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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2024

 

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _________ to ________

Commission File Number: 000-54677

CV Sciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

80-0944970

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9530 Padgett Street, Suite 107

San Diego, CA 92126

(Address of principal executive offices)

(866) 290-2157

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 9, 2024, the issuer had 180,650,650 shares of issued and outstanding common stock, par value $0.0001 per share.

 

 

 


 

CV SCIENCES, INC.

FORM 10-Q

TABLE OF CONTENTS

 

PAGE

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

28

Item 4.

Controls and Procedures

28

 

PART II – OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosure

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

SIGNATURES

32

 

 

i


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

CV SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share data)

 

 

June 30,
2024

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

477

 

 

$

1,317

 

Accounts receivable, net

 

 

639

 

 

 

431

 

Inventory

 

 

5,206

 

 

 

5,655

 

Prepaid expenses and other

 

 

410

 

 

 

535

 

Total current assets

 

 

6,732

 

 

 

7,938

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

666

 

 

 

379

 

Right of use assets

 

 

451

 

 

 

167

 

Intangibles, net

 

 

106

 

 

 

78

 

Goodwill

 

 

729

 

 

 

342

 

Other assets

 

 

202

 

 

 

296

 

Total assets

 

$

8,886

 

 

$

9,200

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,307

 

 

$

2,309

 

Accrued expenses

 

 

3,461

 

 

 

3,422

 

Operating lease liability - current

 

 

234

 

 

 

130

 

Debt

 

 

29

 

 

 

254

 

Total current liabilities

 

 

6,031

 

 

 

6,115

 

 

 

 

 

 

 

 

Operating lease liability - net of current portion

 

 

233

 

 

 

58

 

Deferred tax liability

 

 

19

 

 

 

19

 

Other liabilities

 

 

95

 

 

 

105

 

Total liabilities

 

 

6,378

 

 

 

6,297

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, par value $0.0001; 10,000 shares authorized; 1 share issued as of
   June 30, 2024 and December 31, 2023; and
no shares outstanding as of
   June 30, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, par value $0.0001; 790,000 shares authorized as of
   June 30, 2024 and December 31, 2023;
180,651 and 161,678 shares issued
   and outstanding as of June 30, 2024 and December 31, 2023, respectively

 

 

18

 

 

 

16

 

Additional paid-in capital

 

 

88,291

 

 

 

87,464

 

Accumulated deficit

 

 

(85,799

)

 

 

(84,587

)

Accumulated other comprehensive income (loss)

 

 

(2

)

 

 

10

 

Total stockholders' equity

 

 

2,508

 

 

 

2,903

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

8,886

 

 

$

9,200

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1


 

CV SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Product sales, net

 

$

3,954

 

 

$

3,966

 

 

$

7,956

 

 

$

8,114

 

Cost of goods sold

 

 

2,094

 

 

 

2,248

 

 

 

4,243

 

 

 

4,614

 

Gross profit

 

 

1,860

 

 

 

1,718

 

 

 

3,713

 

 

 

3,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

28

 

 

 

36

 

 

 

64

 

 

 

71

 

Selling, general and administrative

 

 

2,415

 

 

 

2,758

 

 

 

4,852

 

 

 

4,914

 

Benefit from reversal of accrued payroll taxes (Note 12)

 

 

 

 

 

 

 

 

 

 

 

(6,171

)

Total operating expenses

 

 

2,443

 

 

 

2,794

 

 

 

4,916

 

 

 

(1,186

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(583

)

 

 

(1,076

)

 

 

(1,203

)

 

 

4,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

 

1

 

 

 

209

 

 

 

3

 

 

 

265

 

Income (loss) before income taxes

 

 

(584

)

 

 

(1,285

)

 

 

(1,206

)

 

 

4,421

 

Income tax expense

 

 

 

 

 

3

 

 

 

6

 

 

 

3

 

Net income (loss)

 

$

(584

)

 

$

(1,288

)

 

$

(1,212

)

 

$

4,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

172,418

 

 

 

152,599

 

 

 

167,823

 

 

 

152,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share, basic and diluted

 

$

(0.00

)

 

$

(0.01

)

 

$

(0.01

)

 

$

0.03

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

2


 

CV SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands, except per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income (loss)

 

$

(584

)

 

$

(1,288

)

 

$

(1,212

)

 

$

4,418

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(7

)

 

 

 

 

 

(12

)

 

 

 

Total comprehensive income (loss)

 

$

(591

)

 

$

(1,288

)

 

$

(1,224

)

 

$

4,418

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


 

CV SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2023

 

 

 

 

$

 

 

 

161,678

 

 

$

16

 

 

$

87,464

 

 

$

(84,587

)

 

$

10

 

 

$

2,903

 

Issuance of common stock for services

 

 

 

 

 

 

 

 

1,550

 

 

 

 

 

 

62

 

 

 

 

 

 

 

 

 

62

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(628

)

 

 

 

 

 

(628

)

Balance at March 31, 2024

 

 

 

 

 

 

 

 

163,228

 

 

 

16

 

 

 

87,556

 

 

 

(85,215

)

 

 

5

 

 

 

2,362

 

Issuance of common stock for acquisition

 

 

 

 

 

 

 

 

17,423

 

 

 

2

 

 

 

698

 

 

 

 

 

 

 

 

 

700

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

37

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(584

)

 

 

 

 

 

(584

)

Balance at June 30, 2024

 

 

 

 

$

 

 

 

180,651

 

 

$

18

 

 

$

88,291

 

 

$

(85,799

)

 

$

(2

)

 

$

2,508

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2022

 

 

 

 

$

 

 

 

152,104

 

 

$

15

 

 

$

86,897

 

 

$

(87,689

)

 

$

 

 

$

(777

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

118

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,706

 

 

 

 

 

 

5,706

 

Balance at March 31, 2023

 

 

 

 

 

 

 

 

152,104

 

 

 

15

 

 

 

87,015

 

 

 

(81,983

)

 

 

 

 

 

5,047

 

Issuance of common stock for services

 

 

 

 

 

 

 

 

2,500

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

100

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,288

)

 

 

 

 

 

(1,288

)

Balance at June 30, 2023

 

 

 

 

$

 

 

 

154,604

 

 

$

15

 

 

$

87,150

 

 

$

(83,271

)

 

$

 

 

$

3,894

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

CV SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$

(1,212

)

 

$

4,418

 

Adjustments to reconcile net income (loss) to net cash flows provided by (used in)
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

139

 

 

 

118

 

Stock-based compensation

 

 

67

 

 

 

153

 

Note discount and interest expense

 

 

 

 

 

112

 

Non-cash lease expense

 

 

78

 

 

 

53

 

Benefit from reversal of accrued payroll tax (Note 12)

 

 

 

 

 

(6,171

)

Other

 

 

158

 

 

 

312

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(200

)

 

 

148

 

Inventory

 

 

513

 

 

 

727

 

Prepaid expenses and other

 

 

125

 

 

 

2,778

 

Accounts payable and accrued expenses

 

 

(243

)

 

 

(262

)

Net cash flows provided by (used in) operating activities

 

 

(575

)

 

 

2,386

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Acquisition of business, net of cash acquired

 

 

(40

)

 

 

 

Net cash flows used in investing activities

 

 

(40

)

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

Repayment of note payable

 

 

(50

)

 

 

(1,117

)

Repayment of unsecured debt

 

 

(173

)

 

 

(190

)

Net cash flows used in financing activities

 

 

(223

)

 

 

(1,307

)

Effect of exchange rate changes on cash

 

 

(2

)

 

 

 

Net increase (decrease) in cash

 

 

(840

)

 

 

1,079

 

Cash, beginning of period

 

 

1,317

 

 

 

611

 

Cash, end of period

 

$

477

 

 

$

1,690

 

 

 

 

 

 

 

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Interest paid

 

$

6

 

 

$

4

 

Income taxes paid

 

$

6

 

 

$

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

Services paid with common stock

 

$

62

 

 

$

100

 

Fair value of net assets acquired, excluding cash

 

$

447

 

 

$

 

Goodwill on acquisition

 

 

393

 

 

 

 

Common stock consideration

 

 

(700

)

 

 

 

Contingent consideration

 

 

(100

)

 

 

 

Cash paid for acquisition

 

$

40

 

 

$

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


 

1.
ORGANIZATION AND BUSINESS

Historical Information - CV Sciences, Inc. (the “Company”) was incorporated under the name Foreclosure Solutions, Inc. in the State of Texas on December 9, 2010. The Company subsequently changed its name to CannaVest Corp. (Texas) on January 29, 2013. On July 25, 2013, the Company merged with and into its wholly-owned Delaware subsidiary, CannaVest Corp (Delaware), to effectuate a change in the Company’s state of incorporation from Texas to Delaware. On January 4, 2016, the Company filed a Certificate of Amendment of Certificate of Incorporation reflecting its corporate name change to “CV Sciences, Inc.”, effective on January 5, 2016. In addition, on January 4, 2016, the Company amended its Bylaws to reflect its corporate name change to “CV Sciences, Inc.”

Description of Business - The Company develops, manufactures, markets and sells herbal supplements and hemp-based cannabidiol ("CBD"). The Company sells its products under tradenames, such as +PlusCBD™ and +PlusCBDPet. The Company's products are sold in a variety of market sectors including nutraceutical, beauty care and specialty foods. In addition, subject to available capital, the Company is developing drug candidates which use CBD as a primary active ingredient.

On December 7, 2023, the Company acquired Cultured Foods Sp. z.o.o., a limited liability company organized under the laws of Poland ("Cultured Foods"). Cultured Foods is a leading European manufacturer and distributor of plant-based protein products. The Company's plant-based food products are sold under the Cultured Foods brand.

On May 13, 2024, the Company acquired Elevated Softgels LLC, a Delaware limited liability company ("Elevated Softgels"). Elevated Softgels is a leading manufacturer of encapsulated softgels and tinctures for the supplement and nutrition industry.

Basis of Presentation - The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results for the interim periods. On December 7, 2023, the Company acquired Cultured Foods and on May 13, 2024, the Company acquired Elevated Softgels, both of which are now wholly owned subsidiaries of the Company. All intercompany accounts and transactions have been eliminated in consolidation. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

Liquidity Considerations - U.S. GAAP requires management to assess a company's ability to continue as a going concern for a period of one year from the financial statement issuance date and to provide related note disclosure in certain circumstances. The accompanying financial statements and notes have been prepared assuming the Company will continue as a going concern. The Company generated negative cash flows from operations of $0.6 million for the six months ended June 30, 2024 and had an accumulated deficit of $85.8 million as of June 30, 2024. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operations, growth initiatives and to continue to make and implement strategic cost reductions, including reductions in employee headcount, vendor spending, and delaying expenses related to its drug development activities. The Company intends to position itself so that it will be able to raise additional funds through the capital markets, issuance of debt, and/or securing lines of credit.

In July 2024, the Company received net proceeds of $0.9 million under a Secured Promissory Note with Streeterville Capital, LLC, a Utah limited liability company ("Streeterville") - refer to Note 13 for more information.

The Company's financial operating results and accumulated deficit, amongst other factors, raise substantial doubt about the Company's ability to continue as a going concern. The Company will continue to pursue the actions outlined above, as well as work towards increasing revenue and operating cash flows to meet its future liquidity requirements. However, there can be no assurance that the Company will be successful in any capital-raising efforts that it may undertake, and the failure of the Company to raise additional capital could adversely affect its future operations and viability.

Use of Estimates - The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates. Significant estimates include the valuation of intangible assets, inputs for valuing equity awards, valuation of inventory and assumptions related to revenue recognition.

6


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Fair Value Measurements - Fair value is defined as the price that would be received from the sale of 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 carrying values of accounts receivable, other current assets, accounts payable, and certain accrued expenses as of June 30, 2024 and December 31, 2023, approximate their fair value due to the short-term nature of these items. The Company's insurance financing balance also approximates fair value as of June 30, 2024 and December 31, 2023 and the note payable balance as of December 31, 2023 also approximates fair value, as the interest rate on the note payable and insurance financing approximates the rates available to the Company as of such dates. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

Level 1 - uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. The Company does not have any assets or liabilities that are valued using inputs identified under a Level 1 hierarchy as of June 30, 2024 and December 31, 2023.
Level 2 - uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. The Company did not have any assets or liabilities that are valued using inputs identified under a Level 2 hierarchy as of June 30, 2024 and December 31, 2023.
Level 3 - uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. Except as described below in Note 3. Acquisitions, the Company did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of June 30, 2024 and December 31, 2023.

Revenues - The majority of the Company's revenue contracts represent a single performance obligation related to the fulfillment of customer orders for the purchase of its products. Net sales reflect the transaction prices for these contracts based on the Company's selling list price, which is then reduced by estimated costs for trade promotional programs, consumer incentives, and allowances and discounts used to incentivize sales growth and build brand awareness. The Company recognizes revenue at the point in time that control of the ordered product is transferred to the customer, which is typically upon shipment to the customer or other customer-designated delivery point. The Company accrues for estimated sales returns by customers based on historical sales return results. The computation of the sales return and other allowances require that management makes certain estimates and assumptions that effect the timing and amounts of revenue and liabilities recorded. Shipping and handling fees charged to customers are included in product sales. Taxes collected from customers that are remitted to governmental agencies are accounted for on a net basis and not included as revenue.

The following represents product sales by retail (B2B) and e-commerce (B2C) channels for the three and six months ended June 30, 2024 and 2023:

 

 

Three months ended June 30, 2024

 

 

Three months ended June 30, 2023

 

 

Amount

 

 

% of product
sales, net

 

 

Amount

 

 

% of product
sales, net

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Retail sales (B2B)

 

$

2,216

 

 

 

56.0

%

 

$

2,290

 

 

 

57.7

%

E-Commerce sales (B2C)

 

 

1,738

 

 

 

44.0

%

 

 

1,676

 

 

 

42.3

%

Product sales, net

 

$

3,954

 

 

 

100.0

%

 

$

3,966

 

 

 

100.0

%

 

 

Six months ended June 30, 2024

 

 

Six months ended June 30, 2023

 

 

Amount

 

 

% of product
sales, net

 

 

Amount

 

 

% of product
sales, net

 

 

(in thousands)

 

 

 

 

 

(in thousands)

 

 

 

 

Retail sales (B2B)

 

$

4,451

 

 

 

55.9

%

 

$

4,729

 

 

 

58.3

%

E-Commerce sales (B2C)

 

 

3,505

 

 

 

44.1

%

 

 

3,385

 

 

 

41.7

%

Product sales, net

 

$

7,956

 

 

 

100.0

%

 

$

8,114

 

 

 

100.0

%

Recent Accounting Pronouncements Not Yet Adopted

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”

7


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(“ASU 2023-06”). This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“ASC”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of ASC Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the ASC with the SEC’s regulations. The ASU has an unusual effective date and transition requirements since it is contingent on future SEC rule setting. If the SEC fails to enact required changes by June 30, 2027, this ASU is not effective for any entities. Early adoption is not permitted.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (“CODM”), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis. This ASU should be applied retrospectively for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impacts of this guidance on the Company’s consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02 “Codification Improvements – Amendments to Remove References to the Concepts Statements.” The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. Early application of the amendments in this update is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

Recent Adopted Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates for the Company, as a smaller reporting company, until fiscal year 2023. The Company adopted this guidance as of January 1, 2023. Adoption of this guidance did not have a material impact on the Company's consolidated financial statements or its disclosures.

2.
BALANCE SHEET DETAILS

Inventory

Inventory as of June 30, 2024 and December 31, 2023 was comprised of the following (in thousands):

 

 

June 30,
 2024

 

 

December 31,
2023

 

Raw materials

 

$

2,780

 

 

$

2,892

 

Work in process

 

 

836

 

 

 

1,181

 

Finished goods

 

 

1,590

 

 

 

1,582

 

 

$

5,206

 

 

$

5,655

 

 

8


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Accrued expenses

Accrued expenses as of June 30, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

June 30,
2024

 

 

December 31,
2023

 

Accrued payroll taxes (Note 12)

 

$

522

 

 

$

522

 

Accrued payroll expenses

 

 

1,432

 

 

 

1,388

 

Other accrued liabilities

 

 

1,507

 

 

 

1,512

 

 

$

3,461

 

 

$

3,422

 

 

3.
ACQUISITIONS

Cultured Foods

On December 7, 2023, the Company acquired all the issued and outstanding equity interests of Cultured Foods. Cultured Foods manufactures and distributes plant-based food products. Cultured Foods is based in Poland. This acquisition provided the Company with growth opportunities in both plant-based food products and distribution of CBD products into Europe.

The acquisition closed on December 7, 2023 and, accordingly, the consolidated statements of operations and comprehensive income (loss) included Cultured Foods' results of operations for the periods from December 7, 2023 through December 31, 2023, and for the three and six months ended June 30, 2024. As a result of the business combination, acquisition costs of $0.1 million was expensed as incurred during the year ended December 31, 2023.

The following table outlines the total consideration transferred (in thousands):

 

Cash

 

$

192

 

Common shares

 

 

250

 

Earn-out

 

 

88

 

Total consideration transferred

 

$

530

 

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

Cash

 

$

18

 

Accounts receivable and other receivables

 

 

11

 

Inventories

 

 

133

 

Intangible assets

 

 

78

 

Other current assets

 

 

17

 

Fixed assets

 

 

38

 

Goodwill

 

 

334

 

Total assets

 

 

629

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

27

 

Current notes payable

 

 

50

 

Deferred tax liabilities

 

 

22

 

Total liabilities

 

 

99

 

Net assets acquired

 

$

530

 

The fair value of acquired intangible assets were determined using a forecasted cash flow and a cost approach. Acquired intangible assets consists of trade names and customer relationships. The Company assigned a 5-year useful life to the acquired intangible assets. The Company determined that Cultured Foods carrying costs approximates fair value for all other acquired assets and assumed liabilities.

Included in the purchase agreement is an earn-out provision whereby the Company agreed to pay the Cultured Foods' selling equityholder additional consideration contingent on achievement of certain annual revenue results of Cultured Foods in 2024. The Company accrued the fair value of $88,000 for this earn-out provision and recorded this amount as additional goodwill and accrued expenses as of June 30, 2024. The valuation and purchase price allocation for the Cultured Foods acquisition remains preliminary and will be finalized no later than one year after the acquisition date. As of the date of this Quarterly Report, management is still in the process of evaluating the estimated fair value of the consideration transferred. In addition, management is still evaluating the allocation

9


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

of the acquisition purchase price to the tangible and intangible assets acquired, liabilities assumed, and the resulting goodwill. Management's analysis of these items has not yet been completed because of the inherent complexities of estimating fair values. Therefore, the business combination amounts presented were determined by management based on its consideration of all currently available information; however, management has not fully completed its business combination analysis and such amounts must be considered provisional amounts.

Elevated Softgels

On May 13, 2024, the Company acquired all the issued and outstanding membership interests in Elevated Softgels. Elevated Softgels manufactures encapsulated softgels and tinctures for the supplement and nutrition industry. Elevated Softgels is based in Grand Junction, Colorado. This acquisition creates opportunity to further increase the Company's sales to current and new clients. In addition, the Company intends to in-source production of certain key products.

The acquisition closed on May 13, 2024 and, accordingly, the consolidated statements of operations and comprehensive income (loss) included Elevated Softgels' results of operations for the period from May 13, 2024 through June 30, 2024. As a result of the business combination, acquisition costs of $13,704 was expensed as incurred during the three months ended June 30, 2024.

The following table outlines the total consideration transferred (in thousands):

 

Cash

 

$

71

 

Common shares

 

 

700

 

Earn-out

 

 

100

 

Total consideration transferred

 

$

871

 

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

Cash

 

$

31

 

Inventories

 

 

66

 

Intangible assets

 

 

38

 

Other non-current assets

 

 

11

 

Right of use asset

 

 

362

 

Fixed assets

 

 

418

 

Goodwill

 

 

393

 

Total assets

 

 

1,319

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

86

 

Operating lease liability

 

 

362

 

Total liabilities

 

 

448

 

Net assets acquired

 

$

871

 

The fair value of acquired intangible assets were determined using a forecasted cash flow approach. Acquired intangible assets consists of customer relationships. The Company assigned a 5-year useful life to the acquired intangible assets. The Company determined that Elevated Softgels carrying costs approximates fair value for all other acquired assets and assumed liabilities.

Included in the purchase agreement is an earn-out provision whereby the Company agreed to pay the Elevated Softgels' selling equityholders additional consideration contingent on achievement of certain net revenue of Elevated Softgels for the 12-months period starting on May 13, 2024. The Company accrued the fair value of $100,000 for this earn-out provision and recorded this amount as additional goodwill and accrued expenses as of June 30, 2024. The valuation and purchase price allocation for the Elevated Softgels acquisition remains preliminary and will be finalized no later than one year after the acquisition date. As of the date of this Quarterly Report, management is still in the process of evaluating the estimated fair value of the consideration transferred. In addition, management is still evaluating the allocation of the acquisition purchase price to the tangible and intangible assets acquired, liabilities assumed, and the resulting goodwill. Management's analysis of these items has not yet been completed because of the inherent complexities of estimating fair values. Therefore, the business combination amounts presented were determined by management based on its consideration of all currently available information; however, management has not fully completed its business combination analysis and such amounts must be considered provisional amounts.

 

10


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

4.
GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in the carrying amounts of goodwill (in thousands):

 

Carrying
Amount

 

Balance - December 31, 2023:

 

$

342

 

Acquisition of Elevated Softgels

 

 

393

 

Translation adjustment

 

 

(6

)

Balance - June 30, 2024:

 

$

729

 

As of December 31, 2023, the Company performed its annual goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C. The Company's annual impairment analysis included a qualitative assessment to determine if it was necessary to perform the quantitative impairment test. After performing a qualitative test, the Company concluded that it was more likely than not that the fair value of the Company exceeds its carrying value of goodwill. Accordingly, there was no indication of impairment and the qualitative impairment test was not performed. The Company did not record any goodwill impairment charges for the year ended December 31, 2023. No indicators of impairment were identified during the three and six months ended June 30, 2024. The Company's annual impairment testing date is December 31 of each year.

Intangible Assets

The following table summarizes the intangible assets and the related accumulated amortization (in thousands):

 

 

June 30, 2024

 

 

December 31, 2023

 

Gross carrying amount

 

$

116

 

 

$

78

 

Accumulated amortization

 

 

(10

)

 

 

(1

)

Translation adjustment

 

 

 

 

 

1

 

Net carrying amount

 

$

106

 

 

$

78

 

Changes in the carrying amounts of intangible assets are summarized below (in thousands):

 

 

Trade names

 

 

Customer relationships

 

 

Total

 

Balance - December 31, 2023:

 

$

52

 

 

$

26

 

 

$

78

 

Acquisition of Elevated Softgels

 

 

 

 

 

38

 

 

 

38

 

Amortization

 

 

(5

)

 

 

(4

)

 

 

(9

)

Translation adjustments

 

 

 

 

 

(1

)

 

 

(1

)

Balance - June 30, 2024:

 

$

47

 

 

$

59

 

 

$

106

 

 

Above stated amounts are provisional amounts and subject to adjustment in future periods. The Company did not incur costs to renew or extend the term of acquired intangible assets for the three and six months ended June 30, 2024. The estimated amortization expense for the Company's intangible assets is not significant in any future individual fiscal year. No indicators of impairment were identified during the three and six months ended June 30, 2024.

 

5.
LEASES

In April 2022, the Company entered into a new lease agreement for its main office facility. The lease is for the Company's operations, warehouse, sales, marketing and back office functions. The facility is approximately 6,000 square feet and located in San Diego, California. The lease term is three years with a total lease obligation of approximately $0.4 million. The lease does not include an option to renew. Based on the present value of the lease payments for the remaining lease term, the Company recognized an operating lease asset of $0.3 million and lease liabilities for operating leases of $0.4 million, respectively, on May 1, 2022. As of June 30, 2024, the Company had an operating lease obligation and operating lease asset of $0.1 million related to the facility.

In May 2024, the Company acquired Elevated Softgels and assumed its outstanding lease agreement (refer to Note 3). The facility of Elevated Softgels is approximately 7,200 square feet and located in Grand Junction, Colorado. The lease expires on March 31, 2025 and has options to renew the lease through March 31, 2027. Based on on the present value of the lease payments, the Company recognized

11


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

an operating lease asset and lease liability for operating leases of $0.4 million on May 13, 2024. As of June 30, 2024, the Company had an operating lease obligation and operating lease asset of $0.3 million related to the facility.

The Company's operating leases are included in "Right of use assets" on the Company's June 30, 2024 Condensed Consolidated Balance Sheet, and represents the Company's right to use the underlying assets for the lease term. The Company's obligation to make lease payments is included in "Operating lease liability - current" and "Operating lease liability" on the Company's June 30, 2024 Condensed Consolidated Balance Sheet. Operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2024, the Company's total lease cost was $49,638 and $77,876, respectively. Total lease costs was mostly comprised of operating lease costs. Short-term lease costs related to short-term operating leases and variable lease costs were immaterial.

Because the rate implicit in the leases is not readily determinable, the Company uses the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. Information related to the Company's operating lease assets and related lease liabilities were as follows:

 

 

June 30, 2024

 

Weighted-average remaining lease term (in months)

 

 

22.71

 

Weighted-average discount rate

 

 

9.23

%

 

Maturities of lease liabilities as of June 30, 2024 were as follows (in thousands):

 

Year ending December 31,

 

 

 

2024 (remaining six months)

 

$

139

 

2025

 

 

200

 

2026

 

 

147

 

2027

 

 

37

 

 

 

523

 

Less imputed interest

 

 

(56

)

Total lease liabilities

 

$

467

 

Current operating lease liabilities

 

$

234

 

Non-current operating lease liabilities

 

 

233

 

Total lease liabilities

 

$

467

 

 

6.
DEBT

Debt as of June 30, 2024 and December 31, 2023 was all current and was as follows (in thousands):

 

 

June 30, 2024

 

 

December 31, 2023

 

Insurance financing

 

$

29

 

 

$

204

 

Cultured Foods note payable (Note 3)

 

 

 

 

 

50

 

Total debt

 

$

29

 

 

$

254

 

Insurance Financing

In October 2023, the Company entered into a financing agreement with First Insurance Funding in order to fund a portion of its insurance policies for the upcoming policy year. The amount financed is $0.3 million, which incurs interest at a rate of 8.42% per annum. The Company is required to make monthly payments of $29,781 from November 2023 through July 2024.

In November 2022, the Company entered into a finance agreement with First Insurance Funding in order to fund a portion of its insurance policies for the most recent policy year. The amount financed was $0.2 million, which incurred interest at a rate of 6.32% per annum. The Company was required to make monthly payments of $27,900 from November 2022 through July 2023. There was no outstanding balance as of June 30, 2024.

12


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Cultured Foods Notes Payable

The Company assumed the outstanding notes payable of Cultured Foods in connection with its acquisition of Cultured Foods in December 2023. The notes payable to the prior owner of Cultured Foods were due within the next 12 months from the date of acquisition. The notes carried an interest of 9% per annum. During the six months ended June 30, 2024, the Company repaid the entire outstanding amount of the notes payable including interest.

Note Payable

In August 2022, the Company entered into a note purchase agreement with Streeterville, pursuant to which the Company issued and sold to Streeterville the secured Streeterville Note in the original principal amount of $2.0 million. The Streeterville Note carried an original issuance discount of $400,000. The Company incurred additional debt issuance costs of $23,000. As a result, the Company received aggregate net proceeds of approximately $1.6 million in connection with the sale and issuance of the Streeterville Note. The Streeterville Note was scheduled to mature on May 19, 2023 and the Company was required to make weekly repayments to Streeterville on the Note in the following amounts: (a) $40,000 for the first 8 weeks after issuance; and (b) $56,000 thereafter until the Streeterville Note was paid in full.

No interest was to accrue on the Streeterville Note until an occurrence of an Event of Default, as defined in Section 4 of the Streeterville Note, if ever. The Streeterville Note provided for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees or other amounts, a representation or warranty proving to have been incorrect when made, failure to perform or observe covenants within a specified period of time, a cross-default to certain other indebtedness of the Company, the bankruptcy or insolvency of the Company or any significant subsidiary, monetary judgment defaults of a specified amount and other defaults resulting in liability of a specified amount. In the event of an occurrence of an Event of Default by the Company, Streeterville could have declared all amounts owed under the Streeterville Note immediately due and payable. Also, a late fee and interest penalty of equal to either 22% per annum or the maximum rate allowable under law, whichever is lesser, could have been applied to any outstanding amount not paid when due or that remains outstanding while an Event of Default exists.

The unpaid amount of the Streeterville Note, any interest, fees, charges and late fees accrued was due and payable in full within three trading days of receipt by the Company of any employee retention credit funds owed to the Company under the CARES Act, provided, further, that if at least $1.0 million in CARES Act proceeds were not remitted to Streeterville within ninety days of August 19, 2022, the outstanding balance under the Streeterville Note was to be increased by five percent (5%). The Company did not receive the CARES Act proceeds within 90 days of August 19, 2022; as a result, the outstanding balance of the Streeterville Note was increased by five percent (5%). The Streeterville Note was secured by all of the Company’s assets as set forth in the Security Agreement dated August 19, 2022.

The Company made principal payments to Streeterville of $0.4 million and $1.1 million during the three and six months ended June 30, 2023. As a result, the Streeterville Note has been fully repaid and satisfied as of December 31, 2023, and the Company's obligations thereunder, were cancelled and terminated.

The Company entered into a new note with Streeterville subsequent to June 30, 2024 (refer to Note 13.).

7.
STOCKHOLDERS' EQUITY

Common Stock

During the year ended December 31, 2022, the Company issued 5,496,000 shares of common stock to a vendor as compensation for $0.4 million of services provided to the Company. In accordance with the agreement, the Company issued 1,549,410 additional shares of common stock to the vendor during the six months ended June 30, 2024.

13


CV SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Warrants

The following represents a summary of the warrants outstanding at each of the dates identified:

 

 

 

 

 

 

 

 

 

Number of Shares Underlying Warrants

 

Issue Date

 

Classification

 

Exercise Price

 

 

Expiration Date

 

June 30, 2024

 

 

December 31, 2023

 

March 30, 2022

 

Equity

 

$

0.1000