Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Historical Information - CV Sciences, Inc. (the “Company”) was incorporated under the name Foreclosure Solutions, Inc. in the State of Texas on December 9, 2010. On July 25, 2013, CannaVest Corp., a Texas corporation (“CannaVest Texas”), merged with the Company, a wholly-owned Delaware subsidiary of CannaVest Texas, 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 has two operating segments: consumer products and specialty pharmaceutical. The consumer products segment develops, manufactures, markets and sells plant-based dietary supplements and hemp-based cannabidiol ("CBD"). The Company sells its products under tradenames, such as PlusCBD™, HappyLane™, ProCBD™, CVAcute, and CVDefense. The Company's products are sold in a variety of market sectors including nutraceutical, beauty care and specialty foods. The specialty pharmaceutical segment is developing drug candidates which use CBD as a primary active ingredient.
Basis of Presentation - The unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").
Use of Estimates - The preparation of the condensed financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the condensed 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.
Certain prior year amounts related to the gain on lease termination of $0.4 million have been reclassified from changes in operating assets and liabilities to a separate line item in the condensed statements of cash flows for consistency with the current year presentation. These reclassifications had no impact on the Company's net cash used in operating activities or total cash flows.

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 September 30, 2021 and December 31, 2020, approximate their fair value due to the short-term nature of these items. The Company's notes payable balance also approximates fair value as of December 31, 2020, as the interest rate on the notes payable approximates the rates available to the Company as of this date. 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's Level 1 assets are comprised of $1.7 million and $2.4 million in money market funds which are classified as cash equivalents as of September 30, 2021 and December 31, 2020, respectively. In addition, the Company's restricted cash of $0.5 million as of December 31, 2020 is comprised of certificates of deposit. The carrying value of the cash equivalents and restricted cash approximated the fair value as of September 30, 2021 and December 31, 2020. The Company does not have any liabilities that are valued using inputs identified under a Level 1 hierarchy as of September 30, 2021 and December 31, 2020.

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 September 30, 2021 and December 31, 2020.
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. The Company did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of September 30, 2021 and December 31, 2020.

Cash, cash equivalents, and restricted cash - The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheets to the total of the same amounts shown in the statement of cash flows for the nine months ended September 30, 2021 and 2020 (in thousands):

September 30,
September 30,
Cash and cash equivalents $ 1,660  $ 5,563 
Restricted cash —  501 
Total cash and restricted cash shown in the statements of cash flows $ 1,660  $ 6,064 

Revenues - The following presents revenue product sales by channel, food, drug and mass ("FDM"), natural products and other, and e-commerce, for the three and nine months ended September 30, 2021 and 2020:
Three months ended September 30, 2021 Three months ended September 30, 2020
Amount % of product sales, net Amount % of product sales, net
(in thousands)
(in thousands)
Retail - FDM $ 627  12.3  % $ 518  9.3  %
Retail - Natural products and other 2,671  52.3  % 3,204  57.6  %
E-Commerce 1,809  35.4  % 1,842  33.1  %
Product sales, net $ 5,107  100.0  % $ 5,564  100.0  %

Nine months ended September 30, 2021 Nine months ended September 30, 2020
Amount % of product sales, net Amount % of product sales, net
(in thousands)
(in thousands)
Retail - FDM $ 1,072  7.1  % $ 1,394  7.3  %
Retail - Natural products and other 8,436  56.0  % 11,943  62.1  %
E-Commerce 5,571  36.9  % 5,893  30.6  %
Product sales, net $ 15,079  100.0  % $ 19,230  100.0  %

Liquidity Considerations - The Company believes that a combination of factors, mainly consisting of increased competition and the effects of the COVID-19 pandemic, have adversely impacted its business operations for the three and nine month period ended September 30, 2021. Due to a low barrier entry market with a lack of a clear regulatory framework, the Company faces intense competition from both licensed and illicit market operators that may also sell plant-based dietary supplements and hemp-based CBD consumer products.
COVID-19 also had a significant impact on the Company's results of operations as government-imposed restrictions on businesses and retail store closures impacted its sales revenue. Although the Company cannot predict how sales for its products will continue to be impacted by the increase in competition and these preventative measures, the Company expects that these factors may continue to negatively impact its operations due to decreased consumer demand as well as potential production and warehouse limitations. These factors result in events or conditions, before consideration of management’s plans, that could impact the Company's continuing operations and its ability to meet future obligations.
Although the Company’s revenue was impacted for the nine months ended September 30, 2021 and the year ended December 31, 2020 due to increased competition and the effects of COVID-19, the Company was able to mitigate, to some degree, these conditions as the Company’s management implemented, and continues to make and implement, strategic cost reductions, including reductions in employee headcount, vendor spending, and the delay of expenses related to its drug development activities.
On December 8, 2020, the Company entered into a common stock purchase agreement (“SPA”) with Tumim Stone Capital, LLC (“Tumim”), pursuant to which Tumim committed to purchase up to $10.0 million in shares of our common stock, from time to time, as further discussed in Note 5. The Company and Tumim mutually agreed to terminate the SPA effective November 15, 2021.
In November, the Company entered into a securities purchase agreement with an institutional investor providing for the sale and issuance of convertible notes due 2022 in the aggregate original principal amount of $1.06 million. Upon filing with the Securities and Exchange Commission of an additional prospectus supplement and supplemental indenture and our satisfaction of certain other closing conditions, the Company may elect to offer and sell up to and additional $4.2 million in aggregate principal amount of notes at additional closings, resulting in potential gross proceeds for this offering and such additional offerings, of approximately $5.3 million.
Management believes that its cash and cash equivalents on hand together with the securities purchase agreement, and the cost reduction measures, as needed, will provide sufficient liquidity to fund its operations for the next 12 months from the issuance of these condensed financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board ("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 currently plans to adopt the guidance at the beginning of fiscal 2023. The Company is currently evaluating the potential impact of Topic 326 on the Company’s condensed financial statements.

Recent Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2020. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company's adoption of ASU 2019-12 during the three and nine months ended September 30, 2021, did not have a material impact on the Company's condensed financial statements.