Can B Corp - Quarter Report: 2021 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
☐ 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: 000-55753
| Can B Corp. |
| (Exact name of registrant as specified in its charter) |
| Florida | 20-3624118 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
960 South Broadway, Suite 120
Hicksville, NY 11801
(Address of principal executive offices)
516-595-9544
(Registrant’s telephone number, including area code)
Canbiola, Inc.
(Former name, former address and former fiscal, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the Act:
| Tile of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | CANB | N/A |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | |||
| (Do not check if smaller reporting 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
The number of shares of the registrant’s only class of common stock issued and outstanding as of August 15, 2021 was shares.
Can B Corp.
FORM 10-Q
June 30, 2021
TABLE OF CONTENTS
| 2 |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Can B̅ Corp. and Subsidiaries
Consolidated Balance Sheets
| (Unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,093,156 | $ | 457,798 | ||||
| Accounts receivable, less allowance for doubtful accounts of $533,300 and $485,848, respectively | 2,159,886 | 2,003,064 | ||||||
| Inventory | 320,243 | 344,954 | ||||||
| Note receivable | 2,898 | 2,898 | ||||||
| Operating lease right-of-use-asset - current | 37,535 | 35,790 | ||||||
| Prepaid expenses | 632,750 | 1,209,126 | ||||||
| Total current assets | 4,246,468 | 4,053,630 | ||||||
| Property and equipment, net | 1,089,113 | 994,979 | ||||||
| Other assets: | ||||||||
| Deposits | 23,287 | 21,287 | ||||||
| Intangible assets, net | 734,732 | 523,009 | ||||||
| Goodwill | 55,849 | 55,849 | ||||||
| Operating lease right-of-use-asset - noncurrent | - | 22,384 | ||||||
| Other noncurrent assets | 12,968 | 20,315 | ||||||
| Total other assets | 826,836 | 642,844 | ||||||
| Total assets | $ | 6,162,417 | $ | 5,691,453 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 384,195 | $ | 153,640 | ||||
| Accrued expenses | 157,610 | 200,495 | ||||||
| Notes and loans payable, net | 2,626,315 | 1,827,531 | ||||||
| Operating lease liability - current | 37,786 | 43,506 | ||||||
| Total current liabilities | 3,205,906 | 2,225,172 | ||||||
| Long-term liabilities: | ||||||||
| Notes and loans payable, net | - | 194,940 | ||||||
| Operating lease liability - noncurrent | - | 15,492 | ||||||
| Total long-term liabilities | - | 210,432 | ||||||
| Total liabilities | $ | 3,205,906 | $ | 2,435,604 | ||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, authorized shares: | ||||||||
| Series A Preferred stock, par value: shares authorized, issued and outstanding | 5,539,174 | 5,539,174 | ||||||
| Series B Preferred stock, $ par value: shares authorized, issued and outstanding | - | - | ||||||
| Series C Preferred stock, $ par value: shares authorized, issued and outstanding | - | - | ||||||
| Series D Preferred stock, $ par value: shares authorized, issued and outstanding | 2 | - | ||||||
| Common stock, par value; shares authorized, and issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 30,070,447 | 26,111,978 | ||||||
| Treasury stock | (572,678 | ) | (572,678 | ) | ||||
| Additional paid-in capital | 3,225,461 | 2,563,399 | ||||||
| Accumulated deficit | (35,305,895 | ) | (30,386,024 | ) | ||||
| Total stockholders’ equity | 2,956,511 | 3,255,849 | ||||||
| Total liabilities and stockholders’ equity | $ | 6,162,417 | $ | 5,691,453 | ||||
See notes to consolidated financial statements
| 3 |
Can B̅ Corp. and Subsidiaries
Consolidated Statement of Operations
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Product sales | $ | 362,101 | $ | 204,684 | $ | 605,796 | $ | 774,091 | ||||||||
| Service revenue | 39,665 | 400 | 102,910 | 700 | ||||||||||||
| Total revenues | 401,766 | 205,084 | 708,706 | 774,791 | ||||||||||||
| Cost of revenues | 258,612 | 48,045 | 335,407 | 169,594 | ||||||||||||
| Gross profit | 143,154 | 157,039 | 373,299 | 605,197 | ||||||||||||
| Operating expenses | 2,728,998 | 1,276,512 | 4,751,677 | 2,836,663 | ||||||||||||
| Loss from operations | (2,585,844 | ) | (1,119,473 | ) | (4,378,378 | ) | (2,231,466 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income | - | 221 | 3,582 | 441 | ||||||||||||
| Gain on debt extinguishment | 196,889 | - | 196,889 | - | ||||||||||||
| Interest expense | (348,008 | ) | (68,898 | ) | (740,795 | ) | (82,782 | ) | ||||||||
| Other expense | (1,982 | ) | (42,500 | ) | - | (50,000 | ) | |||||||||
| Other expense | (153,101 | ) | (111,177 | ) | (540,324 | ) | (132,341 | ) | ||||||||
| Loss before provision for income taxes | (2,738,945 | ) | (1,230,650 | ) | (4,918,702 | ) | (2,363,807 | ) | ||||||||
| Provision for income taxes | 1,044 | 275 | 1,169 | 1,225 | ||||||||||||
| Net loss | $ | (2,739,989 | ) | $ | (1,230,925 | ) | $ | (4,919,871 | ) | $ | (2,365,032 | ) | ||||
| Loss per share - basic and diluted | $ | (0.12 | ) | $ | (0.33 | ) | $ | (0.26 | ) | $ | (0.65 | ) | ||||
| Weighted average shares outstanding - basic and diluted | 23,387,935 | 3,745,915 | 18,935,976 | 3,614,610 | ||||||||||||
See notes to consolidated financial statements
| 4 |
Can B̅ Corp. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
| Three Months Ended June 30, 2021 and 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 1, 2021 | 20 | $ | 5,539,174 | $ | 50 | $ | 1,950 | $ | 2 | 16,667,655 | $ | 29,719,534 | 543,715 | $ | (572,678 | ) | $ | 2,563,399 | $ | (32,565,906 | ) | $ | 4,683,525 | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services rendered | - | - | - | - | 275,356 | 350,913 | - | - | - | 350,913 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants and commitment shares in connection with convertible promissory note | - | - | - | - | - | - | - | - | - | - | - | - | 662,062 | - | 662,062 | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (2,739,989 | ) | (2,739,989 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 20 | $ | 5,539,174 | 0 | $ | 50 | $ | 1,950 | $ | 2 | 16,943,011 | $ | 30,070,447 | 543,715 | $ | (572,678 | ) | $ | 3,225,461 | $ | (35,305,895 | ) | $ | 2,956,511 | ||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 1, 2020 | 20 | $ | 5,539,174 | $ | $ | $ | 2,861,740 | $ | 23,541,249 | $ | $ | 1,075,176 | $ | (24,495,330 | ) | $ | 5,660,269 | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services rendered | - | - | - | - | 132,053 | 183,223 | - | - | - | - | 183,223 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to note agreements | - | - | - | - | 162,545 | 88,927 | - | - | - | - | 88,927 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition of intangible assets | - | - | - | - | 235,000 | 201,187 | - | - | - | - | 201,187 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for compensation | - | - | - | - | 30,000 | 41,625 | - | - | - | - | 41,625 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (1,230,925 | ) | (1,230,925 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 20 | $ | 5,539,174 | $ | $ | $ | 3,421,338 | $ | 24,056,211 | $ | $ | 1,075,176 | $ | (25,726,255 | ) | $ | 4,944,306 | |||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 and 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | 20 | $ | 5,539,174 | $ | $ | $ | 5,544,590 | $ | 26,111,978 | 543,715 | $ | (572,678 | ) | $ | 2,563,399 | $ | (30,386,024 | ) | $ | 3,255,849 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock | - | - | 50 | - | 1,950 | 2 | - | - | - | - | - | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred stock to Common stock | - | - | - | - | 3,750,000 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock | - | - | - | - | 5,732,000 | 2,866,000 | - | - | - | - | 2,866,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in lieu of note repayments | - | - | - | - | 1,155,250 | 537,748 | - | - | - | - | 537,748 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services rendered | - | - | - | - | 406,114 | 417,048 | - | - | - | - | 417,048 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for asset acquisition | - | - | - | - | 355,057 | 137,673 | - | - | - | - | 137,673 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants and commitment shares in connection with convertible promissory note | - | - | - | - | - | - | - | - | - | - | - | - | 662,062 | - | 662,062 | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (4,919,871 | ) | (4,919,871 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 20 | $ | 5,539,174 | 0 | $ | 50 | $ | 1,950 | $ | 2 | 16,943,011 | $ | 30,070,447 | 543,715 | $ | (572,678 | ) | $ | 3,225,461 | $ | (35,305,895 | ) | $ | 2,956,511 | ||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | 20 | $ | 5,539,174 | $ | $ | $ | 2,680,937 | $ | 23,113,077 | $ | $ | 1,075,176 | $ | (23,361,223 | ) | $ | 6,366,204 | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services rendered | - | - | - | - | 190,888 | 315,615 | - | - | - | - | 315,615 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock - reverse stock split rounding | - | - | - | - | - | - | - | - | 2,460 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to FirstFire note agreement | - | - | - | - | 119,508 | 295,780 | - | - | - | - | 295,780 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to note agreements | - | - | - | - | 162,545 | 88,927 | - | - | - | - | 88,927 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition of intangible assets | - | - | - | - | 235,000 | 201,187 | - | - | - | - | 201,187 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for compensation | - | - | - | - | 30,000 | 41,625 | - | - | - | - | 41,625 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (2,365,032 | ) | (2,365,032 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 20 | $ | 5,539,174 | $ | $ | $ | 3,421,338 | $ | 24,056,211 | $ | $ | 1,075,176 | $ | (25,726,255 | ) | $ | 4,944,306 | |||||||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements
| 5 |
Can B̅ Corp. and Subsidiaries
Consolidated Statement of Cash Flows
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (4,919,871 | ) | $ | (2,365,032 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | - | 975,787 | ||||||
| Depreciation | 72,342 | 61,510 | ||||||
| Amortization of intangible assets | 103,480 | 277,158 | ||||||
| Amortization of original-issue-discounts | 697,594 | 69,645 | ||||||
| Unrealized loss on investment | - | 50,000 | ||||||
| Bad debt expense | 47,452 | 131,985 | ||||||
| Forgiveness of PPP loan | (194,940 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (204,274 | ) | (377,212 | ) | ||||
| Inventory | 24,711 | 410,664 | ||||||
| Prepaid expenses | 576,376 | (10,140 | ) | |||||
| Deposits | (2,000 | ) | - | |||||
| Other noncurrent assets | 7,347 | 34,625 | ||||||
| Operating lease right-of-use asset | (573 | ) | 376 | |||||
| Accounts payable | 647,603 | 150,840 | ||||||
| Accrued expenses | (42,885 | ) | 63,376 | |||||
| Net cash used in operating activities | (3,187,638 | ) | (526,418 | ) | ||||
| Investing activities: | ||||||||
| Note receivable | - | 481 | ||||||
| Purchase of property and equipment | (166,476 | ) | (16,787 | ) | ||||
| Purchase of intangible assets | (177,530 | ) | - | |||||
| Investment in marketable security | - | (600,000 | ) | |||||
| Net cash used in investing activities | (344,006 | ) | (616,306 | ) | ||||
| Financing activities: | ||||||||
| Proceeds received from notes and loans payable | 1,525,000 | 1,657,840 | ||||||
| Proceeds from issuance of Series D Preferred Stock | 2 | - | ||||||
| Proceeds from sale of common stock | 2,866,000 | - | ||||||
| Repayments of notes and loans payable | (224,000 | ) | (70,000 | ) | ||||
| Deferred financing costs | - | (101,455 | ) | |||||
| Net cash provided by financing activities | 4,167,002 | 1,486,385 | ||||||
| Increase in cash and cash equivalents | 635,358 | 343,661 | ||||||
| Cash and cash equivalents, beginning of period | 457,798 | 46,540 | ||||||
| Cash and cash equivalents, end of period | $ | 1,093,156 | $ | 390,201 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Income taxes paid | $ | 1,169 | $ | 950 | ||||
| Interest paid | $ | 4,000 | $ | 3,206 | ||||
| Non-cash Investing and Financing Activities: | ||||||||
| Issuance of common stock in lieu of repayments of notes payable | $ | 537,748 | $ | 384,707 | ||||
| Amortization of prepaid issuance of common stock for services rendered | $ | $ | 618,547 | |||||
| Issuance of common stock in asset acquisitions | $ | 137,673 | $ | 201,187 | ||||
| Issuance of common stock for services rendered | $ | 417,048 | $ | |||||
| Issuance of common stock warrants and commitment shares in connection with convertible promissory note | $ | 662,062 | $ | |||||
See notes to consolidated financial statements
| 6 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Note 1 – Organization and Description of Business
Can B̅ Corp. was originally incorporated as WrapMail, Inc. (“WRAP”) in Florida on October 11, 2005. On May 15, 2017, WRAP changed its name to Canbiola, Inc. On January 16, 2020 Canbiola, Inc. changed its name to Can B̅ Corp. (the “Company”, “we”, “us”, “our”, “CANB”, “Can B̅” or “Registrant”).
The Company acquired 100% of the membership interests in Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) effective December 28, 2018. The Company runs it manufacturing operations through PHP and holds and sells several of its brands through PHP as well. The Company’s durable equipment products, such as sam® units with and without CBD infused pads, are marketed and sold through its wholly-owned subsidiaries, Duramed Inc. (incorporated on November 29, 2018) and Duramed MI LLC (fka DuramedNJ, LLC) (incorporated on May 29, 2019) (collectively, “Duramed”). Duramed began operating on or about February 1, 2019. Most of the Company’s consumer products include hemp derived cannabidiol (“CBD”); however, the Company has just recently begun extracting cannabinol (“CBN”) and cannabigerol (“CBG”) for wholesale to third-parties looking to incorporate such compounds into their products through its wholly owned subsidiary, Botantical Biotech, LLC (incorporated March 10, 2021). Botanical Biotech has also begun synthesizing delta-8 from hemp. Delta-8 can produce similar, though less potent, effects as delta-9 (commonly referred to as THC); however, the legality of hemp derived delta-8 is in a gray area and considered a potential loophole at this point due to the 2018 hemp bill. The Company’s other subsidiaries did not have operations during the six months ended June 30, 2021.
The Company is in the business of promoting health and wellness through its development, manufacture and sale of products containing cannabinoids derived from hemp biomass and the licensing of durable medical devises. Can B̅’s products include oils, creams, moisturizers, isolate, gel caps, spa products, and concentrates and lifestyle products. Can B̅ develops its own line of proprietary products as well seeks synergistic value through acquisitions in the hemp industry. Can B̅ aims to be the premier provider of the highest quality hemp derived products on the market through sourcing the best raw material and offering a variety of products we believe will improve people’s lives in a variety of areas.
Note 2 – Liquidity
The consolidated financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of June 30, 2021, the Company had cash and cash equivalents of $1,093,156 and a working capital of $ For the periods ended June 30, 2021 and 2020, the Company had net loss of $4,919,871 and $2,365,032, respectively. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to expand its operation of CBD products to increase its profitability. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein. Results for interim periods are not necessarily indicative of results to be expected for a full year.
The consolidated balance sheet information as of December 31, 2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). The interim consolidated financial statements contained herein should be read in conjunction with the 2020 Form 10-K.
Principles of Consolidation
The unaudited consolidated financial statements contained herein include the accounts of Can B Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
| 7 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Covid-19
Commencing in December 2019, the novel strain of coronavirus (“COVID-19”) began spreading throughout the world, including the first outbreak in the US in February 2020. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has disrupted and continues to significantly disrupt local, regional, and global economies and businesses. The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on the Company’s customers, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the Company’s financial condition and/or results of operations is uncertain.
In response to COVID-19, the Company put into place certain restrictions, requirements and guidelines to protect the health of its employees and clients, including requiring that certain conditions be met before employees return to the Company’s offices. Also, to protect the health and safety of its employees, the Company’s daily execution has evolved into a largely virtual model. The Company plans to continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that it determines to be in the interests of its employees, customers, and partners.
Management Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, income taxes and deferred taxes. Descriptions of these policies are discussed in the Company’s 2020 Form 10-K. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Significant Accounting Policies
The Company’s significant accounting policies are described in “Note 3: Summary of Significant Accounting Policies” of our 2020 Form 10-K.
Recently Adopted Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued the following accounting pronouncement which became effective for the Company in 2021, and which did not have a material impact on its condensed consolidated financial statements:
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies ASC 740 to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.
Segment reporting
As of June 30, 2021, the Company reports operating results and financial data in one operating and reportable segment. The Chief Executive Officer, who is the chief operating decision maker, manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across the entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services is discussed for purposes of promoting an understanding of the Company’s business, the chief operating decision maker manages the Company and allocates resources at the consolidated level.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassification adjustments had no effect on the Company’s previously reported net loss.
Note 4 – Asset Acquisitions
Botanical Biotech Asset Acquisition
On March 11, 2021, Company entered into an Asset Acquisition Agreement, which was fully executed on March 17, 2021, with multiple sellers (each, a “Seller” and, collectively, the “Sellers”), pursuant to which the Sellers agreed to sell certain assets to Company, and to transfer such assets to Botanical Biotech, LLC, a newly-formed, wholly-owned subsidiary of the Company (“Transferee” or “BB”). The assets purchased (“BB Assets”) include certain materials and manufacturing equipment, marketing or promotional designs, brochures, advertisements, concepts, literature, books, media rights, rights against any other person or entity in respect of any of the foregoing and all other promotional properties, in each case primarily used, developed or acquired by the Sellers for use in connection with the ownership and operation of the BB Assets. In exchange for the BB Assets the Company will pay the Seller a maximum of $355,057, payable half in the form of cash or cash equivalent and half in the form of restricted shares of common stock of the Company (the “Shares”) at a price per Share equal to the average closing price of the common stock of the Company during the ten (10) consecutive trading days immediately preceding the closing. The Company has agreed to indemnify the Sellers for certain breaches of covenants, representations and warranties and for claims relating to the BB Assets following closing.
In conjunction with the BB asset acquisition, the Company entered into employment agreements with two sellers.
The Company and BB entered into an employment agreement with Lebsock dated March 11, 2021 (the “Lebsock Agreement”) pursuant to which Lebsock will serve as the President of BB for a term of three (3) years. The term of the Lebsock Agreement will automatically renew for an additional 3-year term unless other terminated by either party. Lebsock will receive a base salary equal to $120,000 per year, subject to an annual increase of not less than on each anniversary of the Lebsock Agreement during the term. The Company also agreed to issue a stock bonus to Lebsock in accordance with the Company’s Incentive Stock Option Plan (“ISOP”) in an amount of $100,000, and to pay Lebsock a defined percentage of the EBITDA for BB each calendar quarter (“Profit Split”) according to a mutually agreed performance target (“Target”). EBITDA is defined as the earnings before interest, depreciation, taxes, depreciation, and amortization and will be paid as reported by the Company’s accountant and as reviewed by the Company’s auditor. It will be accumulative on a quarter-to-quarter basis, meaning if one quarter has a negative EBITDA, it would be offset against the following quarter’s positive EBITDA distribution. Lebsock has the option to accept the Profit Split in either direct cash payment or Shares, or any combination, at Lebsock’s option. Shares would be valued at the prior 10-day closing price and issued under SEC Rule 144 restriction.
Effective March 16, 2021, BB entered into a Consulting Agreement (the “Schlosser Agreement”) with Schlosser pursuant to which Schlosser has agreed to provide consulting services to BB for a period of 3 months in exchange for compensation equal to $10,000 per month. Schlosser will also be entitled to reimbursement for certain work-related expenses. Pursuant to the Schlosser Agreement, Schlosser also agreed to assign to BB all inventions developed by Schlosser in connection with his services to BB. The Schlosser Agreement also contains certain non-compete and confidentiality provisions. Per the Acquisition Agreement, Schlosser was to receive an employment agreement similar to the Lebsock Agreement; however, BB and Schlosser elected to enter into the Schlosser Agreement instead.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Note 5 – Inventories
Inventories consist of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | 273,333 | $ | 294,522 | ||||
| Finished goods | 46,910 | 50,432 | ||||||
| Total | $ | 320,243 | $ | 344,954 | ||||
Note 6 – Property and Equipment
Property and equipment consist of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Furniture and fixtures | $ | 21,724 | $ | 21,727 | ||||
| Office equipment | 12,378 | 12,378 | ||||||
| Manufacturing equipment | 561,328 | 397,230 | ||||||
| Medical equipment | 776,396 | 776,392 | ||||||
| Leasehold improvements | 26,902 | 26,902 | ||||||
| Total | 1,398,728 | 1,234,629 | ||||||
| Accumulated depreciation | (309,615 | ) | (239,650 | ) | ||||
| Net | $ | 1,089,113 | $ | 994,979 | ||||
Depreciation expense was $72,342 and $61,510 for the six month periods ending June 30, 2021 and 2020, respectively.
Note 7 – Goodwill and Intangible Assets
Intangible assets consist of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Technology, IP and patents | $ | 989,443 | $ | 674,240 | ||||
| Hemp processing registration | 85,200 | 85,200 | ||||||
| Total | 1,074,643 | 759,440 | ||||||
| Accumulated amortization | (339,911 | ) | (236,431 | ) | ||||
| $ | 734,732 | $ | 523,009 | |||||
Amortization expense was $103,480 and $277,158 for the six months ended, 2021 and 2020, respectively.
Amortization expense for the balance of 2021, and for each of the next five years and thereafter is estimated to be as follows:
| Six months ended December 31, 2021 | $ | 48,556 | ||
| Fiscal year 2022 | 97,112 | |||
| Fiscal year 2023 | 97,112 | |||
| Fiscal year 2024 | 97,112 | |||
| Fiscal year 2025 | 86,970 | |||
| Thereafter | 307,870 | |||
| $ | 734,732 |
There was no goodwill activity during the six months ended June 30, 2021 and 2020.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Note 8 – Notes and Loans Payable
Convertible Promissory Notes
In December 2020, the Company entered into a convertible promissory note (“ASOP Note I”) with Arena Special Opportunities Partners I, LP (“ASOP”). The principal balance of the note is $2,675,239 and it is to be utilized for working capital purposes. The note matures on January 31, 2022 and all principal, accrued and unpaid interest is due at maturity at a rate of 12% per annum. The conversion options contained in the convertible promissory note were evaluated for derivative accounting under ASC 815, Derivatives and Hedging, and determined not to be considered a derivative and therefore has been recorded in liabilities as part of the convertible promissory note and not bifurcated. In addition, the ASOP convertible promissory note was issued with common stock warrants. The common stock purchase warrants entitle the holder to purchase an aggregate of up to shares of the Company’s common stock at an exercise price of $ per share. The common stock purchase warrants issued to ASOP are considered derivatives, but satisfied the criteria for classification as equity instruments, and were bifurcated from the host contract - convertible promissory note and recorded in equity at their relative fair values with a corresponding debt discount recorded to ASOP Note I. Aggregate amortization of the original issue discount for the six months ended June 30, 2021 and 2020 was approximately $533,000 and $0, respectively. The principal balance outstanding at June 30, 2021 was $2,286,792.
In December 2020, the Company entered into a convertible promissory note (“ASOF Note I”) with Arena Special Opportunities Fund, LP (“ASOF”). The principal balance of the note is $102,539 and it is to be utilized for working capital purposes. The note matures on January 31, 2022 and all principal, accrued and unpaid interest is due at maturity at a rate of 12% per annum. The conversion options contained in the convertible promissory note were evaluated for derivative accounting under ASC 815, Derivatives and Hedging, and determined not to be considered a derivative and therefore has been recorded in liabilities as part of the convertible promissory note and not bifurcated. In addition, the ASOF convertible promissory note was issued with common stock warrants. The common stock purchase warrants entitle the holder to purchase an aggregate of up to shares of the Company’s common stock at an exercise price of $0.45 per share. The common stock purchase warrants issued to ASOF are considered derivatives, but satisfied the criteria for classification as equity instruments, and were bifurcated from the host contract - convertible promissory note and recorded in equity at their relative fair values with a corresponding debt discount recorded to ASOF Note I. Aggregate amortization of the original issue discount for the six months ended June 30, 2021 and 2020 was approximately $22,000 and $0, respectively. The principal balance outstanding at June 30, 2021 was $87,773.
In May 2021, the Company entered into a convertible promissory note (“ASOP Note II”) with Arena Special Opportunities Partners I, LP. The principal balance of the note is $1,193,135 and it is to be utilized for working capital purposes. The note matures on January 31, 2022 and all principal, accrued and unpaid interest is due at maturity at a rate of 12% per annum. The conversion options contained in the convertible promissory note were evaluated for derivative accounting under ASC 815, Derivatives and Hedging, and determined not to be considered a derivative and therefore has been recorded in liabilities as part of the convertible promissory note and not bifurcated. In addition, the ASOP convertible promissory note was issued with common stock warrants. The common stock purchase warrants entitle the holder to purchase an aggregate of up to shares of the Company’s common stock at an exercise price of $ per share. The common stock purchase warrants issued to ASOP are considered derivatives, but satisfied the criteria for classification as equity instruments, and were bifurcated from the host contract - convertible promissory note and recorded in equity at their relative fair values with a corresponding debt discount recorded to ASOP Note II. Aggregate amortization of the original issue discount for the six months ended June 30, 2021 and 2020 was approximately $90,000 and $0, respectively. The principal balance outstanding at June 30, 2021 was $1,073,250.
In May 2021, the Company entered into a convertible promissory note (“ASOF Note II”) with Arena Special Opportunities Fund, LP. The principal balance of the note is $306,865 and it is to be utilized for working capital purposes. The note matures on January 31, 2022 and all principal, accrued and unpaid interest is due at maturity at a rate of 12% per annum. The conversion options contained in the convertible promissory note were evaluated for derivative accounting under ASC 815, Derivatives and Hedging, and determined not to be considered a derivative and therefore has been recorded in liabilities as part of the convertible promissory note and not bifurcated. In addition, the ASOP convertible promissory note was issued with common stock warrants. The common stock purchase warrants entitle the holder to purchase an aggregate of up to shares of the Company’s common stock at an exercise price of $0.45 per share. The common stock purchase warrants issued to ASOF are considered derivatives, but satisfied the criteria for classification as equity instruments, and were bifurcated from the host contract - convertible promissory note and recorded in equity at their relative fair values with a corresponding debt discount recorded to ASOF Note II. Aggregate amortization of the original issue discount for the six months ended June 30, 2021 and 2020 was approximately $23,000 and $0, respectively. The principal balance outstanding at June 30, 2021 was $276,750.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
PPP Loan
In 2020, the Company received a loan under the U.S. Small Business Administration’s Paycheck Protection Program established under the Coronavirus Aid Relief and Economic Security Act (“CARES act”) and related rules and regulations (the “PPP loan”) of $194,940.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of such loans after eight weeks, if the loan is used for eligible purposes, including to fund payroll costs, mortgage interest, rent and/or utility costs, and meet certain other requirements, including, the maintenance of employment and compensation levels. The Company plans to use the entire PPP Loan for qualifying expenses and expects to qualify for full or partial forgiveness under the program.
In May 2021, the Company received notice of forgiveness of the PPP loan in whole, including all accrued unpaid interest. In fiscal year 2021, the Company recorded the forgiveness of $194,940 of principal and $1,949 of accrued interest for a total of $196,889, which was included in gain on extinguishment of debt on the Consolidated Statements of Operations.
Related Party Loan
In 2020, the Company entered into a loan payable to a director of the Company with a principal balance of $224,000. The loan bore interest at 12% per annum and was due in December 2020. The Company subsequently paid the loan in full in February 2021.
Note 9 – Stockholders’ Equity
Preferred Stock
Each share of Series A Preferred Stock is convertible into shares of CANB common stock and is entitled to 66,666 votes. All Preferred Shares shall rank senior to all shares of Common Stock of the Company with respect to liquidation preferences and shall rank pari passu to all current and future series of preferred stock, unless otherwise stated in the certificate of designation for such preferred stock. In the event of a Liquidation Event, whether voluntary or involuntary, each holder may elect (i) to receive, in preference to the holders of Common Stock, a one-time liquidation preference on a per-share amount equal to the per-share value of preferred shares on the issuance date, as recorded in the Company’s financial records, or (ii) to participate pari passu with the Common Stock on an as-converted basis. Subject to any adjustments, the Series A holders shall be entitled to receive such dividends paid and distributions made to the holders of shares of Common Stock on an as converted basis.
Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The shares of Series B Preferred Stock have no voting rights.
Each share of Series C Preferred Stock has preference to payment of dividends, if and when declared by the Company, compared to shares of our common stock. Each Preferred Series C share is convertible into shares of common stock. The shares of Series C Preferred Stock have voting rights as if fully converted.
Each share of Series D Preferred Stock has 10,000 shares of voting rights only pari passu to common shares voting with no conversion rights and no equity participation. The Company can redeem Series D Preferred Stock at any time for par value.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
On February 8, 2021, the Company’s Board of Directors approved the designation of the Series D Preferred Shares and the number of shares constituting such series, and the rights, powers, preferences, privileges and restrictions relating to such series. On March 27, 2021, the Company filed an amendment to its articles of incorporation to authorize shares of a new Series D Preferred Stock with a par value of $0.001 each. All Series D Preferred Shares shall rank senior to all shares of Common Stock of the Company with respect to liquidation preferences and shall rank pari passu to all current and future series of preferred stock, unless otherwise stated in the certificate of designation for such preferred stock. Each Series D Preferred Share shall have voting rights equal to 10,000 shares of Common Stock, adjustable at any recapitalization of the Company’s stock. In the event of a liquidation event, whether voluntary or involuntary, each holder shall have a liquidation preference on a per-share amount equal to the par value of such holder’s Series D Preferred Shares. The holders shall not be entitled to receive distributions made or dividends paid to the Company’s other stockholders. Except as otherwise required by law, for as long as any Series D Preferred Shares remain outstanding, the Company shall have the option to redeem any outstanding share of Series D Preferred Shares at any time for a purchase price of par value per share of Series D Preferred Shares (“Price per Share”). Should the Company desire to purchase Series D Preferred Shares, the Company shall provide the Holder with written notice and a check or cash in an amount equal to the number of shares of Series D Preferred Shares being purchased multiplied by the Price per Share. The shares of Series D Preferred Shares so purchased shall be deemed automatically cancelled and the Holder shall return the certificates for such share to the Corporation. On or around March 27, 2021, the Company issued Mr. Alfonsi, Mr. Ferro, and Mr. Teeple Series D Preferred Stock in the amount of shares each and to COO Philip Scala in the amount of shares, collectively representing 19,500,000 voting shares.
Common Stock
For the six months ended June 30, 2021, the Company issued an aggregate of 5,732,000 shares of Common Stock under its Offering Statement on Form 1-A (File No. 024-11233) (the “Regulation A Offering”).
| Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||
| Outstanding, January 1, 2021 | 1,197,199 | $ | 0.36 | ||||||||||
| Granted | 561,920 | $ | 0.46 | ||||||||||
| Exercised | - | ||||||||||||
| Forfeited | - | ||||||||||||
| Expired | - | ||||||||||||
| Outstanding, June 30, 2021 | 1,759,119 | $ | 0.39 | ||||||||||
| Option Shares | Weighted Average Grant-Date Fair Value | ||||||||
| Non-vested options, January 1, 2021 | 1,197,199 | $ | 0.35 | ||||||
| Granted | 561,920 | $ | 0.46 | ||||||
| Vested | |||||||||
| Forfeited | |||||||||
| Non-vested options, June 30, 2021 | $ | 1,759,119 | $ | 0.36 | |||||
Note 11 – Income Taxes
The Company’s income tax provisions for the six and three months ended June 30, 2021 and 2020 reflect the Company’s estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur. These estimates are reevaluated each quarter based on the Company’s estimated tax expense for the full year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.
Note 12 – Related Party Transactions
For the six months ended June 30, 2021 and 2020, the Company paid fees to a service provider that is a relative of a director for professional services in the amount of $9,900 and $42,600, respectively.
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Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2021
Note 13 – Commitments and Contingencies
Employment Agreements
On December 28, 2020, the Company entered into new three-year Employment Agreements with CEO Marco Alfonsi, CFO Stanley Teeple, and Pure Health Products LLC Pasquale Ferro. Under these agreements, they are to receive a i) base salary of fifteen thousand dollars ($15,000.00) per month, ii) is eligible to receive cash and or stock bonuses, iii) shall receive a stock bonus in accordance with the Company’s Incentive Stock Option Plan (“ISOP”) in an amount of one-hundred thousand dollars () per year of the Agreement, iv) shares of the Company’s Series C Preferred stock, v) usual and customary benefits including expense reimbursement, health and life insurance plan reimbursements and allowances. Phil Scala. Interim COO also received a similar agreement with a base compensation of fifty-two thousand annually, $100,000 in ISO, and Preferred C shares.
Consulting Agreements
On July 15, 2020, we engaged an advisor to provide consulting services under an Investor Relations and Advisory Agreement (the “Advisory Agreement”). Pursuant to the Advisory Agreement, we agreed to pay the Consulting Firm a restricted common stock monthly fee of $5,000 per month for the initial 3 months., $6,250 per month for months 4-6., $7,500 per month for month 7 and after. At CANB’s option, the monthly fee may be payable in part or in whole in cash. Monthly Fee, such amount shall be paid via issuance of restricted common shares of CANB. The shares are to be issued in the name of Tysadco Partners. The number of common shares earned each month shall be calculated and issued on a quarterly basis prior to each 90-day period and based on the value at the closing price on the last day of the preceding period. All common shares earned by the Consultant pursuant to this Agreement shall be issued by CANB on a quarterly basis.
Lease Agreements
We determine if a contract contains a lease at inception. Our material operating lease is office space. Our leases generally have remaining terms of 1-3 years. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an
underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.
The Company leases office space in numerous medical facilities offices under month-to-month agreements.
Rent expense for the six months ended June 30, 2021 and 2020 was $84,724 and $121,652, respectively.
At June 30, 2021, the future minimum lease payments under non-cancellable operating leases were:
| Six months ended December 31, 2021 | $ | 23,527 | ||
| Fiscal year 2022 | 14,259 | |||
| $ | 37,786 |
Note 14 – Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the condensed consolidated financial statements are issued and as of that date, except as reported below, there were no subsequent events that required adjustment or disclosure in the consolidated financial statements.
On August 12, 2021 the Company entered into an Equipment Acquisition Agreement with TWS Pharma, LLC, a Wisconsin limited liability company and L7 TWS Pharma, LLC, a Wisconsin limited liability company (collectively, “TWS”) pursuant to which the Company agreed to purchase certain equipment and inventory from TWS for a total purchase price equal to $5,316,774, with $1,250,000 payable in a 12-month promissory note with 6% simple interest and monthly payments of $100,000 due per month, and $4,066,774 payable in shares of the Company’s common stock valued at $ per share; provided, however, that the Company will withhold $1,750,000 of the shares for a period of ninety (90) days from the closing date. The first $500,000 of payments of the promissory note will be secured by 1,000,000 shares of CANB’s common stock.
On August 13, 2021 the Company entered into an Asset Purchase Agreement with Music City Botanicals, LLC, a Wisconsin limited liability company (“MCB”) pursuant to which the Company agreed to purchase certain equipment, inventory, and intellectual property from MCB for a total purchase price equal to $1,394,324, with $498,259 payable in cash and $896,065 payable in shares of the Company’s common stock valued at $ per share.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Can B̅ Corp. was originally incorporated as WrapMail, Inc. (“WRAP”) in Florida on October 11, 2005. On May 15, 2017, WRAP changed its name to Canbiola, Inc. On January 16, 2020 Canbiola, Inc. changed its name to Can B̅ Corp. (.
The Company acquired 100% of the membership interests in Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) effective December 28, 2018. The Company runs it manufacturing operations through PHP and holds and sells several of its brands through PHP as well. The Company’s durable equipment products, such as sam® units with and without CBD infused pads, are marketed and sold through its wholly-owned subsidiaries, Duramed Inc. (incorporated on November 29, 2018) and Duramed MI LLC (fka DuramedNJ, LLC) (incorporated on May 29, 2019) (collectively, “Duramed”). Duramed began operating on or about February 1, 2019. Most of the Company’s consumer products include hemp derived cannabidiol (“CBD”); however, the Company has just recently begun extracting cannabinol (“CBN”) and cannabigerol (“CBG”) for wholesale to third-parties looking to incorporate such compounds into their products through its wholly owned subsidiary, Botantical Biotech, LLC (incorporated March 10, 2021). Botanical Biotech has also begun synthesizing delta-8 from hemp. Delta-8 can produce similar, though less potent, effects as delta-9 (commonly referred to as THC); however, the legality of hemp derived delta-8 is in a gray area and considered a potential loophole at this point due to the 2018 hemp bill. The Company’s other subsidiaries did not have operations during the six months ended June 30, 2021.
The Company is in the business of promoting health and wellness through its development, manufacture and sale of products containing cannabinoids derived from hemp biomass and the licensing of durable medical devises. Can B̅’s products include oils, creams, moisturizers, isolate, gel caps, spa products, and concentrates and lifestyle products. Can B̅ develops its own line of proprietary products as well seeks synergistic value through acquisitions in the hemp industry. Can B̅ aims to be the premier provider of the highest quality hemp derived products on the market through sourcing the best raw material and offering a variety of products we believe will improve people’s lives in a variety of areas.
The consolidated financial statements include the accounts of CANB and its operational wholly owned subsidiaries.
Results of Operations
Three months ended June 30, 2021 compared to three months ended June 30, 2020.
Revenues increased $196,682 from $205,084 in 2020 to $401,766 in 2021. The increase was due to the resumption of elective surgeries in 2021 which were temporarily paused through Q2 of 2020 due to the impact of the COVID-19 outbreak. Medical durable equipment utilized in elective surgeries is the Company’s primary medical device revenue. In addition, the increase was related to operations of the Company’s delta-8 synthesizing business which began in March 2021.
Cost of product sales increased $210,567 from $48,045 in 2020 to $258,612 in 2021 due to the increase in sales caused by increase in elective surgeries.
Operating expenses increased $1,452,486 from $1,276,512 in 2020 to $2,728,998 in 2021 as a direct result of professional fees incurred and attributable to the Company’s asset acquisitions and Regulation A offering.
Net loss increased $1,509,064 from $1,230,925 in 2020 to $2,739,989 in 2021. The increase was due to the $1,452,486 increase in total operating expenses coupled by the $13,885 decrease in gross profit.
Six months ended June 30, 2021 compared to six months ended June 30, 2020.
Revenues decreased $66,085 from $774,791 in 2020 to $708,706 in 2021. The decrease was due to the impact of the COVID-19 outbreak through the end of Q1 2021. The Company began to rebound and increase revenues compared to prior periods in Q2 of 2021 due to the resumption and surge of elective surgeries in Q2 2021. In addition, certain distributors lost clients due to business closings which had an additional impact on the Company’s overall revenue activity.
Cost of product sales increased $165,813 from $169,594 in 2020 to $335,407 in 2021 due to increase of inventory pricing in 2021 as well as operations of the Company’s delta-8 synthesizing business which began in March 2021.
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Operating expenses increased $1,915,014 from $2,836,663 in 2020 to $4,751,677 in 2021 as a direct result of professional fees incurred and attributable to the Company’s asset acquisitions and Regulation A offering.
Net loss increased $2,554,839 from $2,365,032 in 2020 to $4,919,871 in 2021. The increase was due to the $1,915,014 increase in total operating expenses coupled by the $658,013 increase in interest expense, contrasted by gain on debt extinguishment of $196,899 due to forgiveness of the Company’s PPP loan.
Liquidity and Capital Resources
At June 30, 2021, the Company had cash and cash equivalents of $1,093,156 and a working capital of $1,040,562. Cash and cash equivalents increased $635,358 from $457,798 at December 31, 2020 to $1,093,156 at June 30, 2021. For the six months ended June 30, 2021, $4,167,002 was provided by financing activities, $3,187,638 was used in operating activities, and $344,006 was used in investing activities.
The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
We have no off-balance sheet arrangements.
Trend Information
The novel coronavirus disease of 2019 (“COVID-19”) outbreak has affected the Company’s operations as set forth above. The full impact of the COVID-19 outbreak continues to evolve. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity for the foreseeable future, however, as a direct result of medical offices closure in our primary area of operations, our sales for third quarter are down approximately 60% year over year and quarter over quarter. During the course of the pandemic situation, the Company laid off 80% of its workforce in the CBD business and are just now recovering those operations. Our inventory increased to over $500,000 due to lack of sales, but fortunately, the product shelf life exceeds two years so as sales increase, we expect inventory levels to level off at close to $200,000. Our Duramed division was tasked with 90% of the affiliate doctors ceasing operations for period from 4-8 months and are just now recovering full operations. Presently, our Duramed operations are at 60% of pre-COVID operational level. Our expectation that as business open, and in particular medical offices, that our recovery will progress in sync with the speed of the business openings and expect to be back to pre-COVID operational level by end of the 3rd quarter 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of March 31, 2021, our principal executive officer and principal financial officer conducted an evaluation regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon the evaluation of these controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
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(B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting in our fiscal quarter for the period March 31, 2021 covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 28, 2021, the Company was served with a commercial legal action against the Company and certain officers by two investors of the Company (collectively, the “Investors”). The complaint was filed in the Supreme Court of the State of New York, County of Nassau, Index No. 605191/2021. The complaint alleges four causes of action including breach of contract and misrepresentations.
We have consulted with attorneys and believe the Investors’ complaints are without merit, factually inaccurate, and frivolous. We intend to vigorously defend ourselves against the aforementioned legal action and will likely bring counterclaims against the Investors.
Other than above, we are not aware of any pending or threatened legal proceedings in which we are involved.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide risk factors in this Form 10-Q, however The Company has been directly impacted and has experienced moderate interruption during this challenging COVID-19 pandemic. In accordance with applicable federal and state guidelines, the Company has implemented and prioritized strict social distancing measures, good manufacturing practices, proper sanitization measures, and new manufacturing guidelines. Although several Company customers have experienced business shutdowns during the last few weeks, this has dramatically impacted our online ordering and/or initiating new direct shipment orders. Additional COVID operating requirements to insure safety, handling requirements, sanitation requirements have placed a significant burden on order processing and fulfilment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sales of unregistered securities during the six months ended June 30, 2021 are as follows:
From January 1, 2021 through June 30, 2021 the Company issued an aggregate of 5,732,000 shares of Common Stock under its Reg A-1 registration currently in effect and an additional 406,114 shares of common stock to various consultants for services.
From January 1, 2021 through June 30, 2021 the Company issued an aggregate of 355,057 shares of Common Stock under an asset acquisition agreement with Botanical Biotech.
From January 1, 2021 through June 30, 2021 the Company issued an aggregate of 1,155,250 shares of Common Stock under various note conversion agreements.
From January 1, 2021 through June 30, 2021 the Company issued an aggregate of 150 shares of Preferred C shares under multiple employment agreements. The Preferred C shares converted to 3,750,000 shares of Common Stock upon issuance.
With respect to the transactions noted above, each of the recipients of securities of the Company was an accredited investor, or is considered by the Company to be a “sophisticated person”, inasmuch as each of them has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of receiving securities of the Company. No solicitation was made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of its securities as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act of 1933.
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
| (1) | Filed with the Annual Report on Form 10-K filed with the SEC on April 2, 2020 and incorporated herein by reference. |
| (2) | Filed with the Form S-1 Registration Statement filed with the SEC on December 2, 2015 and incorporated herein by reference. |
| (3) | Filed with the Current Report on Form 8-K filed with the SEC on January 30, 2019 and incorporated herein by reference. |
| (4) | Filed with the Current Report on Form 8-K filed with the SEC on December 6, 2019 and incorporated herein by reference. |
| (5) | Filed with the Current Report on Form 8-K filed with the SEC on February 18, 2020 and incorporated herein by reference. |
| (6) | Filed with the Current Report on Form 8-K filed with the SEC on January 15, 2019 and incorporated herein by reference. |
| (7) | Filed with the Form 1-A/A, Part II, filed with the SEC on July 17, 2020 and incorporated herein by reference. |
| (8) | Filed with the Form 1-A POS, Part II, filed with the SEC on September 11, 2020 and incorporated herein by reference. |
| (9) | Filed with the Current Report on Form 8-K filed with the SEC on November 23, 2020 and incorporated herein by reference. |
| (10) | Filed with the Annual Report on Form 10-K filed with the SEC on April 14, 2021 and incorporated herein by reference. |
| (11) | Filed with the Quarterly Report on Form 10-Q filed with the SEC on May 21, 2021 and incorporated herein by reference. |
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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.
| Can B Corp. | ||
| Date: August 16, 2021 | By: | /s/ Marco Alfonsi |
| Marco Alfonsi, Chief Executive Officer | ||
| Date: August 16, 2021 | By: | /s/ Stanley L. Teeple |
| Stanley L. Teeple, Chief Financial Officer | ||
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