follows:
Notes Payable
Convertible Notes
During 2023, convertible notes payable were issued in the amount of $3,802,000 with a stated interest rate of 6.00%. The convertible notes were unsecured and are due on April 30, 2025. The balance, net of debt discount, of the convertible notes as of September 30, 2024, and December 31, 2023, was $2,734,936 and $2,196,302, respectively.
Motor Vehicle Loan
During 2023, the Company entered into various notes payable related to vehicles with monthly installments ranging from $543 to $652, including interest ranging from 2.90% to 5.49%, due October 2026. The notes are secured by vehicles and had a balance of $30,968 and $60,914 as of September 30, 2024 and December 31, 2023. There were no changes to the terms of these loans. All changes were a result of repayment.
Amazon Lending
During 2023, the Company entered into a financing arrangement with Amazon Lending, maturing December 26, 2024 at an interest rate of 14.49%, secured by inventories. There were no changes to the terms of these loans. All changes were a result of repayment.
Ampla and Oxford Financing
On May 16, 2023, Yerbaé replaced their finance provider Ampla LLC (“Ampla”) and secured a new accounts receivable and inventory of $2,500,000 with Oxford Commercial Finance, a Michigan banking corporation, through its Delaware subsidiary Yerbaé LLC. The Company can draw down funds as needed, and only pay interest on the amount borrowed. The debt facility was secured by a security interest in all assets of Yerbaé, including a first security interest in Yerbaé’s accounts receivable and inventory. The facility was repaid during 2023.
Unrelated Third-Party Loans
On July 5, 2024, the Company entered into a loan agreement with MaximCash solutions for $750,000. The loan included an origination cost of $22,500. In addition, the Company agreed to issue the lender $75,000 in common stock of the Company for a total discount of $97,500. The loan matures on July 5, 2025. The balance of the loan was $584,801 net of discounts and repayments as of September 30, 2024 and had an effective interest rate of 42%.
On August 26, 2024, the Company entered into an agreement with a lender whereby the lender agreed to loan an aggregate of up to $60,000 The loan matures on February 26, 2025. The balance of the loan was $51,667 net of discount and repayments as of September 30, 2024 and had an effective interest rate of approximately 8.3%.
On September 16, 2024, the Company entered into an agreement with a private lender whereby the lender agreed to loan an aggregate of up to $540,000. The loan matures on August 16, 2025. The balance of the loan was $500,000 as of September 30, 2024 and had an effective interest rate of approximately 8.0%.
During June of 2024, the Company entered into a loan agreement with Parafin for $230,000 and stated fee of $30,000; of which $10,000 was paid during period. This stated fee is treated as an interest and amortized over the term of the loan. The loan agreement includes a payment rate of 15% of the Company’s weekly sales over an 8-month period. The balance of the loan was $159,137, net of discounts and repayments as of September 30, 2024.
Related Party Loans
On January 30, 2023, the Company entered into a loan agreement with a director of the Company. An aggregate of $100,000 was advanced by the related party pursuant to the loan agreement. The loan was fully repaid during 2023.
On July 1, 2024, the Company entered into a loan agreement with a director of the Company, whereby the director loaned the Company $330,000. The loan matures on June 15, 2025 and had an effective interest rate 10%. The net balance of the loan as of September 30, 2024, was $307,500 which includes accrued interest to the end of the period.
On August 26, 2024, the Company entered into a loan agreement with a director of the Company, whereby the director loaned the Company $24,000 with an effective rate of 8.3%. The loan matures on February 26, 2024. The net balance of the loan as of September 30, 2024, was $20,667 net of discount and repayments.
Warrant Exercise and Expiration
On January 16, 2024, the Company issued, in connection with the exercise by one eligible warrant holder who participated in the Company’s warrant exercise incentive program an aggregate of 835,000 Warrants for gross proceeds to the Company of $1,002,000, and an aggregate of 835,000 warrants to the Eligible Holder. The Incentive Warrants are exercisable into the same number of common shares of the Company at an exercise price of $1.50 per common share until December 14, 2025, subject to an acceleration provision whereby, if for any thirty (30) consecutive trading days (the “Premium Trading Days”) following the repricing the closing price of the common shares exceeds $2.50 per common share, the Incentive Warrants’ expiry date will be accelerated such that holders will have thirty (30) calendar days to exercise the Incentive Warrants (if they have not first expired in the normal course) (the “Acceleration Clause”).
On January 22, 2024, the Company issued 263,157 Common Shares upon the exercise of 263,157 share purchase warrants at an exercise price of $0.95 per Common Share for gross aggregate proceeds of $250,000.
On January 30, 2024, the Company issued 352,941 Common Shares upon the exercise of 352,941 share purchase warrants at an exercise price of $0.85 per Common Share for gross aggregate proceeds of $300,000.
On April 8, 2024, the Company issued an aggregate of 1,103,811 common shares and 1,103,811 share purchase warrants pursuant to the exercise and terms of 1,003,468 special warrants originally issued pursuant to the closing of a special warrants offering which closed on December 6, 2023. The proceeds of the special warrants of approximately $1.5 million were received on December 6, 2023, and no proceeds were received upon the exercise of the special warrants.
During the three months ended September 30, 2024, there was a total of 3,208,498 warrants expired unexercised.
| 20 |
Commitments
As discussed in our consolidated financial statements for the annual period ended December 31, 2023, the Company entered into an office lease agreement during December of 2022. The ongoing monthly payments are not expected to have a material impact on the Company’s financial condition.
In addition to the lease agreement, the Company also enters into unconditional purchase obligations for inventory items such as cans and product ingredients. However, these obligations are not entered into for a period greater than one year. The Company has not entered into any off-balance sheet arrangements.
Going Concern
Yerbaé’s evaluation of its ability to continue as a going concern requires it to evaluate its future sources and uses of cash sufficient to fund its currently expected operations in conducting business activities one year from the date the financial statements are issued. Yerbaé evaluates the probability associated with each source and use of cash resources in making its going concern determination.
Due to our recurring losses, the ongoing challenging market conditions for beverage companies and our limited cash balance as of September 30, 2024, management believes that it is probable that the Company will be unable to meet its obligations as they come due within one year after the date that the unaudited condensed consolidated financial statements are issued. While the Company is attempting to plan additional financings, which are intended to mitigate the conditions or events that raise substantial doubt about our ability to continue as a going concern, those financings may not occur. If the financings do not occur, management will try and implement alternative arrangements, and such arrangements could have a potentially significant negative impact on the current net asset value of the Company. These alternatives include: (1) raising additional capital by means other than those planned through equity and/or debt financings; and/or (2) entering into new commercial relationships to help fund future expenses.
As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements within one year after the date that the financial statements are issued, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.
Cash Flows
The following tables summarize the results of the Company’s cash flows for the below respective periods:
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (3,598,634 | ) | $ | (9,985,012 | ) | ||
| Investing activities | - | 736,877 | ||||||
| Financing activities | 2,890,409 | 9,992,329 | ||||||
| Net change in cash | $ | (708,225 | ) | $ | 744,194 | |||
Operating Activities
Net cash used in operating activities was approximately $3.6 million for the nine months ended September 30, 2024, and was comprised of the net loss of $7.0 million and had net non-cash items totalling $2.2 million, consisting primarily of $1.7 million in share-based compensation expense and $0.5 million in accretion expense. Changes in operating assets and liabilities was $1.1 million, primarily consisting of a change in accounts receivable of $0.3 million, inventory of $0.2 million, prepaid expenses of $0.2 million, accounts payable of $0.1 million, accrued interest of $0.1 million and accrued expenses of $0.1 million.
Net cash used in operating activities was $10.0 million for the nine months ended September 30, 2023. The net loss for the nine months ended September 30, 2023, was $16.7 million and had net noncash items of $8.0 million, primarily consisting of performance shares granted upon consummation of the reverse takeover of $6.1 million, share-based compensation of $1.7 million and accretion expense of $0.2 million. Changes in operating assets and liabilities was ($1.3 million), primarily consisting of a change in accounts payable of ($1.1 million), prepaid expenses of ($0.3 million), accrued expenses of $0.1 million and ($0.1 million) in inventory.
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Investing Activities
The Company did not engage in any material investing activities during the nine months ended September 30, 2024. Net cash provided from investing activities for the nine months ended September 30, 2023 was $0.6 million. The $0.6 million amount for the nine months ended September 30, 2023, was comprised primarily of $0.6 million of cash acquired as part of the reverse merger with Kona Bay.
Financing Activities
Net cash provided by financing activities was $2.9 million and $10.0 million for the nine months ended September 30, 2024, and 2023, respectively. For the nine months ended September 30, 2024, these amounts consisted of net proceeds from the exercise of warrants of $1.6 million and net proceeds from debt instruments and notes payable of $1.0 million and proceeds from note to related party of $0.3 million. For the nine months ended September 30, 2023, these amounts consisted of proceeds from issuance of common stock and warrants of $8.2 million, net proceeds from debt instruments and notes payable of $2.0 million and fees related to the issuance of convertible notes of ($0.2 million).
Results of Operations
Three months ended September 30, 2024, compared to three months ended September 30, 2023
The following tables set forth the Company’s results of operations for the periods presented. The comparison of financial results is not necessarily indicative of future results.
| For the Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 1,631,615 | $ | 2,986,734 | ||||
| Cost of sales | 599,845 | 1,417,603 | ||||||
| Gross profit | $ | 1,031,770 | $ | 1,569,131 | ||||
| General and administrative | $ | 1,792,423 | $ | 3,589,314 | ||||
| Sales, advertising and marketing | 311,915 | 1,886,414 | ||||||
| Total expenses | $ | 2,104,338 | $ | 5,475,728 | ||||
| Net loss before other income (expense) | (1,072,568 | ) | (3,906,597 | ) | ||||
| Interest expense | (406,926 | ) | (234,756 | ) | ||||
| Net loss before income taxes | (1,479,494 | ) | (4,141,353 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss and comprehensive loss | $ | (1,479,494 | ) | $ | (4,141,353 | ) | ||
Revenues
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenues | $ | 1,631,615 | $ | 2,986,734 | $ | (1,355,119 | ) | -45 | % | |||||||
Yerbaé’s revenues declined by $1.4 million, or 45%, for the three months ended September 30, 2024, compared to the same period in the prior year. This decline was primarily attributed to the non-renewal of its agreement with Sam’s Club, the nation’s second-largest club retailer, as well as the challenging consumer packaged goods (CPG) U.S. market today, which has been impacted by inflation and may be contributing to a reduction in consumer basket size. Despite this decrease, Yerbaé continued to advance its distribution footprint, executing with major retailers such as Kroger, Amazon, and Costco, along with multiple other retail chains. In the third quarter of 2024, the Company prioritized efforts to stabilize its business foundation, focusing on core strengths. Key growth was seen in the Natural Foods, Direct-to-Consumer, and Direct Store Delivery (“DSD”) channels, bolstered by the successful rollout of the new 12oz can platform launched in Q1 2024. Club store placements continued to perform well in select regions; however, a reduction in the number of stocked club stores as noted above led to a decline in quarterly sales.
Cost of Sales
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Cost of sales | $ | 599,845 | $ | 1,417,603 | (817,758 | ) | -58 | % | ||||||||
Cost of sales is primarily comprised of product materials, ingredient costs, bottling, inbound freight, and other related expenses. Costs of sales decreased by $0.8 million, or 58%, as compared to the same period in the prior year. The decrease in cost of goods sold was directly related to the decrease in sales during 2024.
General and Administrative
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| General and administrative | $ | 1,792,423 | $ | 3,589,314 | (1,796,891 | ) | -50 | % | ||||||||
General and administrative expense included operational and administrative costs as detailed in the following table:
| For the Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Share-based compensation | $ | 198,784 | $ | 733,686 | ||||
| Outbound freight | 442,380 | 575,560 | ||||||
| Employee benefits | 471,508 | 756,147 | ||||||
| Professional fees | 420,757 | 1,030,786 | ||||||
| Office expenses | 222,801 | 254,353 | ||||||
| Other | 36,193 | 238,782 | ||||||
| Total general and administrative expenses | $ | 1,792,423 | $ | 3,589,314 | ||||
General and administrative expenses decreased to $1.8 million for the three months ended September 30, 2024, as compared to $3.6 million for the prior comparable period. The decrease was primarily due to decreases in share-based compensation of $0.5, professional fees of $0.6 million, employee benefits of $0.3 million, a decrease of outbound freight of $0.1 million and other expense of $0.2 million.
Sales, Advertising and Marketing
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Sales, advertising and marketing | $ | 311,915 | $ | 1,886,414 | (1,574,499 | ) | -83 | % | ||||||||
Sales, advertising and marketing decreased to $0.3 million for the three months ended September 30, 2024, compared to $1.9 million for the prior year period. Throughout 2024, the Company has prioritized delivering efficiencies across its sales, advertising, and marketing platforms. This effort included a strategic focus on optimizing product availability in both retail and eCommerce channels. As the Company continues its expansion, maximizing the effectiveness of every dollar spent has been a top priority. This optimization involved streamlining fewer less-effective programs and leveraging insights gained about our customers’ evolving needs in a dynamic consumer landscape. Our efforts included refining consumer messaging and enhancing in-market activities with higher quality visuals and retailer-specific programs. These initiatives have contributed to the continuous improvement of the brand’s positioning and increased consumer engagement.
Interest Expense
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Total interest expense | $ | 406,926 | $ | 234,756 | 172,170 | 73 | % | |||||||||
Interest expense includes interest expense and accretion expense related to the principal amount of $3,802,000 convertible debentures issued in 2023 and new debt issuances in 2024 and increased to $0.4 million for the three-month period ended September 30, 2024, compared to $0.2 million during the comparable prior year period. The increase was primarily related to an increase in interest and accretion expense related to new debt instruments that were entered into during 2024.
Nine months ended September 30, 2024, compared to nine months ended September 30, 2023
The following tables set forth the Company’s results of operations for the periods presented. The comparison of financial results is not necessarily indicative of future results.
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 4,628,830 | $ | 9,991,758 | ||||
| Cost of sales | 2,122,316 | 4,968,058 | ||||||
| Gross profit | $ | 2,506,514 | $ | 5,023,700 | ||||
| General and administrative | $ | 7,469,589 | $ | 15,735,214 | ||||
| Sales, advertising and marketing | 1,136,839 | 5,542,848 | ||||||
| Total expenses | $ | 8,606,428 | $ | 21,278,062 | ||||
| Net loss before other income (expense) | (6,099,914 | ) | (16,254,362 | ) | ||||
| Interest expense | (932,637 | ) | (418,748 | ) | ||||
| Net loss before income taxes | (7,032,551 | ) | (16,673,110 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss and comprehensive loss | $ | (7,032,551 | ) | $ | (16,673,110 | ) | ||
Revenues
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenues | $ | 4,628,830 | $ | 9,991,758 | $ | (5,362,928 | ) | -54 | % | |||||||
Yerbaé’s revenues declined by $5.4 million, or 54%, for the nine months ended September 30, 2024, compared to the same period in the prior year. Throughout this period, the Company prioritized optimizing its customer base by phasing out less profitable accounts, including previously announced exits from Sam’s Club and other high-slotting, low-volume retailers, which resulted in lower revenues for the nine-month period ended September 30, 2024 compared to the prior period. Yerbaé has instead focused on growth-oriented retail partnerships that enhance gross margins and deliver greater shareholder value. Significant progress was made in core focus channels, establishing a strong foundation for future growth. The Company also expanded its Direct-to-Consumer segment, introducing new variety packs and increasing brand awareness through a broader network of social media influencers and digital advertising. Additionally, Yerbaé strengthened its distributor relationships, onboarding 14 new distributors in the third quarter of 2024 to support its growth initiates for 2025 and beyond. Nine-month 2024 revenues were also impacted by the challenging CPG U.S. market, which has been impacted by higher inflation earlier in the period and as the Company transitioned from 16oz to 12 oz packaging, aligning with consumer demand for a more efficient product size, however this also resulted in decreased sales as the Company transitioned to the new can format. This transition was completed in Q2 2024.
Cost of Sales
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Cost of sales | $ | 2,122,316 | $ | 4,968,058 | (2,845,742 | ) | -57 | % | ||||||||
Cost of sales is primarily comprised of product materials, ingredient costs, bottling, inbound freight, and other related expenses. Costs of sales decreased by $2.8 million, or 57%, as compared to the same period in the prior year. The decrease in cost of goods sold was directly related to the decrease in sales during 2024.
General and Administrative
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| General and administrative | $ | 7,469,589 | $ | 15,735,214 | (8,265,625 | ) | -53 | % | ||||||||
General and administrative expense included operational and administrative costs as detailed in the following table:
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Share-based compensation | $ | 1,734,941 | $ | 1,694,970 | ||||
| Outbound freight | 1,333,707 | 1,956,911 | ||||||
| Employee benefits | 1,788,796 | 2,272,388 | ||||||
| Professional fees | 1,314,551 | 2,197,653 | ||||||
| Office expenses | 838,652 | 889,376 | ||||||
| Performance shares granted upon consummation of RTO | - | 6,086,596 | ||||||
| Other | 458,942 | 637,320 | ||||||
| Total general and administrative expenses | $ | 7,469,589 | $ | 15,735,214 | ||||
General and administrative expenses decreased to $7.5 million for the nine months ended September 30, 2024. The decrease was primarily due to a decrease in expense related to performance shares granted upon consummation of the reverse takeover during the nine months ended September 30, 2023, of $6.1 million, a decrease of professional fees of $0.9 million, a decrease of outbound freight of $0.6 million, a decrease of employee benefits of $0.5 million and a decrease of other expenses $0.2 million.
Sales, Advertising and Marketing
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Sales, advertising and marketing | 1,136,839 | $ | 5,542,848 | (4,406,009 | ) | -79 | % | |||||||||
Sales, advertising and marketing decreased to $1.1 million for the nine months ended September 30, 2024, compared to $5.5 million for the prior year period. Over the past nine months, the Company has focused on evaluating and optimizing retailer performance, promotions, and growth levels. By concentrating on select channels, the Company has demonstrated its ability to operate more efficiently. This has involved reducing the number of promotions during the period and eliminating programs that did not meet expectations, such as paid pallet positions, slotting fees, and other sales initiatives. Additionally, the Company has prioritized more efficient and effective digital targeting in its eCommerce channels, which continues to deliver positive results.
Interest Expense
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Total interest expense | 932,637 | 418,748 | 513,889 | 123 | % | |||||||||||
Interest expense includes interest expense and accretion expense related to the principal amount of $3,802,000 convertible debentures issued in 2023 and new debt issuances in 2024. Interest expense increased to $0.9 million for the nine months ended September 30, 2024, compared to $0.4 million during the comparable prior year period. The increase was primarily related to an increase in accretion expense of $0.3 million and an increase in interest expense related to new debt instruments that were entered into during 2024.
Critical Accounting Estimates
Refer to the Company’s critical accounting estimates section provided in its consolidated annual financial statements for the period ended December 31, 2023. There were no material updates or changes to the disclosure for the nine-month period ended September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
The Company’s management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Report.
Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. The Company has resolved all outstanding litigation involving the Company and there are no suits or cases pending in which the Company is a party.
Item 1A. Risk Factors
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
There were no unregistered sales of the Company’s equity securities during the three or nine months ended September 30, 2024.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | |||||
| Number | Exhibit Description | Form | Exhibit | |||
| 10.1 | Gibson Loan Agreement | |||||
| 10.2 | Maximcash Solutions Loan Agreement | |||||
| 10.3*** | Private Lender Loan Agreement | |||||
| 10.4 | BEA Investment Loan Agreement | |||||
| 10.5 | Dratt Loan Agreement | |||||
| 31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. | |||||
| 31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. | |||||
| 32.1** | Section 1350 Certification of Chief Executive Officer. | |||||
| 32.2** | Section 1350 Certification of Chief Financial Officer. | |||||
| 101.INS* | Inline XBRL Instance Document | |||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||
* Filed herewith.
** Furnished herewith.
*** Portions of the exhibit have been omitted
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
YERBAÉ BRANDS CORP.
| By: | /s/ Todd Gibson | |
| Todd Gibson | ||
| Chief Executive Officer | ||
| Date: | November 14, 2024 |
| By: | /s/ Karrie Gibson | |
| Karrie Gibson | ||
| Interim Chief Financial Officer | ||
| Date: | November 14, 2024 |
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