Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Jul. 19, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | CV Sciences, Inc. | |
Entity Central Index Key | 1,510,964 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 1,041,038,422 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,018 | |
EntityWellKnownSeasonedIssuer | No | |
EntityVoluntaryFilers | No | |
Entity Small Business | true |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash (Note 2) | $ 6,452,597 | $ 2,012,965 |
Restricted cash (Note 2) | 778,579 | 778,579 |
Accounts receivable, net (Note 2) | 2,586,868 | 1,507,824 |
Inventory (Note 3) | 3,658,104 | 2,822,585 |
Prepaid expenses and other current assets | 782,015 | 813,218 |
Total current assets | 14,258,163 | 7,935,171 |
Inventory, net (Note 3) | 3,631,346 | 5,667,101 |
Other assets | 400,000 | 400,000 |
Property & equipment, net (Note 2) | 2,133,753 | 2,083,433 |
Intangibles, net (Note 5) | 3,818,500 | 3,836,200 |
Goodwill (Note 5) | 2,788,300 | 2,788,300 |
Total assets | 27,030,062 | 22,710,205 |
Current Liabilities: | ||
Accounts payable | 638,139 | 678,271 |
Accrued expenses (Note 4) | 1,509,148 | 1,931,920 |
Secured convertible promissory notes payable, net (Note 7) | 0 | 609,926 |
Unsecured note payable (Note 7) | 866,818 | 116,370 |
Total current liabilities | 3,014,105 | 3,336,487 |
Non-current liabilities | ||
Unsecured note payable, net (Note 7) | 0 | 850,000 |
Deferred rent | 1,189,175 | 1,067,459 |
Deferred tax liability | 1,074,800 | 1,074,800 |
Total liabilities | 5,278,080 | 6,328,746 |
Stockholders' equity (Notes 8 and 9) | ||
Preferred stock, par value $0.0001; 10,000,000 shares authorized; no shares issued and outstanding | 0 | 0 |
Common stock, par value $0.0001; 190,000,000 shares authorized; 90,945,896 and 90,512,563 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively | 9,094 | 9,051 |
Additional paid-in capital | 52,965,572 | 51,400,336 |
Accumulated deficit | (31,222,684) | (35,027,928) |
Total stockholders' equity | 21,751,982 | 16,381,459 |
Total liabilities and stockholders' equity | $ 27,030,062 | $ 22,710,205 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock - par value | $ 0.0001 | $ 0.0001 |
Common stock - shares authorized | 190,000,000 | 190,000,000 |
Common stock - shares issued | 90,945,896 | 90,512,563 |
Common stock - shares outstanding | 90,945,896 | 90,512,563 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income Statement [Abstract] | ||||
Product sales, net | $ 12,348,695 | $ 4,081,832 | $ 20,419,460 | $ 7,846,023 |
Cost of goods sold | 3,288,619 | 1,237,374 | 5,797,481 | 2,568,561 |
Gross Profit | 9,060,076 | 2,844,458 | 14,621,979 | 5,277,462 |
Operating Expenses: | ||||
Selling, general and administrative | (5,320,604) | (3,525,773) | (10,061,197) | (7,202,482) |
Research and development | (442,004) | (205,647) | (595,708) | (394,363) |
Total operating expenses | (5,762,608) | (3,731,420) | (10,656,905) | (7,596,845) |
Gain on change in derivative liabilities | 0 | 27,288 | 0 | 237,888 |
Royalty buy-out | 0 | 0 | 0 | (2,432,000) |
Total operating expenses | (5,762,608) | (3,704,132) | (10,656,905) | (9,790,957) |
Operating Income (Loss) | 3,297,468 | (859,674) | 3,965,074 | (4,513,495) |
Other (expense) income: | ||||
Interest income | 0 | 7 | 0 | 7 |
Interest expense | (71,558) | (132,521) | (119,830) | (263,475) |
Total Other Expense | (71,558) | (132,514) | (119,830) | (263,468) |
Income (loss) before provision for income taxes | 3,225,910 | (992,188) | 3,845,244 | (4,776,963) |
Provision for income taxes | 40,000 | 0 | 40,000 | 0 |
Net Income (Loss) | $ 3,185,910 | $ (992,188) | $ 3,805,244 | $ (4,776,963) |
Weighted average common shares outstanding - Basic | 90,712,929 | 82,859,090 | 90,613,300 | 71,541,743 |
Weighted average common shares outstanding - Diluted | 112,466,463 | 82,859,090 | 106,291,469 | 71,541,743 |
Net income (loss) per common share - Basic | $ 0.04 | $ (0.01) | $ 0.04 | $ (0.07) |
Net income (loss) per common share - Diluted | $ 0.03 | $ (0.01) | $ 0.04 | $ (0.07) |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - 6 months ended Jun. 30, 2018 - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning balance, shares at Dec. 31, 2017 | 90,512,563 | |||
Beginning balance, value at Dec. 31, 2017 | $ 9,051 | $ 51,400,336 | $ (35,027,928) | $ 16,381,459 |
Issuance of stock for professional services, shares | 150,000 | |||
Issuance of stock for professional services, value | $ 15 | 61,560 | 0 | 61,575 |
Exercise of stock options, shares | 283,333 | |||
Exercise of stock options, value | $ 28 | 107,374 | 0 | 107,402 |
Stock-based compensation | 0 | 1,396,302 | 0 | 1,396,302 |
Net income | $ 0 | 0 | 3,805,244 | 3,805,244 |
Ending balance, shares at Jun. 30, 2018 | 90,945,896 | |||
Ending balance, value at Jun. 30, 2018 | $ 9,094 | $ 52,965,572 | $ (31,222,684) | $ 21,751,982 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
OPERATING ACTIVITIES | ||
Net income (loss) | $ 3,805,244 | $ (4,776,963) |
Adjustments to reconcile net income (loss) to net cash flow used in operating activities: | ||
Depreciation and amortization | 244,910 | 104,547 |
Amortization of debt issuance costs and accrued interest | 50,074 | 119,892 |
Amortization of beneficial conversion feature of convertible debts | 0 | 15,088 |
Common stock issued for professional services | 61,575 | 0 |
Stock-based compensation | 1,396,302 | 1,744,128 |
Royalty buy-out | 0 | 2,432,000 |
Bad debt expense | 2,216 | 400,435 |
Accrued interest payable | 0 | 75,666 |
Gain on change in derivative liability | 0 | (237,888) |
Change in operating assets and liabilities: | ||
Accounts receivable | (1,081,260) | (298,319) |
Notes receivable | 17,500 | 0 |
Inventory | 1,200,236 | 872,582 |
Prepaid expenses and other current assets | 13,703 | (691,981) |
Accounts payable and accrued expenses | (462,904) | 445,092 |
Deferred rent | 121,716 | 0 |
Net cash provided by operating activities | 5,369,312 | 204,279 |
INVESTING ACTIVITIES | ||
Purchase of equipment | (190,600) | (6,410) |
Tenant improvements to leasehold real estate | 86,930 | 0 |
Net cash flows used in Investing activities | (277,530) | (6,410) |
FINANCING ACTIVITIES | ||
Borrowing from convertible debt, net of costs | 0 | 750,000 |
Repayment of convertible debt in cash | (660,000) | 0 |
Repayment of unsecured notes payable | (99,552) | (107,767) |
Proceeds from exercise of stock options | 107,402 | 0 |
Net cash flows provided by (used in) financing activities | (652,150) | 642,233 |
Net increase in cash and restricted cash | 4,439,632 | 840,102 |
Cash and restricted cash, beginning of period | 2,791,544 | 1,057,468 |
Cash and restricted cash, end of period | 7,231,176 | 1,897,570 |
Supplemental disclosure of non-cash transactions: | ||
Conversion of convertible promissory notes and accrued interest to common stock | 0 | 1,325,000 |
Value of embedded derivative at inception | 0 | 29,300 |
Issuance of common stock in consideration for royalty buyout | 0 | 15,000,000 |
Issuance of common stock to settle restricted stock units | 0 | 1,000,000 |
Issuance of common stock for prepaid expenses and other current assets | 0 | 202,000 |
Stock redemptions | 0 | 75,000 |
Supplemental cash flow disclosures: | ||
Interest paid | 119,830 | 52,828 |
Taxes paid | $ 17,699 | $ 35,033 |
1. ORGANIZATION AND BUSINESS
1. ORGANIZATION AND BUSINESS | 6 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND BUSINESS | 1. ORGANIZATION AND BUSINESS CV Sciences, Inc. (the “Company,” “we,” “our” or “us”) was incorporated under the name Foreclosure Solutions, Inc. in the State of Texas on December 9, 2010. On July 25, 2013, the Company’s predecessor, 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.” The Company previously operated under the corporate name of CannaVest Corp. The change in corporate name was undertaken in connection with the acquisition of CanX Inc., a Florida-based, specialty pharmaceutical corporation (the “CanX Acquisition”) as more fully set forth in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 4, 2016. On June 8, 2016, the Company announced that the Financial Industry Regulatory Authority (“FINRA”) had approved a change in the trading symbol for the Company’s common stock to “CVSI.” The Company’s common stock formerly traded under the symbol “CANV.” The Company operates two distinct business segments: a consumer product segment in manufacturing, marketing and selling plant-based Cannabidiol (“CBD”) products to a range of market sectors; and, a specialty pharmaceutical segment focused on developing and commercializing novel therapeutics utilizing synthetic CBD. The specialty pharmaceutical segment began development activities during the second quarter of 2016. |
2. SUMMARY OF SIGNIFICANT ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods and ensure that the financial statements are not misleading. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2017, filed with the SEC on the Company’s Annual Report on Form 10-K filed on March 29, 2018. The results for the interim periods ended June 30, 2018, are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. Liquidity Derivative Financial Instruments Goodwill and Intangible Assets – Intangibles Goodwill and Other We make critical assumptions and estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions, market competition, inflation and discount rates. We classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their useful lives to their estimated residual values, generally five years. In process research and development (“IPR&D”) has an indefinite life and is not amortized until completion and development of the project, at which time the IPR&D becomes an amortizable asset. If the related project is not completed in a timely manner or the project is terminated or abandoned, the Company may have an impairment related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. This method of amortization approximates the expected future cash flow generated from their use. During the three and six months ended June 30, 2018 and 2017, there were no impairments. Use of Estimates Reportable Segments Cash and Cash Equivalents Restricted Cash June 30, 2018 December 31, 2017 Cash $ 6,452,597 $ 2,012,965 Restricted cash 778,579 778,579 Total cash and restricted cash shown in the statement of cash flows $ 7,231,176 $ 2,791,544 Concentrations of Credit Risk There was no concentration of accounts receivable, revenue and purchases as of, and for the period and year ended June 30, 2018 and December 31, 2017. Accounts Receivable Management has determined the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history, and current economic conditions. As of June 30, 2018 and December 31, 2017, the Company maintained an allowance for doubtful accounts related to accounts receivable in the amount of $200,000. Revenue Recognition Sales Tax Shipping and Handling Returns Finished Products Bulk Oil Products There was no allowance for customer returns as of June 30, 2018 or December 31, 2017 due to insignificant return amounts experienced during the six months ended June 30, 2018 and the year ended December 31, 2017. Compensation and Benefits Stock-Based Compensation The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors, consultants and former directors as compensation and benefits expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. For performance-based stock options, compensation is recognized once the applicable performance condition is satisfied. The Company recognizes stock-based compensation for equity awards granted to consultants as selling, general and administrative expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant and unvested awards are revalued at each reporting period. The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. Forfeited stock options are accounted for as they occur. Inventory Property & Equipment Property and equipment, net, as of June 30, 2018 and December 31, 2017 were as follows: Useful Lives June 30, 2018 December 31, 2017 Office furniture and equipment 3 years $ 708,678 $ 537,607 Laboratory and other equipment 5 years 418,526 398,997 Tenant improvements 14 to 39 months 1,632,815 1,545,885 2,760,019 2,482,489 Less: accumulated depreciation (626,266 ) (399,056 ) $ 2,133,753 $ 2,083,433 Depreciation expense for the three months ended June 30, 2018 and 2017 was $117,014 and $39,322, respectively, and for the six months ended June 30, 2018 and 2017 was $227,210 and $86,847, respectively. Fair Value of Financial Instruments Financial Instruments Long-Lived Assets Accounting for the Impairment or Disposal of Long-Lived Assets Debt Issuance Costs – Earnings (net loss) per Share Research and Development Expense Advertising The Company believes the continual investment in advertising is critical to the development and sale of its PlusCBD™ products. Income Taxes – Income Taxes Recently Issued and Newly Adopted Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) Revenue from Contracts with Customers (Topic 606) Revenue from Contracts with Customers (Topic 606), Revenue from Contracts with Customers (Topic 606), Revenue from Contracts with Customers (Topic 606) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU 2016-02, Leases In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the FASB Emerging Issues Task Force) In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to have, a material impact on the Company’s present or future financial statements. |
3. INVENTORY
3. INVENTORY | 6 Months Ended |
Jun. 30, 2018 | |
Inventory Disclosure [Abstract] | |
INVENTORY | 3. INVENTORY Inventory as of June 30, 2018 and December 31, 2017 was comprised of the following: June 30, 2018 December 31, 2017 Raw materials $ 5,033,276 $ 6,648,144 Finished goods 2,256,174 1,841,542 $ 7,289,450 $ 8,489,686 |
4. ACCRUED EXPENSES
4. ACCRUED EXPENSES | 6 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
ACCRUED EXPENSES | 4. ACCRUED EXPENSES Accrued expenses as of June 30, 2018 and December 31, 2017 were as follows: June 30, 2018 December 31, 2017 Accrued payroll expenses $ 402,278 $ 1,037,122 Other accrued liabilities 1,106,870 894,798 $ 1,509,148 $ 1,931,920 |
5. INTANGIBLE ASSETS, NET
5. INTANGIBLE ASSETS, NET | 6 Months Ended |
Jun. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS, NET | 5. INTANGIBLE ASSETS, NET Intangible assets consisted of the following at June 30, 2018 and December 31, 2017: Original Fair Market Value Accumulated Amortization Net Useful Life (Years) Balance - June 30, 2018: In-process research and development $ 3,730,000 $ – $ 3,730,000 – Trade names 100,000 50,000 50,000 5 Non-compete agreements 77,000 38,500 38,500 5 $ 3,907,000 $ 88,500 $ 3,818,500 Balance - December 31, 2017: In-process research and development $ 3,730,000 $ – $ 3,730,000 - Trade names 100,000 40,000 60,000 5 Non-compete agreements 77,000 30,800 46,200 5 $ 3,907,000 $ 70,800 $ 3,836,200 Amortization expense for the three months ended June 30, 2018 and 2017 totaled $8,850 and $8,850, respectively and for the six months ended June 30, 2018 and 2017 totaled $17,700 and $17,700, respectively. |
6. RELATED PARTIES
6. RELATED PARTIES | 6 Months Ended |
Jun. 30, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTIES | 6. RELATED PARTIES During the six months ended June 30, 2018 and 2017, the Company paid a Company stockholder who is a supplier of raw material inventory to the Company $0 and $9,060, respectively. During the three months ended June 30, 2018 and 2017, the Company paid $5,250 and $5,250, respectively, to a company partially owned by a Company director that provides quality control and quality assurance consulting to the Company. During the six months ended June 30, 2018 and 2017, the Company paid the same company $10,500 and $10,500, respectively. |
7. NOTES PAYABLE
7. NOTES PAYABLE | 6 Months Ended |
Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE | 7. NOTES PAYABLE Iliad Secured Convertible Promissory Notes Payable On May 25, 2016 (the “Purchase Price Date”), the Company entered into a Securities Purchase Agreement (“Iliad SPA”) with Iliad Research and Trading, L.P. (the “Lender” or “Iliad”) pursuant to which the Lender loaned the Company $2,000,000. On the Purchase Price Date, the Company issued to Lender a Secured Convertible Promissory Note (the “Iliad Note”) in the principal amount of $2,055,000 in exchange for payment by Lender of $2,000,000. The principal sum of the Iliad Note reflected the amount invested, plus a 2.25% “Original Issue Discount” (“OID”) and a $10,000 reimbursement of Lender’s legal fees. Out of the proceeds from the Iliad Note, the Company paid the sum of $25,000 to its placement agent, Myers & Associates, L.P., which is a registered broker-dealer. The Company received net proceeds of $1,975,000 in exchange for the Iliad Note. The Iliad Note required the repayment of all principal and any interest, fees, charges and late fees on the date that was thirteen months after the Purchase Price Date (the “Maturity Date”). Interest was to be paid on the outstanding balance at a rate of ten percent (10%) per annum from the Purchase Price Date until the Iliad Note was paid in full. Interest was accrued during the term of the Iliad Note and all interest calculations were computed on the basis of a 360-day year comprised of twelve (12) thirty (30)-day months and compounded daily. Subject to adjustment as set forth in the Iliad Note, the conversion price for each Lender conversion was $0.50 (the “Lender Conversion Price”), convertible into shares of fully paid and non-assessable common stock. Beginning on the date that was six months after the Purchase Price Date and continuing until the Maturity Date, Iliad had the right to redeem a portion of the Iliad Note in any amount up to the Maximum Monthly Redemption Amount ($275,000, which was the maximum aggregate redemption amount that could be redeemed in any calendar month), for which payments could be made in cash or by converting the redemption amount into shares of Company common stock at a conversion price which was the lesser of (a) the Lender Conversion Price of $0.50 and (b) the Market Price, defined as 70% (“the Conversion Factor”), subject to adjustment as follows: if at any time (1) the average of the three lowest closing bid prices in the previous twenty (20) trading days was below $0.25 per share then the Conversion Factor would have been reduced by 10%, (2) the Company was not Deposit/Withdrawal At Custodian eligible, then the Conversion Factor would have been reduced by an additional 5%, or (3) there occurred a “Major Default” then the Conversion Factor would have been reduced by an additional 5%. The Company was permitted to prepay the Iliad Note at any time by payment to Lender of 125% of the principal, interest and other amounts then due under the Note. The Company was permitted to prepay the Iliad Note notwithstanding an earlier notice of conversion from the Lender, provided that in such event the Lender could convert an amount not to exceed $300,000 under the Iliad Note. In connection with the Iliad Note, as set forth above, the Company incurred an original issue discount of $45,000 and $35,000 of other debt issuance costs, which were amortized over the Iliad Note term. The Iliad Note was securitized by the Company’s accounts receivable, inventory and equipment. In November 2016, the Company entered into an Amendment to the Iliad Note (the “Iliad Amendment”), whereby the Lender and the Company agreed that the Maximum Monthly Redemption Amount for the period from November 2016 to January 2017 (the “Reduction Period”) be reduced from $275,000 to $166,667 (the “Reduced Maximum Monthly Redemption Amount”). In addition, if the Lender failed to convert the full Reduced Maximum Monthly Redemption Amount during any month in the Reduction Period, then any such unconverted amount would increase the Reduced Maximum Monthly Redemption Amount in the following month or months. Furthermore, the Company was not allowed to pay any of the Reduced Maximum Monthly Redemption Amounts in cash. As such, all amounts converted would be converted into Redemption Conversion Shares of the Company’s common stock. Also, as part of the Iliad Amendment, the Lender agreed that, with respect to any Redemption Conversion Shares received during the Reduction Period, in any given calendar week its Net Sales of such Redemption Conversion Shares would not exceed the greater of (a) 10% of the Company’s weekly dollar trading volume in such week or (b) $50,000 (the “Volume Limitation”). However, if the Lender’s Net Sales were less than the Volume Limitation for any given week, then in the following week or weeks, the Lender would be allowed to sell an additional amount of Redemption Conversion Shares equal to the difference between the amount the Lender was allowed to sell and the amount the Lender actually sold. For the purpose of the Iliad Amendment, Net Sales was defined as the gross proceeds from sales of the Redemption Conversion Shares sold in a calendar week during the Reduction Period minus any trading commissions or costs associated with clearing and selling such Redemption Conversion Shares minus the purchase price paid for any shares of the Company’s common stock purchased in the open market during such week. The Lender and the Company both agreed that in the event the Lender breached the Volume Limitation where its Net Sales of Redemption Conversion Shares during any week during the Reduction Period exceeded the dollar volume the Lender was permitted to sell during such week pursuant to the Volume Limitation (the “Excess Sales”), then the Company’s sole and exclusive remedy for such breach was the reduction of the outstanding balance of the Iliad Note by an amount equal to 200% of the Excess Sales upon delivery of written notice to the Lender setting forth its basis for such reduction. In January 2017, the Company entered into Amendment #2 to the Iliad Note (the “Iliad Amendment 2”). In accordance with the Iliad Amendment 2, during the period between January 27, 2017 and February 24, 2017, the Company agreed to allow the Lender to convert up to $500,000 (the “Additional Redemption Amount”) in Redemption Conversions under the Note, provided that the Lender not effectuate a Redemption Conversion of any Maximum Monthly Redemption Amount between January 27, 2017 and March 1, 2017. During this time period, the Company was not allowed to pay any of the Additional Redemption Amount in cash and all such amounts had to be converted into Redemption Conversion Shares of the Company’s common stock. In addition, the Lender agreed that the sale of any Redemption Conversion Shares between January 27, 2017 and April 30, 2017 (the “Limitation Period”) was subject to the Volume Limitation. Immediately following the expiration of the Limitation Period, the Volume Limitation was cancelled. In March 2017, the Company entered into Amendment #3 to the Iliad Note (the “Iliad Amendment 3”). In accordance with the Iliad Amendment 3, during the period from March 1, 2017 to March 31, 2017, the Company agreed to allow the Lender to convert up to $500,000 (the “Additional Redemption Amount 2”) in Redemption Conversions under the Note, provided that the Lender not effectuate a Redemption Conversion of any Maximum Monthly Redemption Amount from March 1, 2017 until April 1, 2017. During this time period, the Company was not allowed to pay any of the Additional Redemption Amount 2 in cash and all such amounts had to be converted into Redemption Conversion Shares of the Company’s common stock. In addition, the Lender agreed that the sale of any Redemption Conversion Shares between March 1, 2017 and May 31, 2017 (the “Limitation Period 2”) was subject to the Volume Limitation. Immediately following the expiration of the Limitation Period 2, the Volume Limitation was cancelled. In August 2017, the Company entered into Amendment #4 to the Iliad Note (the “Iliad Amendment 4”), whereby the Lender and the Company agreed to extend the Maturity Date of the Iliad Note to April 1, 2018. In addition, the parties agreed to amend the Volume Limitation in the Iliad Note, with respect to any Conversion Shares, such that in any given calendar week the Lender’s Net Sales of such Conversion Shares would not exceed the greater of (a) 15% of the Company’s weekly dollar trading volume in such week or (b) $50,000 (the “New Volume Limitation”). However, if the Lender’s Net Sales were less than the New Volume Limitation for any given week, then in the following week or weeks, the Lender would be allowed to sell an additional amount of Conversion Shares equal to the difference between the amount the Lender was allowed to sell and the amount the Lender actually sold. For the purpose of the Iliad Amendment 4, Net Sales was defined as the gross proceeds from sales of the Conversion Shares sold in a calendar week minus any trading commissions or costs associated with clearing and selling such Conversion Shares minus the purchase price paid for any shares of the Company’s common stock purchased in the open market during such week. The Lender and the Company both agreed that in the event the Lender breached the Volume Limitation where its Net Sales of Conversion Shares during any week exceeded the dollar volume the Lender was permitted to sell during such week pursuant to the Volume Limitation (the “Excess Sales”), then the Company’s sole and exclusive remedy for such breach was the reduction of the outstanding balance of the Iliad Note by an amount equal to 200% of the Excess Sales upon delivery of written notice to the Lender setting forth its basis for such reduction. In connection with the Iliad Amendment 4, Lender confirmed that no Events of Default or other material breaches existed under the Iliad Note and related Transaction Documents (as defined in the Iliad SPA). During the six months ended June 30, 2017, the Company issued 5,793,791 shares of its common stock to Iliad in connection with the conversions of the Iliad Note in the aggregate principal amount of $1,344,359 and $55,641 of accrued interest. The total of $1,400,000 was allocated to common stock and additional paid-in capital. The Company’s borrowings and conversions under the Iliad SPA for the six months ended June 30, 2018 and for the year ended December 31, 2017 are summarized in the table below: Maturity June 30, 2018 December 31, 2017 Interest Rate Secured promissory note payable April 1, 2018 $ – $ 1,897,976 10% Interest accrued – 137,334 Unamortized original issue discount and debt issuance costs – 35,335 Conversion of convertible promissory notes and accrued interest to common stock – (1,805,000 ) Conversion of convertible promissory notes and accrued interest to accrued liabilities – 75,000 Cash repayment of promissory notes and accrued interest – (340,645 ) Net carrying amount of debt – – Less current portion – – Long-term borrowings - net of current portion $ – $ – On the Purchase Price Date, the Company recorded a beneficial conversion feature of $370,000 (the “Iliad Instrument”), which was originally recorded in additional paid-in capital (“APIC”) and was scheduled for amortization over six months. The Company determined in 2016 that the Iliad Instrument qualified for derivative accounting treatment. The $370,000 fair value of the Iliad Instrument at the Purchase Price Date is unchanged as a result of the change in derivative accounting treatment, however, in 2016 we reclassified the Iliad Instrument from APIC to a liability in accordance with derivative accounting treatment. During the three and six months ended June 30, 2017, the Company recorded a gain of $16,300 and $222,800, respectively, for the change in fair value of the Iliad Instrument as part of a separate line item in the Company’s Condensed Consolidated Statement of Operations. The assumptions used by the Company for calculating the fair value of the Iliad Instrument at the Purchase Price Date using the Binomial Lattice valuation model were: (i) Volatility of 74.0%; (ii) Risk-Free Interest Rate of 0.44%; and (iii) Expected Term of five months; and at June 30, 2017 were (i) Volatility of 61%, (ii) Risk-Free Interest Rate of 0.74%; and (iii) Expected Term of zero months. In March 2017, the Company entered into another Securities Purchase Agreement (“Iliad SPA 2”) with Iliad pursuant to which the Lender loaned the Company $750,000. On March 1, 2017 (the “Subsequent Purchase Price Date”), the Company issued to Lender a Secured Convertible Promissory Note (the “Iliad Note 2”) in the principal amount of $770,000 in exchange for payment by Lender of $750,000. The principal sum of the Iliad Note 2 reflected the amount invested, plus a $15,000 OID and a $5,000 reimbursement of Lender’s legal fees. The Company received net proceeds of $750,000 in exchange for the Iliad Note 2. The Iliad Note 2 required the repayment of all principal and any interest, fees, charges and late fees on the date that was fourteen months after the Subsequent Purchase Price Date (the “Maturity Date”). Interest was to be paid on the outstanding balance at a rate of eight percent (8%) per annum from the Subsequent Purchase Price Date until the Iliad Note 2 was paid in full. Interest accrued during the term of the Iliad Note 2 and all interest calculations were computed on the basis of a 360-day year comprised of twelve (12) thirty (30)-day months and compounded daily. Subject to adjustment as set forth in the Iliad Note 2, the conversion price for each Lender conversion was the Lender Conversion Price, convertible into shares of fully paid and non-assessable common stock. Beginning on the date that was six months after the Subsequent Purchase Price Date and continuing until the Maturity Date, Iliad had the right to redeem a portion of the Iliad Note 2 in an amount not to exceed $100,000. Provided the Company had not suffered an “Event of Default” and was in compliance with certain “Equity Conditions” (unless waived by Iliad, in either case), the Company was permitted to make payments on such redemptions in cash or by converting the redemption amount into shares of Company common stock at a conversion price which was the lesser of (a) $0.50 per share and (b) 70% (“the Conversion Factor”) of the average of the three (3) lowest closing bid prices in the previous 20 trading days, subject to adjustment as follows: if at any time (1) the average of the three lowest closing bid prices in the previous twenty (20) trading days was below $0.25 per share then the Conversion Factor would have been reduced by 10%, (2) the Company was not Deposit/Withdrawal At Custodian eligible, then the Conversion Factor would have been reduced by 5%, (3) the Company was not DTC eligible, then the Conversion Factor would have been reduced by an additional 5% or (4) there occurred a “Major Default” then the Conversion Factor would have been reduced by an additional 5% for each of the first three Major Defaults that occurred after the effective date. The Company was permitted to prepay the Iliad Note 2 at any time by payment to Lender of 125% of the principal, interest and other amounts then due under the Note. The Company was permitted to prepay the Iliad Note notwithstanding an earlier notice of conversion from the Lender, provided that in such event the Lender could have converted an amount not to exceed $200,000 under the Iliad Note 2. In connection with the Iliad Note 2, as set forth above, the Company incurred an original issue discount of $15,000 and $5,000 of other debt issuance costs, which was amortized over the Iliad Note 2 term. The Iliad Note 2 was securitized by the Company’s accounts receivable, inventory and equipment. The Company’s borrowings under the Iliad SPA 2 for the six months ended June 30, 2018 and for the year ended December 31, 2017 is summarized in the table below: Maturity June 30, 2018 December 31, 2017 Interest Rate Secured promissory note payable April 30, 2018 $ 609,926 $ 770,000 8% Interest accrued $ 44,360 51,890 Unamortized original issue discount and debt issuance costs, net $ 5,714 (5,714 ) Conversion of convertible promissory notes and accrued interest to accrued liabilities – (75,000 ) Cash repayment of promissory notes and accrued interest $ (660,000 ) (131,250 ) Net carrying amount of debt – 609,926 Less current portion – (609,926 ) Long-term borrowings - net of current portion $ – $ – On the Subsequent Purchase Price Date, the Company recorded a derivative liability of $29,300 which was scheduled for amortization over 8 months. During the three and six months ended June 30, 2017, the Company recorded a gain of $10,988 and $15,088, respectively, for the change in fair value of the derivative liability as part of a separate line item in the Company’s Condensed Consolidated Statement of Operations. The assumptions used by the Company for calculating the fair value of the derivative liability at the Subsequent Purchase Price Date and at June 30, 2017 using the Binomial Lattice valuation model were: (i) Volatility of 85.0%; (ii) Risk-Free Interest Rate of 0.84%; and (iii) Expected Term of 8 months; and at June 30, 2017 were (i) Volatility of 84.0%, (ii) Risk-Free Interest Rate of 0.93%; and (iii) Expected Term of 4 months. On April 24, 2018, the Company repaid all amounts outstanding under the Iliad Note 2. Current Unsecured Note Payable In November 2017, the Company entered into a new loan agreement with First Insurance Funding to fund a portion of the Company’s insurance policies. The amount financed was $149,044 and bears interest at a rate of 4.65%. The Company is required to make nine monthly payments of $16,883 to satisfy this current unsecured note payable. As of June 30, 2018 and December 31, 2017, the outstanding balance was $16,818 and $116,370, respectively. Unsecured Note Payable On January 29, 2016, the Company issued an unsecured promissory note to Wiltshire, LLC (“Wiltshire”) in the principal amount of $850,000 (the “Promissory Note”) in consideration of a loan provided to the Company by Wiltshire. The Promissory Note accrued interest at 12% per annum, and the Company was obligated to make monthly interest-only payments in the amount of $8,500, for which the interest-only payments obligation commenced on March 1, 2016. All principal and accrued and unpaid interest was due under the Promissory Note on February 1, 2018. The Company had the right to prepay the Promissory Note without penalty or premium. In connection with the Promissory Note, the Company incurred an original issue discount of $30,000 and $18,570 of other debt issuance costs, which will be amortized over the Promissory Note term. On November 9, 2017, the Company extinguished and replaced the Promissory Note with a new note to Wiltshire in the principal amount of $850,000 (the “Wiltshire Note 2”) in consideration of a new loan to the Company by Wiltshire. The Wiltshire Note 2 bears interest at 16% per annum, the Company is obligated to make monthly interest-only payments of $11,333, for which the interest-only payments obligation commenced on November 9, 2017. All principal and accrued interest is due under the Wiltshire Note 2 on May 9, 2019. In connection with the Wiltshire Note 2, the Company incurred legal expenses of $12,500. The Company’s borrowing under the Promissory Note for the six months ended June 30, 2018 and for the year ended December 31, 2017 is summarized in the table below: June 30, 2018 December 31, 2017 Unsecured promissory note payable $ 850,000 $ 850,000 Debt extinguishment (Promissory Note) – (850,000 ) Unsecured promissory note – principal amount (Wiltshire 2) – 850,000 Net carrying amount of debt 850,000 850,000 Less current portion 850,000 – Long-term borrowings - net of current portion $ – $ 850,000 Pursuant to the terms of the Promissory Note, the Company issued to Wiltshire a warrant with the right to purchase up to 2,000,000 shares of the Company’s common stock (the “Warrant”). The Warrant is exercisable, subject to certain limitations, subsequent to July 1, 2017 and before the date that is five years from the date of issuance at an exercise price of $0.20 per share, subject to adjustment upon the occurrence of certain events such as stock splits and dividends. The Company recorded the fair value of the Warrant of $266,800 as a debt discount associated with the Promissory Note. During the three months ended each of June 30, 2018 and 2017, the Company recorded interest expense of $34,000 and $33,350, respectively, for the amortization of the Warrant fair value. During the six months ended each of June 30, 2018 and 2017, the Company recorded interest expense of $68,000 and $66,700, respectively. The assumptions used by the Company for calculating the fair value of the Warrant at inception using the Black-Scholes valuation model were: (i) Volatility of 83.3%; (ii) Risk-Free Interest Rate of 2.12%; and (iii) Expected Term of five years. Pursuant to the terms of the Wiltshire Note 2, the Company issued to Wiltshire a warrant with the right to purchase up to 750,000 shares of the Company’s common stock (the “Warrant 2”). The Warrant 2 is exercisable at any time subsequent to the date of issuance on November 9, 2017, and before the date that is five years from the date of issuance at an exercise price of $0.248 per share, subject to adjustment upon the occurrence of certain events such as stock splits and dividends. The Company used extinguishment accounting to record the repayment of the Promissory Note and issuance of the Wiltshire Note 2. As a result, the fair value of the Warrant 2 of $136,650 was included in the loss on extinguishment of debt amount totaling $188,822 that was included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2017. The assumptions used by the Company for calculating the fair value of the Warrant 2 at inception using the Black-Scholes valuation model were: (i) Volatility of 95.9%; (ii) Risk-Free Interest Rate of 2.59%; and (iii) Expected Term of five years. |
8. STOCKHOLDERS' EQUITY
8. STOCKHOLDERS' EQUITY | 6 Months Ended |
Jun. 30, 2018 | |
Stockholders' equity (Notes 8 and 9) | |
STOCKHOLDERS' EQUITY | 8. STOCKHOLDERS’ EQUITY Common Stock The Company is authorized to issue up to 190,000,000 shares of common stock (par value $0.0001). As of June 30, 2018 and December 31, 2017, the Company had 90,945,896 and 90,512,563 shares of common stock issued and outstanding. Preferred Stock The Company is authorized to issue up to 10,000,000 shares of $0.0001 par value preferred stock with designations, rights and preferences to be determined from time to time by the Board of Directors of the Company. Each such series or class shall have voting powers, if any, and such preferences and/or other special rights, with such qualifications, limitations or restrictions of such preferences and/or rights as shall be stated in the resolution or resolutions providing for the issuance of such series or class of shares of preferred stock. As of June 30, 2018 and December 31, 2017, there was no preferred stock issued and outstanding. Options/Warrants/RSU’s On July 23, 2014, Company stockholders approved the CV Sciences, Inc. Amended and Restated 2013 Equity Incentive Plan (the “Amended 2013 Plan”), which provides for the granting of stock options, restricted stock awards, restricted stock units (RSU’s), stock bonus awards and performance-based awards. On each of December 21, 2015, October 24, 2016 and July 14, 2017, the Company’s stockholders approved an amendment to the Amended 2013 Plan to increase the number of shares that may be issued under the Amended 2013 Plan. There are currently 25,000,000 shares of common stock authorized for issuance under the Amended 2013 Plan. This plan serves as the successor to the 2013 Equity Incentive Plan. There were no option awards under the 2013 Equity Incentive Plan prior to it being amended and restated. |
9. STOCK-BASED COMPENSATION
9. STOCK-BASED COMPENSATION | 6 Months Ended |
Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK-BASED COMPENSATION | 9. STOCK-BASED COMPENSATION The Company’s Amended 2013 Plan provides for the granting of stock options, restricted stock awards, RSU’s, stock bonus awards and performance-based awards. As of June 30, 2018, the Company had 3,346,334 of authorized unissued shares reserved and available for issuance upon exercise and conversion of outstanding awards under the Amended 2013 Plan. The stock options are exercisable at no less than the fair market value of the underlying shares on the date of grant, and restricted stock and restricted stock units are issued at a value not less than the fair market value of the common stock on the date of the grant. Generally, stock options awarded are vested in equal increments ranging from two to four years on the annual anniversary date on which such equity grants were awarded. The stock options generally have a maximum term of 10 years. The Company recognized Selling, General and Administrative (“SG&A”) expenses of $361,149 and $557,837, relating to stock options and RSU’s issued to employees, officers, directors and consultants for the three months ended June 30, 2018 and 2017, respectively. The Company recognized SG&A expenses of $1,396,302 and $1,744,128, relating to stock options and RSU’s issued to employees, officer, directors and consultants for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to employees, officers, directors and consultants was $1,621,695 which is expected to be recognized over a weighted-average period of 2.17 years. The following table summarizes stock option and RSU activity for the Amended 2013 Plan during the six months ended June 30, 2018: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (Years) Aggregate Intrinsic Value Outstanding - December 31, 2017 15,823,277 $ 0.48 8.54 $ 5,406,499 Granted 6,669,000 0.40 – – Exercised (283,334 ) 0.38 – – Cancelled/Forfeited (550,000 ) 0.40 – – Expired (5,277 ) 0.45 – – Outstanding - June 30, 2018 21,653,666 0.46 8.03 26,390,910 Total exercisable - June 30, 2018 15,838,205 0.48 7.60 18,944,543 Total unvested - June 30, 2018 5,815,461 0.38 9.22 7,446,367 Total vested or expected to vest - June 30, 2018 21,653,666 0.46 8.03 26,390,910 The following table summarizes unvested stock options as of June 30, 2018: Number of Shares Weighted Average Fair Value Per Share on Grant Date Unvested stock options - December 31, 2017 3,738,615 0.35 Granted 6,669,000 0.30 Vested (4,042,154 ) 0.36 Cancellations (550,000 ) 0.31 Unvested stock options - June 30, 2018 5,815,461 0.29 The following table summarizes stock option activity outside of the Amended 2013 Plan during the six months ended June 30, 2018: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (Years) Aggregate Intrinsic Value Outstanding - December 31, 2017 7,250,000 $ 0.37 8.78 $ 1,813,500 Granted – – – – Exercised – – – – Forfeited – – – – Expired – – – – Outstanding - June 30, 2018 7,250,000 0.37 8.29 9,353,500 Total exercisable - June 30, 2018 7,250,000 0.37 8.29 9,353,500 Total unvested - June 30, 2018 – – – – Total vested or expected to vest - June 30, 2018 7,250,000 0.37 8.29 9,353,500 As of June 30, 2018, there were 10,750,000 remaining unvested stock options granted outside of the Amended 2013 Plan which vest upon the completion of future performance conditions. |
10. INCOME TAXES
10. INCOME TAXES | 6 Months Ended |
Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | 10. INCOME TAXES On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the “Tax Legislation”) was enacted in the United States (the “U.S.”). The Tax Legislation significantly revises the U.S. corporate income tax by lowering the statutory corporate tax rate to 21%, among other changes. The Company has preliminarily accounted for the effects of the Tax Legislation and estimate that our effective tax rate for 2018 will be approximately 1% because we expect that our taxable income for 2018 will be fully offset by net operating loss carry forwards and the only tax obligation will be for state-level alternative minimum taxes. Due to uncertainties in estimating our taxable income after 2018, we cannot determine that it is more likely than not that net operating loss carry forwards and other deferred tax assets will be utilized after 2018. Our income tax provision for the three and six months ended June 30, 2018 and 2017 was $40,000, and was $0 for the three months ended June 30, 2017. |
11. COMMITMENTS AND CONTINGENCI
11. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 11. COMMITMENTS AND CONTINGENCIES Commitments The Company entered an 8-year lease agreement (the “Lease”) consolidating its operations of approximately 24,000 square feet in San Diego, California that commenced on February 1, 2018. The Company is required to pay monthly base rent, utilities and common area maintenance expenses. The Company received a landlord rent incentive of $1,067,459 for tenant improvements. The Lease rent incentive is recorded as a deferred liability and is amortized over the Lease term to rent expense. The Company entered a 3-year lease agreement for additional warehouse space of approximately 5,000 square feet in San Diego, California that commenced on April 1, 2018. The following table provides the Company’s future minimum payments under all Company lease commitments as of June 30, 2018: Operating Lease Commitment 2018 – for the six months ending December 31, 2018 $ 312,966 2019 733,849 2020 755,813 2021 712,204 2022 711,280 Thereafter 2,329,750 $ 5,555,862 The Company incurred rent expense of $153,478 and $111,733 for the three months ended June 30, 2018 and 2017, respectively, and incurred rent expense of $335,817 and $242,617 for the six months ended June 30, 2018 and 2017, respectively. Contingencies On April 23, 2014, Tanya Sallustro filed a purported class action complaint (the “Complaint”) in the Southern District of New York (the “Court”) alleging securities fraud and related claims against the Company and certain of its officers and directors and seeking compensatory damages including litigation costs. Ms. Sallustro alleges that between March 18-31, 2014, she purchased 325 shares of the Company’s common stock for a total investment of $15,791. The Complaint refers to Current Reports on Form 8-K and Current Reports on Form 8-K/A filings made by the Company on April 3, 2014 and April 14, 2014, in which the Company amended previously disclosed sales (sales originally stated at $1,275,000 were restated to $1,082,375 - a reduction of $192,625) and restated goodwill as $1,855,512 (previously reported at net zero). On March 19, 2015, the Court issued a ruling appointing Steve Schuck as lead plaintiff. Counsel for Mr. Schuck filed a “consolidated complaint” on September 14, 2015, asserting two claims: (1) for violation of Section 10(b) of the Exchange Act and SEC Rule 10B-5 promulgated thereunder against all defendants, and (2) for violation of Section 20(a) of the Exchange Act against the individual defendants. Plaintiffs sued the Company, Michael Mona, Jr., Bart Mackay, Theodore Sobieski, Edward Wilson, Stuart Titus, and Michael Llamas. On December 11, 2015, the Company and the individuals (except for Messrs. Titus and Llamas) filed a motion to dismiss the consolidated complaint. On April 2, 2018, the Court issued an order granting in part and denying in part the motion to dismiss. With respect to the First Claim for violation of Section 10(b) of the Exchange Act, the court ruled that plaintiffs failed to allege misstatements or omissions attributable to Messrs. Mackay, Sobieski, or Titus, and so granted the motion on that claim as to those parties. The court found the allegations sufficient as to the Company and Messrs. Wilson, and Mona Jr., and so denied the motion as to those parties. Under plaintiffs’ separate theory of “market manipulation,” the Court granted the motion in favor of all defendants. The parties are currently awaiting entry of a case scheduling order by the Court. Management intends to vigorously defend the allegations and an estimate of possible loss cannot be made at this time. On March 17, 2015, stockholder Michael Ruth filed a shareholder derivative suit in Nevada District Court alleging two causes of action: 1) Breach of Fiduciary Duty, and 2) “Gross Mismanagement.” The claims are premised on the same events as the already-pending securities class action case in New York discussed above – it is alleged that the Form 8-K filings misstated goodwill and sales of the Company, which when corrected, lead to a significant drop in stock price. The Company filed a motion to dismiss the suit on June 29, 2015. Instead of opposing the Company’s motion, Mr. Ruth filed an amended complaint on July 20, 2015. Thereafter, Mr. Ruth and the Company agreed to stay the action pending the outcome of the securities class action case in New York discussed above. Mr. Ruth and the Company filed a stipulation and proposed order on June 20, 2018 asking the Nevada District Court to continue the stay in the action pending a resolution on the securities class action case. Since no discovery has been conducted and the case has been stayed for nearly three years, an estimate of the possible loss or recovery cannot be made at this time. On June 15, 2017, the SEC filed an enforcement action against the Company and its then-Chief Executive Officer, Michael Mona, Jr. In the complaint, filed in the United States District Court of Nevada (Case No. 2:17-cv-01681), the SEC alleged that the Company and Mr. Mona violated federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, as amended, and SEC Rule 10b-5(b), through alleged misrepresentations made in certain SEC reports regarding the value of the Company’s assets acquired by the Company from PhytoSphere Systems, LLC. On May 31, 2018, the Company and Mr. Mona settled all claims. Pursuant to the terms of the settlement, without admitting or denying the allegations made by the SEC, the Company agreed to a consent judgment pursuant to which (a) the Company agreed to pay a penalty in the amount of $150,000, and (b) the Company is permanently enjoined from violations of federal securities laws. The Company has made this payment in full. Mr. Mona, without admitting or denying any allegations, agreed to an order (a) prohibiting him from serving as an officer or director of a publicly held company for five (5) years, (b) providing for payment in the aggregate amount of $50,000, payable in 12 installments commencing 30 days after entry of final judgment, and (c) permanently enjoining him from violations of federal securities laws. Effective concurrent with the settlement, Mr. Mona resigned as the Company’s President and Chief Executive Officer, and resigned his position on the Company’s Board of Directors. On October 21, 2016, Dun Agro B.V. (“Dun Agro”) filed a complaint against the Company in the District Court of the North Netherlands, location Groningen, The Netherlands, alleging non-performance under a contract, seeking compensatory damages of approximately 2,050,000 euros, excluding interest and costs. The plaintiff alleges that the Company was obligated to perform under that certain Supply Agreement between the Company and Dun Agro dated December 19, 2013, and to purchase 1,000,000 kilograms of harvested raw material related to the 2016 crop. A trial date is set for September 17, 2018. Management intends to vigorously defend the complaint allegations and an estimate of possible loss cannot be made at this time. The Company is a plaintiff in two litigation matters involving former credit card processors of the Company. On September 10, 2017, the Company filed a complaint against one such credit card processor, PayToo Merchant Services, Corporation (“Pay Too”), a Florida corporation, in the Circuit Court in Broward County, Florida, asserting breach of contract claims for PayToo’s failure to remit approximately $250,000 to the Company for credit card sales processed by PayToo from January 2017 to February 2017. On December 11, 2017, the Company filed a complaint against the other credit card processor, T1 Payments, LLC (“T1”), a Nevada corporation, in District Court, Clark County, Nevada, asserting breach of contract claims for T1’s failure to remit approximately $500,000 to the Company for credit card sales processed by T1 from February 2017 to October 2017. In the normal course of business, the Company is a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these types of agreements have not had a material effect on our business, consolidated results of operations or financial condition. |
12. SEGMENT INFORMATION
12. SEGMENT INFORMATION | 6 Months Ended |
Jun. 30, 2018 | |
Segment Reporting [Abstract] | |
SEGMENT INFORMATION | 12. SEGMENT INFORMATION The Company operates in two distinct business segments: a consumer product segment in manufacturing, marketing and selling plant-based CBD products to a range of market sectors; and, a specialty pharmaceutical segment focused on developing and commercializing novel therapeutics utilizing synthetic CBD. The Company’s segments maintain separate financial information for which operating results are evaluated on a regular basis by the Company’s senior management in deciding how to allocate resources and in assessing performance. The Company evaluates its consumer product segment based on net product sales, gross profit and operating income or loss. The Company currently evaluates its specialty pharmaceutical segment based on the progress of its clinical development programs. The following table presents information by reportable operating segment for the three and six months ended June 30, 2018 and 2017: Consumer Products Segment Specialty Pharmaceutical Segment Consolidated Totals Three Months Ended June 30, 2018: Product sales, net $ 12,348,695 $ – $ 12,348,695 Gross profit 9,060,076 – 9,060,076 Selling, general and administrative (5,319,536 ) (1,068 ) (5,320,604 ) Research and development (75,833 ) (366,171 ) (442,004 ) Operating income (loss) $ 3,664,707 $ (367,239 ) $ 3,297,468 Three Months Ended June 30, 2017: Product sales, net $ 4,081,832 $ – $ 4,081,832 Gross profit 2,844,458 – 2,844,458 Gain on change in derivative liabilities 27,288 – 27,288 Selling, general and administrative (3,447,786 ) (77,987 ) (3,525,773 ) Research and development (55,956 ) (149,691 ) (205,647 ) Operating loss $ (631,996 ) $ (227,678 ) $ (859,674 ) Six Months Ended June 30, 2018: Product sales, net $ 20,419,460 $ – $ 20,419,460 Gross profit 14,621,979 – 14,621,979 Selling, general and administrative (10,046,120 ) (15,077 ) (10,061,197 ) Research and development (192,467 ) (403,241 ) (595,708 ) Operating income (loss) $ 4,383,392 $ (418,318 ) $ 3,965,074 Six Months Ended June 30, 2017: Product sales, net $ 7,846,023 $ – $ 7,846,023 Gross profit 5,277,462 – 5,277,462 Gain on change in derivative liabilities 237,888 – 237,888 Royalty buy-out – (2,432,000 ) (2,432,000 ) Selling, general and administrative (7,052,962 ) (149,520 ) (7,202,482 ) Research and development (104,989 ) (289,374 ) (394,363 ) Operating loss $ (1,642,601 ) $ (2,870,894 ) $ (4,513,495 ) |
2. SUMMARY OF SIGNIFICANT ACC19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods and ensure that the financial statements are not misleading. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2017, filed with the SEC on the Company’s Annual Report on Form 10-K filed on March 29, 2018. The results for the interim periods ended June 30, 2018, are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. |
Liquidity | Liquidity |
Derivative Financial Instruments | Derivative Financial Instruments |
Goodwill and Intangible Assets | Goodwill and Intangible Assets – Intangibles Goodwill and Other We make critical assumptions and estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions, market competition, inflation and discount rates. We classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their useful lives to their estimated residual values, generally five years. In process research and development (“IPR&D”) has an indefinite life and is not amortized until completion and development of the project, at which time the IPR&D becomes an amortizable asset. If the related project is not completed in a timely manner or the project is terminated or abandoned, the Company may have an impairment related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. This method of amortization approximates the expected future cash flow generated from their use. During the three and six months ended June 30, 2018 and 2017, there were no impairments. |
Use of Estimates | Use of Estimates |
Reportable Segments | Reportable Segments |
Cash and Cash Equivalents | Cash and Cash Equivalents |
Restricted Cash | Restricted Cash June 30, 2018 December 31, 2017 Cash $ 6,452,597 $ 2,012,965 Restricted cash 778,579 778,579 Total cash and restricted cash shown in the statement of cash flows $ 7,231,176 $ 2,791,544 |
Concentrations of Credit Risk | Concentrations of Credit Risk There was no concentration of accounts receivable, revenue and purchases as of, and for the period and year ended June 30, 2018 and December 31, 2017. |
Accounts Receivable | Accounts Receivable Management has determined the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history, and current economic conditions. As of June 30, 2018 and December 31, 2017, the Company maintained an allowance for doubtful accounts related to accounts receivable in the amount of $200,000. |
Revenue Recognition | Revenue Recognition |
Sales Tax | Sales Tax |
Shipping and Handling | Shipping and Handling |
Returns | Returns Finished Products Bulk Oil Products There was no allowance for customer returns as of June 30, 2018 or December 31, 2017 due to insignificant return amounts experienced during the six months ended June 30, 2018 and the year ended December 31, 2017. |
Compensation and Benefits | Compensation and Benefits |
Stock Based Compensation | Stock-Based Compensation The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors, consultants and former directors as compensation and benefits expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. For performance-based stock options, compensation is recognized once the applicable performance condition is satisfied. The Company recognizes stock-based compensation for equity awards granted to consultants as selling, general and administrative expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant and unvested awards are revalued at each reporting period. The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. Forfeited stock options are accounted for as they occur. |
Inventory | Inventory |
Property and Equipment | Property & Equipment Property and equipment, net, as of June 30, 2018 and December 31, 2017 were as follows: Useful Lives June 30, 2018 December 31, 2017 Office furniture and equipment 3 years $ 708,678 $ 537,607 Laboratory and other equipment 5 years 418,526 398,997 Tenant improvements 14 to 39 months 1,632,815 1,545,885 2,760,019 2,482,489 Less: accumulated depreciation (626,266 ) (399,056 ) $ 2,133,753 $ 2,083,433 Depreciation expense for the three months ended June 30, 2018 and 2017 was $117,014 and $39,322, respectively, and for the six months ended June 30, 2018 and 2017 was $227,210 and $86,847, respectively. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Financial Instruments |
Long-Lived Assets | Long-Lived Assets Accounting for the Impairment or Disposal of Long-Lived Assets |
Debt Issuance Costs | Debt Issuance Costs – |
Earnings (net loss) per Share | Earnings (net loss) per Share |
Research and Development Expense | Research and Development Expense |
Advertising | Advertising The Company believes the continual investment in advertising is critical to the development and sale of its PlusCBD™ products. |
Income Taxes | Income Taxes – Income Taxes |
Recent Issued and Newly Adopted Accounting Pronouncements | Recently Issued and Newly Adopted Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) Revenue from Contracts with Customers (Topic 606) Revenue from Contracts with Customers (Topic 606), Revenue from Contracts with Customers (Topic 606), Revenue from Contracts with Customers (Topic 606) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU 2016-02, Leases In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the FASB Emerging Issues Task Force) In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to have, a material impact on the Company’s present or future financial statements. |
2. SUMMARY OF SIGNIFICANT ACC20
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of Cash and Restricted Cash | June 30, 2018 December 31, 2017 Cash $ 6,452,597 $ 2,012,965 Restricted cash 778,579 778,579 Total cash and restricted cash shown in the statement of cash flows $ 7,231,176 $ 2,791,544 |
Schedule of property and equipment | Useful Lives June 30, 2018 December 31, 2017 Office furniture and equipment 3 years $ 708,678 $ 537,607 Laboratory and other equipment 5 years 418,526 398,997 Tenant improvements 14 to 39 months 1,632,815 1,545,885 2,760,019 2,482,489 Less: accumulated depreciation (626,266 ) (399,056 ) $ 2,133,753 $ 2,083,433 |
3. INVENTORY (Tables)
3. INVENTORY (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Inventory Disclosure [Abstract] | |
Schedule of inventory, current and noncurrent | June 30, 2018 December 31, 2017 Raw materials $ 5,033,276 $ 6,648,144 Finished goods 2,256,174 1,841,542 $ 7,289,450 $ 8,489,686 |
4. ACCRUED EXPENSES (Tables)
4. ACCRUED EXPENSES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
Accrued expenses | June 30, 2018 December 31, 2017 Accrued payroll expenses $ 402,278 $ 1,037,122 Other accrued liabilities 1,106,870 894,798 $ 1,509,148 $ 1,931,920 |
5. INTANGIBLE ASSETS, NET (Tabl
5. INTANGIBLE ASSETS, NET (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of intangible assets | Original Fair Market Value Accumulated Amortization Net Useful Life (Years) Balance - June 30, 2018: In-process research and development $ 3,730,000 $ – $ 3,730,000 – Trade names 100,000 50,000 50,000 5 Non-compete agreements 77,000 38,500 38,500 5 $ 3,907,000 $ 88,500 $ 3,818,500 Balance - December 31, 2017: In-process research and development $ 3,730,000 $ – $ 3,730,000 - Trade names 100,000 40,000 60,000 5 Non-compete agreements 77,000 30,800 46,200 5 $ 3,907,000 $ 70,800 $ 3,836,200 |
7. NOTES PAYABLE (Tables)
7. NOTES PAYABLE (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Unsecured Note Payable [Member] | |
Schedule of debt | June 30, 2018 December 31, 2017 Unsecured promissory note payable $ 850,000 $ 850,000 Debt extinguishment (Promissory Note) – (850,000 ) Unsecured promissory note – principal amount (Wiltshire 2) – 850,000 Net carrying amount of debt 850,000 850,000 Less current portion 850,000 – Long-term borrowings - net of current portion $ – $ 850,000 |
Iliad Note [Member] | Convertible Notes Payable [Member] [Default Label] | |
Schedule of conversions | Maturity June 30, 2018 December 31, 2017 Interest Rate Secured promissory note payable April 1, 2018 $ – $ 1,897,976 10% Interest accrued – 137,334 Unamortized original issue discount and debt issuance costs – 35,335 Conversion of convertible promissory notes and accrued interest to common stock – (1,805,000 ) Conversion of convertible promissory notes and accrued interest to accrued liabilities – 75,000 Cash repayment of promissory notes and accrued interest – (340,645 ) Net carrying amount of debt – – Less current portion – – Long-term borrowings - net of current portion $ – $ – |
Iliad Note 2 [Member] | Convertible Notes Payable [Member] [Default Label] | |
Schedule of conversions | Maturity June 30, 2018 December 31, 2017 Interest Rate Secured promissory note payable April 30, 2018 $ 609,926 $ 770,000 8% Interest accrued $ 44,360 51,890 Unamortized original issue discount and debt issuance costs, net $ 5,714 (5,714 ) Conversion of convertible promissory notes and accrued interest to accrued liabilities – (75,000 ) Cash repayment of promissory notes and accrued interest $ (660,000 ) (131,250 ) Net carrying amount of debt – 609,926 Less current portion – (609,926 ) Long-term borrowings - net of current portion $ – $ – |
9. STOCK-BASED COMPENSATION (Ta
9. STOCK-BASED COMPENSATION (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Stock Option Activity | Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (Years) Aggregate Intrinsic Value Outstanding - December 31, 2017 15,823,277 $ 0.48 8.54 $ 5,406,499 Granted 6,669,000 0.40 – – Exercised (283,334 ) 0.38 – – Cancelled/Forfeited (550,000 ) 0.40 – – Expired (5,277 ) 0.45 – – Outstanding - June 30, 2018 21,653,666 0.46 8.03 26,390,910 Total exercisable - June 30, 2018 15,838,205 0.48 7.60 18,944,543 Total unvested - June 30, 2018 5,815,461 0.38 9.22 7,446,367 Total vested or expected to vest - June 30, 2018 21,653,666 0.46 8.03 26,390,910 |
Nonvested Stock Option Activity | Number of Shares Weighted Average Fair Value Per Share on Grant Date Unvested stock options - December 31, 2017 3,738,615 0.35 Granted 6,669,000 0.30 Vested (4,042,154 ) 0.36 Cancellations (550,000 ) 0.31 Unvested stock options - June 30, 2018 5,815,461 0.29 |
Options Outside the Amended 2013 Plan [Member] | |
Stock Option Activity | Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (Years) Aggregate Intrinsic Value Outstanding - December 31, 2017 7,250,000 $ 0.37 8.78 $ 1,813,500 Granted – – – – Exercised – – – – Forfeited – – – – Expired – – – – Outstanding - June 30, 2018 7,250,000 0.37 8.29 9,353,500 Total exercisable - June 30, 2018 7,250,000 0.37 8.29 9,353,500 Total unvested - June 30, 2018 – – – – Total vested or expected to vest - June 30, 2018 7,250,000 0.37 8.29 9,353,500 |
11. COMMITMENTS AND CONTINGEN26
11. COMMITMENTS AND CONTINGENCIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of operating leases | Operating Lease Commitment 2018 – for the six months ending December 31, 2018 $ 312,966 2019 733,849 2020 755,813 2021 712,204 2022 711,280 Thereafter 2,329,750 $ 5,555,862 |
12. SEGMENT INFORMATION (Tables
12. SEGMENT INFORMATION (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Segment Reporting [Abstract] | |
Schedule Of Segment Reporting Information | Consumer Products Segment Specialty Pharmaceutical Segment Consolidated Totals Three Months Ended June 30, 2018: Product sales, net $ 12,348,695 $ – $ 12,348,695 Gross profit 9,060,076 – 9,060,076 Selling, general and administrative (5,319,536 ) (1,068 ) (5,320,604 ) Research and development (75,833 ) (366,171 ) (442,004 ) Operating income (loss) $ 3,664,707 $ (367,239 ) $ 3,297,468 Three Months Ended June 30, 2017: Product sales, net $ 4,081,832 $ – $ 4,081,832 Gross profit 2,844,458 – 2,844,458 Gain on change in derivative liabilitis 27,288 – 27,288 Selling, general and administrative (3,447,786 ) (77,987 ) (3,525,773 ) Research and development (55,956 ) (149,691 ) (205,647 ) Operating loss $ (631,996 ) $ (227,678 ) $ (859,674 ) Six Months Ended June 30, 2018: Product sales, net $ 20,419,460 $ – $ 20,419,460 Gross profit 14,621,979 – 14,621,979 Selling, general and administrative (10,046,120 ) (15,077 ) (10,061,197 ) Research and development (192,467 ) (403,241 ) (595,708 ) Operating income (loss) $ 4,383,392 $ (418,318 ) $ 3,965,074 Six Months Ended June 30, 2017: Product sales, net $ 7,846,023 $ – $ 7,846,023 Gross profit 5,277,462 – 5,277,462 Gain on change in derivative liabilities 237,888 – 237,888 Royalty buy-out – (2,432,000 ) (2,432,000 ) Selling, general and administrative (7,052,962 ) (149,520 ) (7,202,482 ) Research and development (104,989 ) (289,374 ) (394,363 ) Operating loss $ (1,642,601 ) $ (2,870,894 ) $ (4,513,495 ) |
2. SUMMARY OF SIGNIFICANT ACC28
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Cash) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 | Jun. 30, 2017 | Dec. 31, 2016 |
Accounting Policies [Abstract] | ||||
Cash | $ 6,452,597 | $ 2,012,965 | ||
Restricted cash | 778,579 | 778,579 | ||
Total cash and restricted cash shown in the statement of cash flows | $ 7,231,176 | $ 2,791,544 | $ 1,897,570 | $ 1,057,468 |
2. SUMMARY OF SIGNIFICANT ACC29
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | |
Property and equipment, gross | $ 2,760,020 | $ 2,482,489 |
Less: accumulated depreciation | (626,266) | (399,056) |
Property and equipment, net | 2,133,753 | 2,083,433 |
Office furniture and equipment [Member] | ||
Property and equipment, gross | $ 708,678 | 537,607 |
Useful Lives | 3 years | |
Tenant Improvements [Member] | ||
Property and equipment, gross | $ 1,632,815 | 1,545,885 |
Useful Lives | 14 to 39 months | |
Laboratory equipment [Member] | ||
Property and equipment, gross | $ 418,526 | $ 398,997 |
Useful Lives | 5 years |
2. SUMMARY OF SIGNIFICANT ACC30
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Net loss | $ 3,185,910 | $ (992,188) | $ 3,805,244 | $ (4,776,963) | |
Cash flows from operations | 5,369,312 | 204,279 | |||
Asset impairment charges | 0 | 0 | |||
Cash equivalents | 0 | 0 | $ 0 | ||
Restricted cash | 778,579 | 778,579 | 778,579 | ||
Cash in excess of FDIC limits | 6,410,526 | 6,410,526 | |||
Allowance for doubtful accounts | 200,000 | 200,000 | 200,000 | ||
Shipping and handling charged to customers | 487,939 | 166,643 | 806,963 | 324,002 | |
Allowance for customer returns | 0 | 0 | 0 | ||
Inventory, noncurrent | 3,631,346 | 3,631,346 | 5,667,101 | ||
Depreciation expense | 117,014 | 39,322 | 227,210 | 86,847 | |
Research and development | 442,004 | 205,647 | 595,708 | 394,363 | |
Advertising expense | 220,915 | 108,555 | 402,559 | 175,455 | |
Unrecognized tax benefits | 0 | 0 | $ 0 | ||
Consumer Products [Member] | |||||
Research and development | 75,833 | 55,956 | 192,467 | 104,989 | |
Specialty Pharmaceuticals [Member] | |||||
Research and development | 366,171 | $ 149,691 | $ 403,241 | $ 289,374 | |
OptionsMember | |||||
Antidilutive shares outstanding | 19,707,917 | ||||
Warrants [Member] | |||||
Antidilutive shares outstanding | 2,335,289 | ||||
Performance based stock options [Member] | |||||
Stock that may be required to issue | 10,750,000 | ||||
Germany and The Netherlands [Member] | |||||
Inventory, noncurrent | $ 680,515 | $ 680,515 |
3. INVENTORY (Details)
3. INVENTORY (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 5,033,276 | $ 6,648,144 |
Finished goods | 2,256,174 | 1,841,542 |
Total inventory | $ 7,289,450 | $ 8,489,686 |
4. ACCRUED EXPENSES (Details)
4. ACCRUED EXPENSES (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Payables and Accruals [Abstract] | ||
Accrued payroll expenses | $ 402,278 | $ 1,037,122 |
Other accrued liabilities | 1,106,870 | 894,798 |
Total accrued expenses | $ 1,509,148 | $ 1,931,920 |
5. INTANGIBLE ASSETS (Details -
5. INTANGIBLE ASSETS (Details - Intangible asset schedule) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Intangible assets, gross | $ 3,907,000 | $ 3,907,000 |
Accumulated amortization | 88,500 | 60,000 |
Intangible assets, net | 3,818,500 | 3,836,200 |
Trade Names [Member] | ||
Intangible assets, gross | 100,000 | 100,000 |
Accumulated amortization | 50,000 | 40,000 |
Intangible assets, net | $ 50,000 | $ 60,000 |
Useful life (Years) | 5 years | 5 years |
Noncompete Agreements [Member] | ||
Intangible assets, gross | $ 77,000 | $ 77,000 |
Accumulated amortization | 38,500 | 30,800 |
Intangible assets, net | $ 38,500 | $ 46,200 |
Useful life (Years) | 5 years | 5 years |
In-Process Research and Development [Member] | ||
Intangible assets, gross | $ 3,730,000 | $ 3,730,000 |
Accumulated amortization | 0 | 0 |
Intangible assets, net | $ 3,730,000 | $ 3,730,000 |
5. INTANGIBLE ASSETS (Details N
5. INTANGIBLE ASSETS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization expense | $ 8,850 | $ 8,850 | $ 17,700 | $ 17,700 |
6. RELATED PARTIES (Details Nar
6. RELATED PARTIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Payment to related party | $ 5,250 | $ 5,250 | $ 10,500 | $ 10,500 |
Stockholder [Member] | ||||
Purchases from related party | $ 0 | $ 9,060 |
7. NOTES PAYABLE (Details - Ill
7. NOTES PAYABLE (Details - Illiad SPA 1) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Less current portion | $ 0 | $ (609,926) |
Illiad Spa 1 [Member] | ||
Secured promissory note payable | 0 | 1,897,976 |
Interest accrued | 0 | 137,334 |
Unamortized original issue discount and debt issuance costs | 0 | 35,335 |
Cash repayment of promissory notes and accrued interest | 0 | (340,645) |
Net carrying amount of debt | 0 | 0 |
Less current portion | 0 | 0 |
Long-term borrowings - net of current portion | $ 0 | $ 0 |
Debt maturity date | Apr. 1, 2018 | |
Debt stated interest rate | 10.00% | 10.00% |
Common Stock [Member] | Illiad Spa 1 [Member] | ||
Conversion of convertible promissory notes and accrued interest | $ (1,805,000) | |
Accrued Liabilities [Member] | Illiad Spa 1 [Member] | ||
Conversion of convertible promissory notes and accrued interest | $ 75,000 |
7. NOTES PAYABLE (Details - I37
7. NOTES PAYABLE (Details - Illiad SPA 2) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Less current portion | $ 0 | $ (609,926) |
Illiad Spa 2 [Member] | ||
Secured promissory note payable | 609,926 | 770,000 |
Interest accrued | 44,360 | 51,890 |
Unamortized original issue discount and debt issuance costs | 5,714 | (5,714) |
Cash repayment of promissory notes and accrued interest | (660,000) | (131,250) |
Net carrying amount of debt | 0 | 609,926 |
Less current portion | 0 | (609,926) |
Long-term borrowings - net of current portion | $ 0 | $ 0 |
Debt maturity date | Apr. 30, 2018 | |
Debt stated interest rate | 8.00% | 8.00% |
Accrued Liabilities [Member] | Illiad Spa 2 [Member] | ||
Conversion of convertible promissory notes and accrued interest | $ 0 | $ (75,000) |
7. NOTES PAYABLE (Details - Uns
7. NOTES PAYABLE (Details - Unsecured Note Payable) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 |
Long-term borrowings - net of current portion | $ 0 | $ 850,000 | |
Unsecured Note Payable [Member] | |||
Net carrying amount of debt | 850,000 | 850,000 | |
Less current portion | (850,000) | 0 | |
Long-term borrowings - net of current portion | 0 | 850,000 | |
Wiltshire [Member] | Unsecured Note Payable [Member] | |||
Unsecured promissory note payable | 850,000 | 850,000 | $ 850,000 |
Debt extinguishment (Promissory Note) | 0 | (850,000) | |
Wiltshire 2 [Member] | Unsecured Note Payable [Member] | |||
Unsecured promissory note payable | $ 0 | $ 850,000 |
7. NOTES PAYABLE (Details Narra
7. NOTES PAYABLE (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Proceeds from convertible debt | $ 0 | $ 750,000 | ||||
Gain on change in derivative liability | $ 0 | $ 27,288 | 0 | $ 237,888 | ||
Unsecured note payable balance | $ 866,818 | $ 866,818 | $ 116,370 | |||
Illiad Spa 2 [Member] | ||||||
Debt issuance date | Mar. 1, 2017 | |||||
Debt face value | $ 770,000 | |||||
Proceeds from convertible debt | $ 750,000 | |||||
Debt interest rate | 8.00% | 8.00% | 8.00% | |||
Original issue discount | $ 15,000 | |||||
Debt issuance costs | 5,000 | |||||
Debt issuance costs | 5,000 | |||||
Gain on change in derivative liability | $ 10,988 | $ 15,088 | ||||
Derivative liability | $ 29,300 | |||||
Illiad Spa 1 [Member] | ||||||
Debt issuance date | May 25, 2016 | |||||
Debt face value | $ 2,055,000 | |||||
Proceeds from convertible debt | 1,975,000 | |||||
Debt interest rate | 10.00% | 10.00% | 10.00% | |||
Original issue discount | 45,000 | |||||
Debt issuance costs | $ 35,000 | |||||
Illiad Notes [Member] | ||||||
Debt converted, shares issued | 5,793,791 | |||||
Debt converted, debt value | $ 1,344,359 | |||||
Accrued interest converted | 55,641 | |||||
Additional paid-in capital increase/(decrease) | 1,400,000 | |||||
Beneficial conversion feature | 370,000 | |||||
Gain on change in derivative liability | 16,300 | 222,800 | ||||
Wiltshire 2 [Member] | Unsecured Note Payable [Member] | ||||||
Debt issuance date | Nov. 9, 2017 | |||||
Debt face value | $ 0 | $ 0 | $ 850,000 | |||
Debt interest rate | 6.00% | |||||
Debt issuance costs | $ 12,500 | |||||
Warrant issued | 750,000 | |||||
Fair value of warrant | $ 136,650 | |||||
Interest expense for amortization of warrant fair value and beneficial conversion feature | 34,000 | $ 33,350 | 68,000 | $ 66,700 | ||
Loss on extinguishment of debt | $ (188,822) | |||||
First Insurance Funding [Member] | Unsecured Note Payable [Member] | ||||||
Debt issuance date | Nov. 1, 2017 | |||||
Debt face value | $ 149,044 | |||||
Proceeds from convertible debt | 0 | |||||
Unsecured note payable balance | 16,818 | 16,818 | 116,370 | |||
Wiltshire [Member] | Unsecured Note Payable [Member] | ||||||
Debt issuance date | Jan. 29, 2016 | |||||
Debt face value | $ 850,000 | $ 850,000 | $ 850,000 | $ 850,000 | ||
Debt interest rate | 12.00% | |||||
Original issue discount | $ 30,000 | |||||
Debt issuance costs | $ 18,570 | |||||
Warrant issued | 2,000,000 | |||||
Fair value of warrant | $ 266,800 |
8. STOCKHOLDERS' EQUITY (Detail
8. STOCKHOLDERS' EQUITY (Details Narrative) - $ / shares | 6 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | |
Common stock authorized | 190,000,000 | 190,000,000 |
Common stock par value | $ 0.0001 | $ 0.0001 |
Common stock issued | 90,945,896 | 90,512,563 |
Common stock outstanding | 90,945,896 | 90,512,563 |
Preferred stock authorized | 10,000,000 | 10,000,000 |
Preferred stock par value | $ 0.0001 | $ 0.0001 |
Preferred stock issued | 0 | 0 |
Preferred stock outstanding | 0 | 0 |
Amended 2013 Plan [Member] | ||
Shares authorized under plan | 25,000,000 | |
Options issued | 0 |
9. STOCK-BASED COMPENSATION (De
9. STOCK-BASED COMPENSATION (Details - Option activity) - Options [Member] - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Share-based compensation activity | ||
Options outstanding, beginning balance | 15,823,277 | |
Options outstanding, granted | 6,669,000 | |
Options outstanding, exercised | (283,334) | |
Options outstanding, forfeited | (550,000) | |
Options outstanding, expired | (5,277) | |
Options outstanding, ending balance | 21,653,666 | 15,823,277 |
Options outstanding, exercisable | 15,838,205 | |
Options outstanding, unvested | 5,815,461 | |
Options outstanding, vested or expected to vest | 21,653,666 | |
Weighted average exercise price, beginning balance | $ 0.48 | |
Weighted average exercise price, granted | 0.40 | |
Weighted average exercise price, exercised | 0.38 | |
Weighted average exercise price, forfeited | 0.40 | |
Weighted average exercise price, expired | 0.45 | |
Weighted average exercise price, ending balance | 0.46 | $ 0.48 |
Weighted average exercise price, exercisable | 0.48 | |
Weighted average exercise price, unvested | 0.38 | |
Weighted average exercise price, vested or expected to vest | $ 0.46 | |
Weighted average remaining contract term | 8 years 11 days | 8 years 6 months 14 days |
Weighted average remaining contract term, exercisable | 7 years 7 months 6 days | |
Weighted average remaining contract term, unvested | 9 years 2 months 19 days | |
Weighted average remaining contract term, vested or expected to vest | 8 years 11 days | |
Aggregate intrinsic value | $ 26,390,910 | $ 5,406,499 |
Aggregate intrinsic value, exercisable | 18,944,543 | |
Aggregate intrinsic value, unvested | 7,446,367 | |
Aggregate intrinsic value, vested or expected to vest | $ 26,390,910 |
9. STOCK-BASED COMPENSATION (42
9. STOCK-BASED COMPENSATION (Details - Unvested) - Unvested Stock Options [Member] | 6 Months Ended |
Jun. 30, 2018$ / sharesshares | |
Unvested stock options, beginning balance | shares | 3,738,615 |
Unvested options granted | shares | 6,669,000 |
Unvested options vested | shares | (4,042,154) |
Unvested options cancellations | shares | (550,000) |
Unvested stock options, ending balance | shares | 5,815,461 |
Weighted average exercise price, beginning balance | $ / shares | $ 0.35 |
Weighted average fair value per share on grant date, granted | $ / shares | 0.30 |
Weighted average fair value per share on grant date, vested | $ / shares | 0.36 |
Weighted average fair value per share on grant date, cancellations | $ / shares | 0.31 |
Weighted average exercise price, ending balance | $ / shares | $ 0.29 |
9. STOCK-BASED COMPENSATION (43
9. STOCK-BASED COMPENSATION (Details - Option Outside the plan activity) - Options Outside the Amended 2013 Plan [Member] - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Share-based compensation activity | ||
Options outstanding, beginning balance | 7,250,000 | |
Options outstanding, granted | 0 | |
Options outstanding, exercised | 0 | |
Options outstanding, forfeited | 0 | |
Options outstanding, expired | 0 | |
Options outstanding, ending balance | 7,250,000 | 7,250,000 |
Options outstanding, exercisable | 7,250,000 | |
Options outstanding, unvested | 0 | 0 |
Options outstanding, vested or expected to vest | 7,250,000 | |
Weighted average exercise price, beginning balance | $ 0.37 | |
Weighted average exercise price, ending balance | 0.37 | $ 0.37 |
Weighted average exercise price, exercisable | 0.37 | |
Weighted average exercise price, vested or expected to vest | $ 0.37 | |
Weighted average remaining contract term, ending term | 8 years 3 months 15 days | 8 years 9 months 11 days |
Weighted average remaining contract term, exercisable | 8 years 3 months 15 days | |
Weighted average remaining contract term, vested or expected to vest | 8 years 3 months 15 days | |
Aggregate intrinsic value | $ 9,353,500 | $ 1,813,500 |
Aggregate intrinsic value, exercisable | 9,353,500 | |
Aggregate intrinsic value, unvested | 0 | |
Aggregate intrinsic value, vested or expected to vest | $ 9,353,500 |
9. STOCK-BASED COMPENSATION (44
9. STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Unrecognized compensation cost | $ 1,621,695 | $ 1,621,695 | ||
Unrecognized weighted average period | 2 years 2 months 1 day | |||
Amended 2013 Plan [Member] [Default Label] | ||||
Shares unissued and reserved for issuance | 3,346,334 | 3,346,334 | ||
Outside the Plan [Member] | ||||
Unvested stock options | 10,750,000 | 10,750,000 | ||
Options and RSU's | Selling, General and Administrative Expenses [Member] | ||||
Stock based compensation expense | $ 361,149 | $ 557,837 | $ 1,396,302 | $ 1,744,128 |
10. INCOME TAXES (Details Narra
10. INCOME TAXES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income Tax Disclosure [Abstract] | ||||
Federal corporate tax rate | 21.00% | |||
Income tax provision | $ 40,000 | $ 0 | $ 40,000 | $ 0 |
11. COMMITMENTS AND CONTINGEN46
11. COMMITMENTS AND CONTINGENCIES (Details) | Jun. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2018 - for the six months ending December 31, 2018 | $ 312,966 |
Lease commitment 2019 | 733,849 |
Lease commitment 2020 | 755,813 |
Lease commitment 2021 | 712,204 |
Lease commitment 2022 | 711,280 |
Lease commitment thereafter | 2,329,750 |
Total lease commitment | $ 5,555,862 |
11. COMMITMENTS AND CONTINGEN47
11. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Operating lease expense | $ 153,478 | $ 111,733 | $ 335,817 | $ 242,617 |
Landlord rent incentive for tenant improvements | $ 1,067,459 | $ 1,067,459 |
12. SEGMENT INFORMATION (Detail
12. SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Product sales, net | $ 12,348,695 | $ 4,081,832 | $ 20,419,460 | $ 7,846,023 |
Gross profit | 9,060,076 | 2,844,458 | 14,621,979 | 5,277,462 |
Gain on change in derivative liabilities | 0 | 27,288 | 0 | 237,888 |
Royalty buy-out | 0 | 0 | 0 | (2,432,000) |
Selling, general and administrative | (5,320,604) | (3,525,773) | (10,061,197) | (7,202,482) |
Research and development | (442,004) | (205,647) | (595,708) | (394,363) |
Operating income (loss) | 3,297,468 | (859,674) | 3,965,074 | (4,513,495) |
Consumer Products [Member] | ||||
Product sales, net | 12,348,695 | 4,081,832 | 20,419,460 | 7,846,023 |
Gross profit | 9,060,076 | 2,844,458 | 14,621,979 | 5,277,462 |
Gain on change in derivative liabilities | 27,288 | 237,888 | ||
Selling, general and administrative | (5,319,536) | (3,447,786) | (10,046,120) | (7,052,962) |
Research and development | (75,833) | (55,956) | (192,467) | (104,989) |
Operating income (loss) | 3,664,707 | (631,996) | 4,383,392 | (1,642,601) |
Specialty Pharmaceuticals [Member] | ||||
Product sales, net | 0 | 0 | 0 | 0 |
Gross profit | 0 | 0 | 0 | 0 |
Royalty buy-out | (2,432,000) | |||
Selling, general and administrative | (1,068) | (77,987) | (15,077) | (149,520) |
Research and development | (366,171) | (149,691) | (403,241) | (289,374) |
Operating income (loss) | $ (367,239) | $ (227,678) | $ (418,318) | $ (2,870,894) |