UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
x SEMIANNUAL REPORT PURSUANT TO REGULATION A
or
¨ SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended: June 30, 2020
NowRx, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 47-4054162 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2224 Old Middlefield Way
Mountain View, California 94043
(Mailing Address of principal executive offices)
(650) 386-5761
Issuer’s telephone number, including area code
In this report, the term “NowRx,” ”we,” “us” or “the company” refers to NowRx, Inc.
This report may contain forward-looking statements and information relating to, among other things, the company, its business plan and strategy, and its industry. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to the company’s management. When used in this report, the words “estimate,” “project,” “believe,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements, which constitute forward looking statements. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties that could cause the company’s actual results to differ materially from those contained in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company does not undertake any obligation to revise or update these forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence
Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in Item 3 of this report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Unless otherwise indicated, latest results discussed below are as of June 30, 2020. The financial statements included in this filing as of and for the six months ended June 30, 2020 are unaudited, and may not include year-end adjustments necessary to make those financial statements comparable to audited results, although in the opinion of management all adjustments necessary to make interim statements of operations not misleading have been included.
Overview
The company is an on-demand pharmacy, leveraging the latest in software technology, artificial intelligence, robotics and logistics to provide free same-day delivery of prescription medications, thereby avoiding the need to ever visit the pharmacy. NowRx was founded in February 2015 and commenced operations and revenue generation in January 2016. In 2015 the company was focused on obtaining its pharmacy licenses, developing the technology for the pharmacy platform and the mobile app, and establishing its first pharmacy location.
The company’s service has taken on more significance as a result of the coronavirus pandemic. Patients with underlying health conditions, many of them older, are increasingly looking for services that can provide free home delivery of prescription medications so they are not forced to visit crowded pharmacies and risk exposure.
The company’s net sales consist of payments for prescription and some over-the-counter (“OTC”) items. For a prescription medication covered by a third-party payor, such as an insurance company, a pharmacy benefit management (“PBM”) company or manufacturer coupon plan, the company receives a portion of its revenues from the patient, in the form of a co-payment paid or charged at the time the prescription is filled, and the remainder as a reimbursement from the third-party payor, at contracted prices. For prescription medication not covered by a third-party payor, the payment is collected entirely from the patient. The company records the amounts subject to reimbursement in accounts receivable until payment is received, typically 20-45 days after the prescription is filled. Cost of goods sold consists primarily of prescription and OTC medications that are acquired from wholesale suppliers.
Our net sales, gross profit margin and gross profit are impacted by, among other things, the percentage of prescriptions that we fill that are generic versus brand name, the rate at which new generic and brand name drugs are introduced to the market, the mix of business between prescription medications and OTC items, and variations in wholesale pricing. Because any number of factors outside of our control can affect timing for a generic conversion, we face substantial uncertainty in predicting when such conversions will occur and what effect they will have on particular future periods. Further consolidation among generic manufacturers coupled with changes in the number of major brand name drugs anticipated to undergo a conversion from branded to generic status may also result in gross margin pressures within the industry. We continuously face reimbursement pressure from PBM companies and other commercial third-party payors. In addition, plan changes with rate adjustments often occur in January and our reimbursement arrangements may provide for rate adjustments at prescribed intervals during their term. Wholesale pricing plans provide volume discounts that present an opportunity to increase gross margins as we grow our business. Increasing the percentage of revenue contributed by OTC items can also expand margins, as OTC items typically have higher margins than prescription medications. Longer term, we expect downward pressure on reimbursements to be offset by improvements in wholesale volume discounting and increased OTC sales. However there is significant uncertainty in predicting the result of these offsetting factors on margins.
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The company’s operating expenses consist of pharmacy operations and support, general and administrative, sales and marketing, depreciation, and research and development expenses. Pharmacy operations and support consists of expenses related to pharmacy payroll, delivery costs, rent for fulfilment and micro-fulfillment centers and other pharmacy operations expense includes pharmacy supplies, licenses and permits, etc. General and administrative consists primarily of payroll for administrative staff, legal and accounting expense, and headquarters rent.
Results of Operations
Six Months ended June 30, 2020 Compared to Six Months ended June 30, 2019
Net Sales
The company’s net sales for the six months ended June 30, 2020 (“Interim 2020”) were $5,794,748, an increase of $2,607,610, or 81.8%, from net sales of $3,187,138 for the six months ended June 30, 2019 (“Interim 2019”). This increase is attributable to a significant increase in number of customers. Cost of goods sold was $4,885,722 for Interim 2020, resulting in gross profit of $909,026, and a gross margin of 15.7%. This compares to cost of goods sold totaling $2,809,828, gross profit of $377,310, and a gross margin of 11.8% in Interim 2019. The company fulfilled 57,287 prescription orders in Interim 2020, as compared to 33,805 in Interim 2019. Average revenue per prescription and average gross profit per prescription during Interim 2020 were $100.14 and $15.87, respectively. During Interim 2019, average revenue per prescription and average gross profit per prescription during were $94.28 and $10.25, respectively. The recent increase in gross profit per prescription is primarily the result of an to improvement inventory purchasing procedures and correcting systematic errors in insurance claim submission processes, made possible via enhancements to the company’s pharmacy management software. The company’s mix of business, brand name drug vs. generic drug, which cause significant variation in revenue and margin per prescription, did not change materially during the first half of 2020 as compared to the same period in 2019. While the company does not anticipate dramatic change in the mix of business in the near term, new contracts from wholesaler arrangements, drug manufacturers, health facilities or other partners could have significant impact in its mix of business and/or margins.
Operating Expenses
Operating expenses for Interim 2020 were $6,199,588, compared to $2,711,677 for Interim 2019, an increase of $3,487,911, or 129%, resulting from the company’s expanding operations to meet increased customer demand, increase in marketing to raise awareness, and increase in technology development.
Sales and marketing expenses represented the largest component of this increase, from $405,312 in Interim 2019 to $2,589,787 in Interim 2020. A significant portion of the marketing expenses in Interim 2020, $2,002,398, was directly related to the company’s 2019 Regulation A Offering (see “-- Liquidity and Capital Resources” below). Marketing unrelated to the offering in Interim 2020 was $587,389, an increase of 45% over non-offering-related marketing in Interim 2019. The company’s sales and marketing payroll increased from $201,639 for Interim 2019 to $431,353 for Interim 2020, as the company added more capacity in its existing micro-fulfilment centers to support ongoing growth in customers. Other sales and marketing expenses for Interim 2020 were $156,036, a decrease of 23% from $203,673 for Interim 2019. The company intends to increase marketing, including advertising and hiring sales representatives, to drive further sales, which will result in a significant increase in these costs in future periods.
Pharmacy operations and support expenses represented the next largest component of this increase, from $1,531,317 in Interim 2019 to $2,245,557 for Interim 2020, as:
· | The company’s pharmacy payroll increased from $704,630 for Interim 2019 to $1,105,553 for Interim 2020, as the company fulfilled 57,287 prescriptions during Interim 2020 versus 33,305 prescriptions fulfilled during Interim 2019 and added more staff to its micro-fulfillment centers. |
· | Delivery costs increased from $360,372 for Interim 2019 to $638,449 for Interim 2020, as the company delivered 72% more prescriptions during Interim 2020 as compared to Interim 2019. |
· | Rent and other pharmacy operations expenses for Interim 2020 were $501,555, an increase of 8% from $466,316 for Interim 2019, as the company added 4 new micro-fulfilment centers to support expansion. |
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We anticipate that our pharmacy operations and support expenses will continue to increase as we continue to grow and expand geographically. To execute on our plan to establish multiple locations in strategic patient-dense areas, we will need to lease additional space for new micro-fulfilment centers. For instance, during Interim 2020, we entered leases for new facilities in the California cities of Pleasanton, Hayward and Van Nuys, as well as the city of Mesa, Arizona. Throughout the remainder of 2020 and beyond the company intends to continue to lease additional space for new fulfilment centers in new and existing territories to meet increasing customer demand.
General and administrative expenses for Interim 2020 were $762,173, compared to $347,460 for Interim 2019, an increase of 119%, as the company expanded corporate staffing to manage growth. Research and development expenses increased from $375,100 in Interim 2019 to $542,381 in Interim 2020, as the company continues to advance the development of its proprietary pharmacy management system, QuickFill. The company intends to continue investing in research and development to further enhance our pharmacy automation and logistics software platform.
Other income (expense) consists of interest income and expense. The company had interest expense of $58,362 in Interim 2020, compared to $1,465 in interest income in Interim 2019. The expense in Interim 2020 was attributable to interest accrued or paid on a new credit facility established with Decathlon Capital Partners. See “—Liquidity and Capital Resources – Indebtedness.” In Interim 2019, the company had no debt and therefore incurred no interest expense, however, the company earned interest income from a money market account.
As a result of the foregoing factors, the company’s net loss was $5,306,270 for Interim 2020, a 127% increase from a net loss of $2,332,902 in Interim 2019.
Liquidity and Capital Resources
As of June 30, 2020, the company’s cash on hand was $4,885,135. To date, the company has not made any profits and is still a “development stage company.” The company has recorded losses from the time of its inception in the total amount of $16,098,677.
In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), our management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the audited financial statements are issued. We have incurred substantial losses since our inception and we expect to continue to incur operating losses in the near-term. We expect that we will need to raise additional capital to meet anticipated cash requirements over the next several years, depending on changing market and competitive conditions, our ability to secure lower cost of goods with volume, as well as our ability to gain further efficiencies from our proprietary automation technology. In addition, we regularly consider fundraising opportunities and will determine the timing, nature and amount of financings based upon various factors, including market conditions and our operating plans. As we have done historically, we may again in the future elect to finance operations by selling equity or debt securities or borrowing money. If we raise funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common and preferred stock. If additional funding is required, we cannot assure you that additional funds will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund our operating needs. If we are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs. Doing so will likely have an unfavorable effect on our ability to execute on our business plan, and have an adverse effect on our business, results of operations and future prospects.
2019 Regulation A Offering; Issuance of Series B Preferred Stock
On September 20, 2019, the company commenced an offering pursuant to Regulation A under the Securities Act of 1933, as amended (the “2019 Regulation A Offering”), pursuant to which offered to sell up to 5,800,969 shares of its Series B Preferred Stock, convertible into shares of Common Stock, at a price of $3.4477 per share. The company intends to utilize the net proceeds from the 2019 Regulation A Offering to execute on its business plans.
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The company held its first closing in connection with the 2019 Regulation A Offering on November 19, 2019. The initial closing of the 2019 Regulation A Offering constituted a qualified financing for purposes of the company’s 2019 SAFE securities, all of which were converted into shares of the company’s Series B Preferred Stock at that date. The 2019 Regulation A Offering terminated on June 19, 2020. As of June 30, 2020, the company issued 3,518,230 shares of Series B Preferred Stock in the 2019 Regulation A Offering, which provided net cash proceeds after total offering expenses and commissions of $10,878,304. Subsequent to June 30, 2020, the company received an additional $8,360,473 in net proceeds and issued an additional 2,657,455 shares of Series B Preferred Stock. The company has used and will continue to use the net proceeds to hire additional sales personnel, purchase additional equipment and furnishings for its new fulfillment centers, fund expanding operations, and develop the next phase of its proprietary software.
In addition, during the six months ended June 30, 2020, the Company conducted a private placement under Regulation D of the Securities Act for shares of its Series B Preferred Stock in which it received gross proceeds of $328,620 for the issuance of 95,316 shares of Series B Preferred Stock.
2018 Regulation A Offering; Issuance of Series A Preferred Stock
On March 30, 2018, the company commenced an offering pursuant to Regulation A under the Securities Act (the “2018 Regulation A Offering”). In the 2018 Regulation A Offering, the company offered to sell up to 3,500,000 shares of its Series A Preferred Stock, convertible into shares of Common Stock, at a price of $2.00 per share. The company completed the 2018 Regulation A Offering in September 2018. The company issued 3,499,878 shares of Series A Preferred Stock in the 2018 Regulation A Offering, which provided net cash proceeds after total offering expenses and commissions of $6,352,845. The company used a portion of the net proceeds to hire additional sales personnel, purchase additional equipment and furnishings for its new fulfillment centers, pay security deposits in connection with the 3 new leases executed in 2018 and develop the next phase of its proprietary software.
Issuances of SAFE securities
In August and September 2019, the company issued a series of simple agreements for future equity (“SAFE securities”) for total proceeds of $675,000 in reliance on Regulation D under the Securities Act. The SAFE securities did not bear interest and had no maturity date. The proceeds of this offering were used for general business purposes. The initial closing of the 2019 Regulation A Offering triggered the conversion provisions of the SAFE securities, all of which converted into 279,429 shares of Series B Preferred Stock.
Paycheck Protection Program (PPP) Loan
The company applied for loans being administered by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Recovery Act of 2020 (“CARES Act”) to assist in maintaining payroll and operations through the period impacted by the COVID-19 pandemic. On April 21, 2020, the company entered into a loan under the Paycheck Protection Program (“PPP”), in the amount of $533,652, which may be forgivable as specified in the CARES Act. The loan will mature 2 years from the date it was issued and will accrue interest at a rate of 1% per year. If the company does not apply for loan forgiveness, it will be required to pay principal and interest payments of $30,032.32 per month, beginning six months from the last day of the covered period. The “covered period” during which PPP loan expenses may be incurred and spent begins on the date of loan origination and ends six months after origination. This funding helped defray additional expenses the company sustained due to having to pay hazard pay to employees, hire additional temporary workers and excess overtime due to surge in customer demand, and additional operational expenses due to additional safety measures being implemented within our pharmacy operations (daily cleanings, etc.). The company intends to apply for loan forgiveness by utilizing the funds in accordance with defined loan forgiveness guidance issued by the government. The Paycheck Protection Program Flexibility Act of 2020 authorized the company to apply for forgiveness of the funds utilized over the course of 24 weeks so long as the full-time equivalent staffing level remains the same (or increases) and that at least 60% of the funds are utilized to pay payroll costs. It is anticipated that between 80% and 100% of the PPP loan will be forgiven, according to the terms therein.
Indebtedness
In 2019, the Company entered into an $100,000 inventory financing arrangement with Kabbage. The loan is secured by all assets of the Company, bears an interest rate of approximately 23% per annum, and is payable over six months, with expected average monthly payments of approximately $17,833, for a total repayment of $107,000. This loan was paid in full during Interim 2020. There is no further obligation as of June 30, 2020.
In April 2018, the company extended the operating lease agreement for its office space in Mountain View, California for an additional 3 years. In connection with entering into the extension and as security deposit for the landlord, the company secured an irrevocable letter of credit with Silicon Valley Bank for $60,000 to the benefit of the landlord. To establish this facility, the Company placed $60,000 in a deposit account with Silicon Valley Bank. At June 30, 2020, the facility has not been drawn down and the company remains current with its lease payments.
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On April 29, 2020, the company entered into a $3 million revenue-based financing facility with Decathlon Capital Partners. The facility matures on the earliest of (a) September 29, 2024, (b) immediately prior to a change in control of the company and (c) acceleration of the obligations, such as upon the occurrence of any event of default under the agreement. If the facility is paid off after 6 months, the company will pay interest at a rate starting at 0.35 times the amount advanced under the facility up to 1.00 times the amount advanced if the facility is paid off after more than 30 months have elapsed from the effective date. The facility requires monthly payments, commencing on May 15, 2020, equal to the product of all revenue for the immediately preceding month and applicable revenue percentage, which is 2.25% in 2020, 2.5% in 2021 and 3.00% in 2022. If the annual revenue is not equal to at least 80% of projected revenue, the applicable revenue percentage for all subsequent payments will automatically increase by 0.50%, without notice from the lender. At June 30, 2020, $2,000,000 was outstanding under the facility.
In March 2020, the company entered into a 5-year operating lease agreement for micro-fulfilment space in Mesa, Arizona, as it expands outside of California. In June 2020, the company entered into a 5-year operating lease agreement for micro-fulfilment space in Pleasanton, California. In addition, in July and August 2020, the company entered into 5-year operating lease agreements for micro-fulfilment space in Hayward and Van Nuys, California. Management anticipates it will incur additional capital expenditures in the future as the company continues to expand to these and other new locations.
The company maintains inventory used in the normal course of business, and had $1,692,137 of inventory on hand as of June 30, 2020.
Trend Information
Margin trends
The company has several initiatives underway to increase gross margins and improve operating margins, as follows:
• | Pharmacy Management System – The company historically utilized an “off-the-shelf” industry software system to manage pharmacy operations. Management has noted several areas of inefficiencies in the pharmacy management system that cause higher than necessary labor costs for filling prescriptions, as well as, inefficiencies in inventory purchasing and insurance claims that negatively impact gross margins. Inventory purchases occur daily and human errors can result in a failure to purchase the lowest cost product available, sometimes having substantial impact on gross margin. Insurance claim processing is also subject to human errors that can negatively affect the insurance claim reimbursement amount, sometimes reducing the reimbursement several fold, again negatively impacting gross margin. During the latter half of 2018 and early 2019, the company developed a proprietary pharmacy management system to replace the “off-the-shelf” industry software the company historically utilized. The company expects this new pharmacy management system over time to reduce labor costs per prescription order, provide improvements in customer service, and improve control over inventory purchasing and insurance claim submissions. The system was put into production during April 2019, with significant updates planned every few months for the foreseeable future as the company continues to invest in Research and Development. Over time, the company anticipates a gradual reduction in pharmacy labor and an increase in gross margin, as the company continues to invest in research and development in software automation and gains inventory purchasing power with increased scale. There can be no assurances that these improvements will materialize exactly as expected. |
• | AI-Assisted Customer Chat Bot – The company is developing a proprietary system to provide its customer service agents a rapid, precise and effective response to customers via text or app notification. The system is based on artificial intelligent algorithms and natural language processing that accurately interprets pharmacy customer questions and automatically pulls critical information from the patient’s file. The information is presented to the customer service agent in in a variety of natural-language consistent responses that can be sent to the customer with a simple click. |
• | Optimized Robotic Dispensing – The company has more than a year of experience with a robotic dispensing system, the usage of which is currently below capacity. As order volume grows and the company further enhances its own proprietary pharmacy management system, we believe there is an opportunity to increase the efficiency and utility of the robot to reduce labor costs per order. |
• | Pharmacy Refill Process Optimization – The company is developing proprietary algorithms to opportunistically process refills in advance of customary refill date, based on geographic location, in order to optimize delivery routing and reduce delivery costs per order. |
• | Reduced Delivery Expense per Order – As the company increases revenue and customer volume per geography, the customer density increases and the run time per delivery is reduced, increasing the number of orders delivered per driver-hour and reducing the delivery cost per order. In addition, in territories with high customer density, the company plans to add additional micro-fulfilment centers and is developing algorithms to triage new customer requests and upcoming, scheduled refills based on their location to further optimize delivery routing. |
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• | Wholesale Volume Discounts – Wholesale pharmaceutical suppliers offer discounts for increasing volume of purchases and longer-term contracts. As we grow our business, management anticipates being able to purchase products at a reduced cost. |
• | Increased OTC sales – Many OTC products on average have a larger gross margin than the average prescription medication. Management intends to increase OTC as a percentage of sales over time, increasing average revenue per order (“basket size”) as well as increasing the overall gross margin for the company. |
• | Medication Synchronization – Many customers have multiple prescription medications that refill monthly, but often at times such that the refill dates fall on different days of the month causing multiple trips to the same customer’s house per month. By synchronizing medications, with the customer’s approval, to refill on the same day of the month, delivery efficiency can be enhanced, reducing delivery costs per order. |
Order trends
The company seeks to continually grow the number of orders and its revenues by focusing on two initiatives:
• | Increase sales and marketing through a combination of direct consumer advertising and sales representatives, which has generated steady growth from inception in the number of prescriptions, the number of referring physicians, and in revenues. The company plans to substantially increase spending on direct-to-consumer marketing during 2020 and 2021 to accelerate growth in customers and revenue, although there can be no assurances that this effort will produce substantial growth in customers and revenue, or produce a customer acquisition cost (CAC) that is attractive relative to the average life-time-value (LTV) of a typical customers. |
• | The company added its fourth operational pharmacy location in early May 2020, in Burlingame, California, and has 1 additional location licensed in Mesa, Arizona, that is expected to be fully operational by October, 2020, and has leased 3 additional facilities in California that are in various stages of being licensed and contracted with insurance company networks. The company anticipates having 8 micro-fulfilment centers operational by end of 2020. Should the company continue to have access to sufficient growth capital, the company plans to expand into new geographies and anticipate it will experience growth rates and other business performance metrics equal to or better than those achieved in the company’s initial service territory. Even if we are able to meet our projected timeline for establishing new geographies, these operations may not generate the anticipated growth in customers, orders and revenues at the pace that we project. Management believes that, given the growth pattern of revenues since inception through June 30, 2020, assuming we increase marketing expenditures as planned, it is likely that revenues will continue to increase. Management also believes the COVID-19 pandemic helps drive demand for the company’s services. Even if we are able to meet our projected timeline for establishing the new geographies and the pandemic continues to be a significant issue, these developments may not generate the anticipated growth in customers, orders, revenue and profit(loss) at the pace that we project. |
COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States. While the disruption is currently expected to be temporary, there is uncertainty around the duration.
COVID-19 has been a highly disruptive economic and societal event that has affected our business and has had a significant impact on consumer behavior. To serve our customers while also providing for the safety of our team members, we have adapted aspects of our operations.
As the company qualified as an essential business as defined by state regulations, we continued to operate our fulfillment centers with modifications to work flows to maintain social distancing. At the same time, we have taken a variety of safety measures following federal, state and local guidelines at our fulfillment centers’ operations. These safety measures include enhanced daily cleaning and disinfection policies, enhanced personal hygiene efforts and implementing social distancing efforts and awareness throughout the fulfillment centers. To date, we have not experienced any significant disruptions in our pharmacy operations, supply chain or any delivery interruptions or delays. If, as a result of COVID-19, we face disruptions in our supply chain, or are unable to continue to operate one or more of our fulfillment centers or timely deliver orders to our customers, we may not be able to retain our customers or attract new customers.
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Since late March 2020, we have experienced an increase in demand primarily as a result of changes to consumer behaviors resulting from the various stay-at-home orders in California in response to the COVID-19 pandemic. This increased demand may not continue at current levels, if at all, depending on the duration and severity of the COVID-19 pandemic, the length of time stay-at-home orders stay in effect and for economic and operating conditions, and consumer behaviors to resume to levels prior to the COVID-19 pandemic and numerous other uncertainties.
The ultimate financial impact on the company’s future operating results and consolidated financial statements cannot be reasonably estimated at this time. However, as of the date of this report, the company has experienced increased demand for its products and services, so it does not expect this matter will have a material negative impact on its business, results of operations, and financial position.
Item 2. Other Information
On April 29, 2020, the company entered into a revenue-based financing facility with Decathlon Capital Partners. See “—Liquidity and Capital Resources – Indebtedness” above. A copy of the revenue loan and security agreement has been filed as Exhibit 6.1 to this report.
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Item 3. Financial Statements
NowRx, Inc.
A Delaware Corporation
Financial Statements as of June 30, 2020 and December 31, 2019
and for the six-month periods ended June 30, 2020 and 2019
NowRx, Inc.
TABLE OF CONTENTS
Page | |
FINANCIAL STATEMENTS AS OF JUNE 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (AUDITED) AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED). | |
Balance Sheets | 1 |
Statements of Operations | 2 |
Statements of Changes in Stockholders’ Equity/(Deficit) | 3 |
Statements of Cash Flows | 4 |
Notes to Financial Statements | 5-21 |
BALANCE SHEETS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited)
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and equivalents | $ | 4,885,135 | $ | 702,626 | ||||
Accounts receivable, net | 943,001 | 568,664 | ||||||
Inventory | 1,660,354 | 941,543 | ||||||
Prepaid expense | 118,041 | 73,809 | ||||||
Total Current Assets | 7,606,531 | 2,286,642 | ||||||
Other non-current assets | 262,516 | 226,266 | ||||||
Property and equipment, net | 777,104 | 732,670 | ||||||
TOTAL ASSETS | $ | 8,646,151 | $ | 3,245,578 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 991,077 | $ | 659,360 | ||||
Accrued liabilities | 331,411 | 323,776 | ||||||
Warrant liability | 4,428 | - | ||||||
Loan payable, net of unamortized discount | 600,156 | - | ||||||
Short-term inventory financing | - | 63,667 | ||||||
Short-term notes payable | - | 125,000 | ||||||
Total Current Liabilities | 1,927,072 | 1,171,803 | ||||||
Non-Current Liabilities: | ||||||||
SBA Paycheck Protection Program loan | 543,652 | - | ||||||
Loan payable, net of unamortized discount and current portion | 1,395,580 | - | ||||||
Total Non-Current Liabilities | 1,939,232 | - | ||||||
Total Liabilities | 3,866,304 | 1,171,803 | ||||||
Stockholders' Equity: | ||||||||
Series A Preferred Stock, $0.00001 par value, 8,853,173 shares authorized, 8,853,173 shares issued and outstanding, liquidation preference of $17,706,346 as of June 30, 2020 and December 31, 2019. | 88 | 88 | ||||||
Series B Preferred Stock, $0.00001 par value, 6,500,000 shares authorized, 3,518,230 and 970,434 shares issued and outstanding, liquidation preferences of $12,129,802 and $3,345,765 as of June 30, 2020 and December 31, 2019, all respectively. | 35 | 10 | ||||||
Common stock, $0.00001 par value, 30,000,000 shares authorized, 8,540,000 and 8,527,500 shares issued and outstanding, 8,540,000 and 7,996,250 vested as of June 30, 2020 and December 31, 2019, all respectively. | 85 | 85 | ||||||
Additional paid-in capital | 20,878,480 | 12,823,345 | ||||||
Accumulated deficit | (16,098,841 | ) | (10,749,753 | ) | ||||
Total Stockholders' Equity | 4,779,847 | 2,073,775 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 8,646,151 | $ | 3,245,578 |
See accompanying notes, which are an integral part of these financial statements.
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STATEMENTS OF OPERATIONS (UNAUDITED)
For the six-month periods ended June 30, 2020 and 2019
June 30, | June 30, | |||||||
2020 | 2019 | |||||||
Sales, net | $ | 5,794,748 | $ | 3,187,138 | ||||
Cost of goods sold | (4,885,722 | ) | (2,809,828 | ) | ||||
Gross profit | 909,026 | 377,310 | ||||||
Operating Expenses: | ||||||||
Pharmacy operations and support | 2,245,557 | 1,531,217 | ||||||
General and administrative | 768,789 | 347,460 | ||||||
Sales and marketing | 2,589,787 | 405,312 | ||||||
Depreciation expense | 53,074 | 52,579 | ||||||
Research and development | 542,381 | 375,109 | ||||||
Total Operating Expenses | 6,199,588 | 2,711,677 | ||||||
Loss from operations | (5,290,562 | ) | (2,334,367 | ) | ||||
Other Income (Expenses): | ||||||||
Interest income (expense) | (58,526 | ) | 1,465 | |||||
Total Other Income (Expenses) | (58,526 | ) | 1,465 | |||||
Net Loss | $ | (5,349,088 | ) | $ | (2,332,902 | ) | ||
Weighted-average vested common shares outstanding: | ||||||||
- Basic and Diluted | 8,353,750 | 6,375,000 | ||||||
Net loss per common share | ||||||||
- Basic and Diluted | $ | (0.64 | ) | $ | (0.37 | ) |
See accompanying notes, which are an integral part of these financial statements. In the opinion of management all adjustments necessary in order to make the interim financial statements not misleading have been included.
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STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT) (UNAUDITED)
For the six-month periods ended June 30, 2020 and 2019
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Total | |||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Additional Paid- In Capital | Accumulated Deficit | Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | 8,841,630 | $ | 88 | - | $ | - | 8,527,500 | $ | 85 | $ | 10,055,650 | $ | (4,963,557 | ) | $ | 5,092,266 | ||||||||||||||||||||
Issuance of preferred stock as broker commission | 11,543 | - | - | - | - | - | 23,086 | - | 23,086 | |||||||||||||||||||||||||||
Offering costs | - | - | - | - | - | - | (24,129 | ) | - | (24,129 | ) | |||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | 9,784 | - | 9,784 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (2,332,902 | ) | (2,332,902 | ) | |||||||||||||||||||||||||
Balance at June 30, 2019 | 8,853,173 | 88 | - | - | 8,527,500 | 85 | 10,064,391 | (7,296,459 | ) | 2,768,105 | ||||||||||||||||||||||||||
Issuance of preferred stock for cash | - | - | 691,005 | 7 | - | - | 2,382,379 | - | 2,382,386 | |||||||||||||||||||||||||||
Offering costs | - | - | - | - | - | - | (308,443 | ) | - | (308,443 | ) | |||||||||||||||||||||||||
Conversion of SAFE agreements | - | - | 279,419 | 3 | - | - | 674,997 | - | 675,000 | |||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | 10,021 | - | 10,021 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (3,453,294 | ) | (3,453,294 | ) | |||||||||||||||||||||||||
Balance at December 31, 2019 | 8,853,173 | 88 | 970,424 | 10 | 8,527,500 | 85 | 12,823,345 | (10,749,753 | ) | 2,073,775 | ||||||||||||||||||||||||||
Issuance of preferred stock for cash | - | - | 2,547,806 | 25 | - | - | 8,784,134 | - | 8,784,159 | |||||||||||||||||||||||||||
Offering costs | - | - | - | - | - | - | (737,640 | ) | - | (737,640 | ) | |||||||||||||||||||||||||
Exercise of stock options | - | - | - | - | 12,500 | - | 1,025 | - | 1,025 | |||||||||||||||||||||||||||
Issuance of warrant | - | - | - | - | - | - | 1,000 | - | 1,000 | |||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | 6,616 | - | 6,616 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (5,349,088 | ) | (5,349,088 | ) | |||||||||||||||||||||||||
Balance at June 30, 2020 | 8,853,173 | $ | 88 | 3,518,230 | $ | 35 | 8,540,000 | $ | 85 | $ | 20,878,480 | $ | (16,098,841 | ) | $ | 4,779,847 |
See accompanying notes, which are an integral part of these financial statements.
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STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six-month periods ended June 30, 2020 and 2019
June 30, | June 30, | |||||||
2020 | 2019 | |||||||
Cash Flows from Operating Activities | ||||||||
Net Loss | $ | (5,349,088 | ) | $ | (2,332,902 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 53,074 | 52,579 | ||||||
Stock-based compensation | 6,616 | 9,784 | ||||||
Loan discount amortization | 164 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Change in receivables | (374,337 | ) | (4,287 | ) | ||||
Change in inventory | (718,811 | ) | (131,699 | ) | ||||
Change in prepaid expenses | (44,232 | ) | (30,185 | ) | ||||
Change in deposits | - | 15,000 | ||||||
Change in other non-current asset | (36,250 | ) | (54,890 | ) | ||||
Change in accounts payable and accrued liabilities | 339,352 | (263,752 | ) | |||||
Net Cash Used in Operating Activities | (6,123,512 | ) | (2,740,352 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchases of property and equipment | (97,508 | ) | (172,108 | ) | ||||
Net Cash Used in Investing Activities | (97,508 | ) | (172,108 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Repayments of short-term inventory financing | (63,667 | ) | - | |||||
Proceeds from SBA Paycheck Protection Program loan | 543,652 | - | ||||||
Proceeds from loan payable | 2,000,000 | - | ||||||
Proceeds/(repayments) from/on short-term notes payable | (125,000 | ) | - | |||||
Proceeds from issuance of preferred stock | 8,784,159 | - | ||||||
Offering costs | (737,640 | ) | (1,043 | ) | ||||
Proceeds from exercise of stock options | 1,025 | - | ||||||
Proceeds from issuance of warrant | 1,000 | - | ||||||
Net Cash Provided by Financing Activities | 10,403,529 | (1,043 | ) | |||||
Net Change In Cash | 4,182,509 | (2,913,503 | ) | |||||
Cash at Beginning of Period | 702,626 | 4,253,065 | ||||||
Cash at End of Period | $ | 4,885,135 | $ | 1,339,562 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest | $ | 59,998 | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - |
See accompanying notes, which are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
NOTE 1: NATURE OF OPERATIONS
NowRx, Inc. (the “Company”), is a corporation organized February 19, 2015 under the laws of Delaware. The Company is an on-demand pharmacy that fulfills and delivers customer prescriptions using a web and application-based platform.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP).
The Company adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company is dependent upon additional capital resources for its planned full-scale operations and is subject to significant risks and uncertainties; including failing to secure funding to continue to operationalize the Company’s plans or failing to profitably operate the business.
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of June 30, 2020 and December 31, 2019, the Company’s cash balances exceeded federally insured limits by $4,135,135 and $452,626, respectively. As of June 30, 2020 and December 31, 2019, $60,000 of the cash balance is restricted due to collateral requirements for a letter of credit (LOC) in the same amount used in lieu of a security deposit for one of the Company’s locations.
Accounts Receivable
The Company assesses its receivables based on historical loss patterns, aging of the receivables, and assessments of specific identifiable customer accounts considered at risk or uncollectible. The Company also considers any changes to the financial condition of its customers and any other external market factors that could impact the collectability of the receivables in the determination of the allowance for doubtful accounts. The Company has recorded an allowance against its accounts receivable balances of $17,170 as of June 30, 2020 and December 31, 2019.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Inventory
Inventory is stated at the lower of cost or market and accounted for using the weighted average cost method. The inventory balances of $1,660,354 and $941,543 as of June 30, 2020 and December 31, 2019, respectively, consisted of pharmaceuticals and related products. The Company records impairment and obsolescence reserves against its inventory balances as deemed necessary.
Property and Equipment
Property and equipment are recorded at cost when purchased. Depreciation is recorded for property and equipment using the straight-line method over the estimated useful lives of assets, which range from 5-15 years. The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. Depreciation charges on property and equipment totaled $53,074 and $52,579 for the periods ended June 30, 2020 and 2019, respectively. The Company’s property and equipment consisted of the following as of June 30, 2020 and December 31, 2019:
6/30/2020 | 12/31/2019 | |||||||
Automobiles | $ | 264,891 | $ | 212,312 | ||||
Furniture and equipment | 435,272 | 435,271 | ||||||
Leasehold improvements | 289,464 | 244,536 | ||||||
Property and equipment, at cost | 989,627 | 892,119 | ||||||
Less: accumulated depreciation | (212,523 | ) | (159,449 | ) | ||||
Property and equipment, net | $ | 777,104 | $ | 732,670 |
Warrant Liabilities
Freestanding warrants to purchase shares of the Company’s common stock are classified as liabilities on the balance sheets at their estimated fair value when the warrant holder has the option to elect to receive cash value for the warrants and, therefore, may obligate the Company to transfer assets at some point in the future. Such common stock warrants are recorded at fair value upon issuance and are subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of such common stock warrants are recorded in the statements of operations. The Company will continue to adjust the liability associated with the liability classified common stock warrants for changes in the estimated fair value until the earlier of the exercise or expiration of the common stock warrants. Common stock warrants that are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital. The fair value of these common stock warrants is determined using the Black-Scholes option-pricing model.
The Company issued common stock warrant in connection with the execution of certain debt financing during the period ended June 30, 2020. The Company determined that this warrant is liability classified and recorded as debt discount and is being amortized over the term of the related debt.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the balance sheets approximate their fair value.
Revenue Recognition
ASC Topic 606, “Revenue from Contracts with Customers” establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to performance obligations in the contract; and 5) recognize revenue as the performance obligation is satisfied. No adjustments to revenue recognition were required from the adoption of ASC 606, which was adopted January 1, 2019 and retroactively applied to the periods presented. The Company generally recognizes revenues upon shipment of its products.
Cost of goods sold includes product costs, while delivery related costs are included in pharmacy operations and support in the statement of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Research and Development
Research and development costs are expensed as incurred. Total expense related to research and development was $542,381 and $375,109 for the periods ended June 30, 2020 and 2019, respectively.
Sales and Marketing
Sales and marketing costs are expensed as incurred and include advertising costs related to the Series A and Series B Preferred Stocks offering. Total expense related to the offerings was $2,002,398 and $1,043 for the periods ended June 30, 2020 and 2019, respectively.
Deferred Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to stockholders’ equity upon the completion of an offering or to expense if the offering is not completed.
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will be realized.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. The Company has determined that there are no material uncertain tax positions.
The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current period and for the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future. The Company had net operating loss carryforwards of $17,492,232 and $11,435,044 as of June 30, 2020 and December 31, 2019, respectively. The Company pays Federal and California income taxes at rates of approximately 21% and 8.8%, respectively, and has used an effective blended rate of 28% to derive net tax assets of $4,897,266 and $3,200,519 as of June 30, 2020 and December 31, 2019, respectively, resulting from its net operating loss carryforwards and other temporary book to tax differences. Due to uncertainty as to the Company’s ability to generate sufficient taxable income in the future to utilize the net operating loss carryforwards before they begin to expire in 2035, the Company has recorded a full valuation allowance to reduce the net deferred tax asset to zero.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
The Company files U.S. federal and state income tax returns. All previous tax returns have been filed. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject.
Net Earnings or Loss per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net earnings or loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of June 30, 2020 and 2019, diluted net loss per share is the same as basic net loss per share for each period.
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a business that has not yet generated profits, has negative cash flows from operations, has sustained net losses of $5,349,088 and $2,332,902 during the periods ended June 30, 2020 and 2019, respectively, and has an accumulated deficit of $16,098,841 as of June 30, 2020.
The Company’s ability to continue as a going concern in the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to generate revenues and raise capital as needed to satisfy its capital needs. No assurance can be given that the Company will be successful in these efforts.
These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities.
NOTE 4: FINANCING ARRANGEMENTS
Kabbage Loans
In August 2017, the Company entered into an inventory financing arrangement of $62,100 with Kabbage, an inventory financier. The loan is secured by all assets of the Company, bears an interest rate of approximately 24% per annum, and is payable over six months, with expected average monthly payments of approximately $11,075, for a total repayment of $66,447. The loan was repaid in full during the year ended December 31, 2018.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
In 2019, the Company entered into an $100,000 inventory financing arrangement with Kabbage. The loan is secured by all assets of the Company, bears an interest rate of approximately 23% per annum, and is payable over six months, with expected average monthly payments of approximately $17,833, for a total repayment of $107,000. The balance due under this obligation as of December 31, 2019 was $63,667. The loan was repaid in full during the period ended June 30, 2020.
Short-Term Notes Payable
In October 2019, the Company issued two secured promissory notes for total principal of $125,000. The notes are secured by substantially all assets of the Company. The notes bear interest at 10% per annum. No payments are required until maturity on March 1, 2020 (extended to September 30, 2020) when all principal and interest are due. The outstanding principal balance at December 31, 2019 was $125,000, accrued interest payable at December 31, 2019 was $2,082. The loan was repaid in full during the period ended June 30, 2020. Interest expense for the period ended June 30, 2020 was $4,841.
SAFE Agreements
In 2019, the Company issued simple agreements for future equity (SAFE Agreement) in exchange for cash investments totaling $675,000 (the “Purchase Amount”). The SAFE Agreements entitle the holder to convert the SAFE agreements into the Company’s preferred stock (this classification of stock has not yet been authorized or established). The terms provide for automatic conversion of the SAFE agreements’ purchase amounts into the Company’s preferred stock if and upon a qualified equity financing event, which is generally defined as a transaction or series of transactions involving the issuance of the Company’s preferred stock at a fixed pre-money valuation. The number of shares of preferred stock the SAFE agreements convert into is the Purchase Amount divided by the discount price. Discount rate is 15% for $75,000, 20% for $300,000, 30% for $150,000, and 50% for $150,000.
In the case of a liquidation event (as defined in the SAFE agreement) before the termination of the SAFE, the SAFE will automatically be entitled to receive a portion of proceeds equal to the greater of a) cash of the Purchase Amount; b) the amount payable on the number of Common Stock shares equal to the Purchase Amount divided by the Liquidity Price (as defined in the agreement).
The SAFE agreements provide holders with various additional protections, including preferences over
unitholders in a dissolution event for payment of the Purchase Amount and anti-dilution protections. If the SAFE agreement converts into the Company’s preferred stock, it will have all the same rights and privileges of the preferred stock from the triggering financing, except that the liquidation preference will be equal to the Purchase Amount.
In 2019, the Series B Preferred Stock offering triggered conversion of all the SAFE agreements resulting in the conversion of the then outstanding purchase amounts of $675,000 into 279,429 shares of Series B Preferred Stock.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
SBA Paycheck Protection Program Loan
On April 21, 2020, the Company applied for and received an SBA Paycheck Protection Program loan from Silicon Valley Bank for $533,652. The instrument matures in 24 months and bears 1% interest per annum. As no repayments have occurred to date, the outstanding principal balance as of June 30, 2020 was $533,652.
Loan Payable
On April 29, 2020, the Company entered into a revenue loan and security agreement with a third party for $2,000,000. The instrument requires monthly payments, commencing on May 15, 2020, equal to the product of all revenue for the immediately preceding month and applicable revenue percentage, which is 2.25% in 2020, 2.50% in 2021 and 3.00% in 2022. If the annual revenue is not equal to at least 80% of the projected revenue, the applicable revenue percentage for all subsequent payments will automatically increase by 0.50%, without notice from the lender. The instrument matures on the earliest of (a) September 29, 2024, (b) immediately prior to a change in control and (c) acceleration of the obligations, such as upon the occurrence of any event of default, as discussed in the agreement. The instrument bears interest, with minimum interest ranging from 0.35 to 1.00 times the amount advanced, depending on the period during which the payoff date occurs. The loan is secured by the Company’s assets. In addition, the Company issued warrant to the lender for a consideration of $1,000 (see Note 5). The fair value of this warrant was $4,428, which was recorded as a discount to the loan payable and is being amortized over the term of the loan.
At June 30, 2020, the carrying balance of the loan payable amounted to $1,995,736, net of unamortized discount of $4,264. For the period ended June 30, 2020, amortization of discount was $164 and interest expense was $43,280.
NOTE 5: STOCKHOLDERS’ EQUITY/(DEFICIT)
Capital Structure
In 2018, the Company had authorized 20,000,000 shares of $0.00001 par value common stock and 10,000,000 shares of $0.00001 par value Series A Preferred Stock. The certificate of incorporation was amended in 2019, authorizing 30,000,000 shares of $0.00001 par value common stock and 18,000,000 shares of $0.00001 par value preferred stock. The preferred stock is designated as 8,853,173 shares of $0.00001 par value Series A Preferred Stock, 6,500,000 shares of Series B Preferred Stock, and leaves 2,646,827 shares of preferred stock undesignated.
As of each June 30, 2020 and December 31, 2019, 8,540,000 shares of common stock were issued and outstanding. As of each June 30, 2020 and December 31, 2019, 8,853,173 and 8,853,173 shares of Series A Preferred Stock were issued and outstanding, respectively. As of each June 30, 2020 and December 31, 2019, 3,518,630 and 970,434 shares of Series B Preferred Stock were issued and outstanding, respectively.
The preferred stockholders have certain dividend preferences over common stockholders. The preferred stock are subject to an optional conversion right, where the preferred stock are convertible into fully paid and non-assessable shares of common stock at a 1:1 rate, with certain dilution protections and automatic conversion upon a qualifying IPO or vote of preferred stockholders (each as defined in the certificate of incorporation). The preferred stockholders are entitled to a liquidation preference over common stockholders at the preferred stock purchase price of $2.00 per share for Series A Preferred Stock and $3.4477 per share for Series B Preferred Stock, providing a total liquidation preference of $29,837,526 and $21,052,111 as of June 30, 2020 and December 31, 2019, respectively. Preferred stockholders have voting rights on an as-converted basis.
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NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Common Stock
In June of 2015, the Company issued its two founders a total of 8,500,000 shares of common stock at $0.00001 per share, in exchange for $850 of cash and intellectual property. These stock issuances were conducted under terms of restricted stock purchase agreements and are subject to vesting terms contingent upon continuous service with the Company, which provide the Company the right to repurchase unvested shares at the original purchase price. These shares vest at 1/48 per month, commencing May 2015. As of December 31, 2017, 5,489,583 of the shares had vested. During 2018, the founders entered into an agreement to re-vest their shares. Under this agreement, the total outstanding common stock become 50% vested and 50% unvested, and then vest monthly over 24 months commencing March 2018. As of June 30, 2020, and December 31, 2019, 8,500,000 and 7,996,250 shares of common stock were vested, respectively.
During 2018, the founders of the Company transferred a collective total of 1,700,000 shares of common stock to another co-founder.
During the six-month period ended June 30, 2020, two employees exercised stock options into 12,500 shares of common stock at exercise prices of $0.05 and $0.21 per share, resulting in proceeds of $1,025.
2019 Regulation A Offering; Issuance of Series B Preferred Stock
On September 20, 2019, the Company commenced an offering pursuant to Regulation A under the Securities Act of 1933, as amended (the “2019 Regulation A Offering”), pursuant to which it offered to sell up to 5,800,969 shares of its Series B Preferred Stock, convertible into shares of Common Stock, at a price of $3.4477 per share. The Company intends to utilize the net proceeds from the 2019 Regulation A Offering to execute on its business plans, although there can be no assurances to what extent the offering will be subscribed.
The Company held its first closing in connection with the 2019 Regulation A Offering on November 19, 2019, in which it received gross proceeds in excess of $1.6 million. The initial closing of the 2019 Regulation A Offering constituted a qualified financing for purposes of the Company’s 2019 SAFE securities with investment amounts totally $675,000, all of which were converted into a total of 279,429 shares of the Company’s Series B Preferred Stock at that date. As of December 31, 2019, the Company issued 691,005 shares of Series B Preferred Stock in the 2019 Regulation A Offering, which provided gross cash proceeds of $2,382,386. The Company has used a portion of the net proceeds to hire additional sales personnel, purchase additional equipment and furnishings for its new fulfillment centers, pay security deposits in connection with the 3 new leases executed in 2019 and develop the next phase of its proprietary software.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
During the six-month period ended June 30, 2020, the Company had several additional closings in connection with the 2019 Regulation A Offering, in which it received gross proceeds of $8,455,480 for the issuance of 2,452,490 shares of Series B Preferred Stock.
Regulation D Placement; Issuance of Series B Preferred Stock
During the six-month period ended June 30, 2020, the Company conducted a private placement under Regulation D of the Securities Act for shares of its Series B Preferred Stock in which it received gross proceeds of $328,620 for the issuance of 95,316 shares of Series B Preferred Stock.
2018 Regulation A Offering; Issuance of Series A Preferred Stock
The Company conducted an offering of its Series A Preferred Stock in 2018, issuing 3,499,878 shares of Series A Preferred Stock at $2.00 per share, providing gross proceeds of $6,999,721. In conjunction with this offering, the Company issued its broker 163,451 shares of Series A Preferred Stock valued at $326,900, in addition to cash broker fees and other associated offering costs with this offering, which were charged to additional paid-in capital.
This offering triggered conversion of all outstanding SAFE agreements, KISS notes, and Crowd Notes into Series A Preferred Stock. SAFE agreements with purchase amounts totaling $1,829,960 were converted into 2,540,006 shares of Series A Preferred Stock at conversion prices of $0.60 or $1.00 per share. KISS notes with outstanding principal and accrued interest totaling $1,571,028 were converted into 2,206,195 shares of Series A Preferred Stock at conversion prices of $0.60 or $1.00 per share. Crowd Notes with outstanding principal and accrued interest totaling $258,138 were converted into 432,100 shares of Series A Preferred Stock at conversion prices of $0.60 per share.
During the six-month period ended June 30, 2019, 11,543 shares of Series A preferred stock were issued to a broker as compensation, which were recorded at fair value of $23,086 against additional paid-in capital and offering costs.
2015 Equity Incentive Plan
The Company adopted the 2015 Equity Incentive Plan (the “Plan”), as amended and restated. The Plan permits the grant of stock options, stock appreciation rights and restricted stock to attract and retain employees and consultants. Under the Plan, the Company issues stock appreciation rights and options having a term of up to ten years and a strike price of no less than fair market value of common stock at the time of issuance. Restricted stock is subject to vesting restrictions determined on a case-by-case basis. While shares may be restricted, the restricted stockholder retains voting rights for each share, regardless of restriction. Upon termination of employment or services, the Company may exercise its repurchase option over unvested equity interests. The Company issues new common shares upon the exercise of options.
The Company has reserved 1,500,000 shares of common stock under the Plan. As of June 30, 2020 and December 31, 2019, 204,489 and 148,695 shares of common stock were available for grant under the Plan, respectively. A summary of options activities for the periods ended June 30, 2020 and December 31, 2019 is as follows:
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
June 30, 2020 | December 31, 2019 | |||||||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | |||||||||||||
Outstanding - beginning of year | 1,323,805 | $ | 0.07 | 903,055 | $ | 0.07 | ||||||||||
Granted | 137,206 | $ | 0.80 | 428,250 | $ | 0.21 | ||||||||||
Exercised | (12,500 | ) | $ | 0.21 | - | $ | - | |||||||||
Forfeited | (193,000 | ) | $ | 0.15 | (7,500 | ) | $ | 0.21 | ||||||||
Outstanding - end of year | 1,255,511 | $ | 0.21 | 1,323,805 | $ | 0.07 | ||||||||||
Exercisable at end of year | 842,609 | $ | 0.13 | 885,130 | $ | 0.10 | ||||||||||
Weighted average grant date fair value of options granted during year | $ | 0.040 | $ | 0.103 | ||||||||||||
Intrinsic value of options outstanding at year-end | $ | 743,815 | $ | 125,840 | ||||||||||||
Weighted average duration (years) to expiration of outstanding options at year-end | 7.4 | 7.3 | ||||||||||||||
Weighted average duration (years) to expiration of exercisable options at year-end | 6.5 | 6.4 |
The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The expected life of stock options was estimated using the “simplified method,” which is the midpoint between the vesting start date and the end of the contractual term, as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.
The stock option issuances were valued using the using the following inputs for the periods ended June 30, 2020 and December 31, 2019:
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
June 30, 2020 | December 31, 2019 | |||||
Risk Free Interest Rate | 0.53 | % | 1.84%-2.62% | |||
Expected Dividend Yield | 0.00 | % | 0.00% | |||
Expected Volatility | 50.00 | % | 50.00% | |||
Expected Life (years) | 7 | 5 - 8 | ||||
Fair Value per Stock Option | $ | 0.04 | $0.010 - $0.115 |
The Company calculated its estimate of the value of the stock compensation granted for the periods ended June 30, 2020 and December 31, 2019 under FASB ASC 718 and FASB ASC 505, and recorded compensation costs related to the stock option grants of $6,616 and $19,805, respectively. As of June 30, 2020, there is $36,885 of stock-based compensation to be recognized over a weighted-average period of approximately 3 years.
Warrant
On April 29, 2020, the Company issued a warrant in conjunction with execution of a revenue loan and security agreement for consideration of $1,000. The warrant expires on April 29, 2030. The warrant provides the lender with the right to purchase shares of the Company’s common stock, with the number of shares dependent upon the buyout value in the triggering change in control event, whereby the holder is to receive the number of shares to represent 0.15% of the total buyout value in the triggering change in control event. The Company estimated the number of shares to be issued under this warrant using the fully diluted capitalization on the date of issuance multiplied by the 0.15% buyout rate, which provided for 33,045 shares. The warrant may be settled in a cash payment. The Company considered accounting guidance and determined that this warrant is liability classified. The warrant liability will be re-measured at fair value each reporting period. The settlement of the warrant liability will occur once all the warrants have either been exercised or expire. The calculated fair value of the warrants using the Black-Scholes model was $4,428, which was recorded as discount to the loan and is being amortized over the term of the loan.
The Black-Scholes fair value was determined using the following inputs:
June 30, 2020 | ||||
Risk Free Interest Rate | 0.36 | % | ||
Expected Dividend Yield | 0.00 | % | ||
Expected Volatility | 50.00 | % | ||
Expected Life (years) | 5 | |||
Fair Value per Warrant | $ | 0.13 |
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
NOTE 6: RELATED PARTY TRANSACTIONS
During 2015, the Company’s co-founders extended financing of $65,000 and $15,000, a Director extended financing in the amount of $50,000, and an employee extended financing to the Company in the amount of $25,000. In 2016, that employee issued another $10,000. In 2018, that Director issued another $250,000 to the Company. All such financings were through the SAFE agreements discussed in Note 4. All such balances remained outstanding as of December 31, 2017 and were converted during 2018 to Series A Preferred Stock, as discussed in Note 5.
The Company reimburses the CEO for an apartment on a month-to-month basis. Rent is $1,677 per month and is available for reimbursement monthly.
NOTE 7: LEASE ARRANGEMENTS
Lease Agreement – Office Space
In June 2015, the Company entered into a 3-year operating lease agreement for office space. The agreement called for a security deposit of $8,898 and monthly payments of $4,194 for the first year, with subsequent annual rent increases of 3% over the next two years. Additionally, the Company is responsible for 18% of the homeowners’ association dues, which currently totals $200-$300 per month. In April 2018, the Company extended the existing lease 3-year operating lease for the office space. The security deposit was lowered to $5,051 creating the difference of $3,848 being credited towards rent in August 2018.
Future minimum payments under this lease are as follows:
2020 | $ | 30,083 | ||
2021 | 37,880 | |||
Total future minimum lease payments | $ | 67,963 |
For the periods ended June 30, 2020 and 2019, the Company incurred $33,231 and $31,244 of rent expense related to this lease, respectively.
Lease Agreement – San Jose
In July 2018, the Company entered into a 5-year operating lease agreement for office space in San Jose, California. The agreement called for a security deposit of $50,000 and monthly payments of $4,877 for the first year, with subsequent annual rent increases of 3% over the next four years. Additionally, the Company is responsible for 0.027% of the common area maintenance charges of the complex.
Future minimum payments under this lease are as follows:
2020 | $ | 31,566 | ||
2021 | 64,284 | |||
2022 | 66,588 | |||
2023 | 33,870 | |||
Total future minimum lease payments | $ | 196,308 |
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
For the periods ended June 30, 2020 and 2019, the Company incurred $46,705 and $42,624 of rent expense related to this lease, respectively.
Lease Agreement – Mountain View Office
In August 2018, the Company entered into a 3-year operating lease agreement for office space in Mountain View, California. The agreement called for a security deposit of $10,000 and monthly payments of $1,320 for the first year, with subsequent annual rent increases of 3% over the next two years. Additionally, the Company is responsible for $285 per month of the common area maintenance charges of the complex.
Future minimum payments under this lease are as follows:
2020 | $ | 8,320 | ||
2021 | 11,200 | |||
Total future minimum lease payments | $ | 19,520 |
For the periods ended June 30, 2020 and 2019, the Company incurred $10,215 and $9,762 of rent expense related to this lease, respectively.
Lease Agreement – Santa Ana
In December 2018, the Company entered into a 5-year operating lease agreement for office space in Santa Ana, California starting in January 2019. The agreement called for a security deposit of $50,000 and monthly payments of $8,531 for the first year, with subsequent annual rent increases of 3% over the next five years. The Company terminated this lease on June 30, 2019, surrendering its $50,000 deposit. For the period ended June 30, 2019, the Company incurred $101,188 of rent expense related to this lease, inclusive of $50,000 of forfeited lease surrender value.
Lease Agreement – Mountain View
In February 2019, the Company entered into a 1-year and 4-month operating lease agreement for office space in Mountain View, California starting in February 2019. The agreement called for a security deposit of $5,066 and monthly payments of $4,918 for the first year, with subsequent annual rent increases of 3% over the next year. Additionally, the Company is responsible for 21% of the common area maintenance charges of the complex. For the periods ended June 30, 2020 and 2019, the Company incurred $34,922 and $26,972 of rent expense related to this lease, respectively.
Lease Agreement – Burlingame
In February 2019, the Company entered into a 5-year operating lease agreement for office space in Burlingame, California starting in February 2019. The agreement called for a security deposit of $30,000 and monthly payments of $8,742 for the first year, with subsequent annual rent increases of 3% over the next four years. Additionally, the Company is responsible for 25% of the common area maintenance charges of the complex.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Future minimum payments under this lease are as follows:
2020 | $ | 54,030 | ||
2021 | 111,030 | |||
2022 | 114,358 | |||
2023 | 117,793 | |||
2024 | 9,840 | |||
Total future minimum lease payments | $ | 407,051 |
For the periods ended June 30, 2020 and 2019, the Company incurred $58,241 and $43,935 of rent expense related to this lease.
Lease Agreement – Irvine
In June 2019, the Company entered into a 5-year operating lease agreement for office space in Irvine, California starting in September 2019. The agreement called for a security deposit of $57,400 and monthly payments of $8,500 for the first year, with subsequent annual rent increases of 3% over the next four years. Additionally, the Company is responsible for 42% of the common area maintenance charges of the complex.
Future minimum payments under this lease are as follows:
2020 | $ | 52,020 | ||
2021 | 106,112 | |||
2022 | 109,296 | |||
2023 | 112,572 | |||
2024 | 76,536 | |||
Total future minimum lease payments | $ | 456,536 |
For the period ended June 30, 2020 the Company incurred $68,542 of rent expense related to this lease.
Lease Agreement – Mesa, AZ
In March 2020, the Company entered into a 5-year, 2-month operating lease agreement for office space in Mesa, Arizona starting in May 2020. The agreement called for a security deposit of $20,000 and monthly payments of $6,051 for the first year, with subsequent annual rent increases averaging 2.67% over the next four years. Additionally, the Company is responsible for 3.6% of the common area maintenance charges of the complex and 2.3% for rental tax.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Future minimum payments under this lease are as follows:
2020 | $ | 37,143 | ||
2021 | 75,317 | |||
2022 | 77,380 | |||
2023 | 79,444 | |||
2024 | 81,507 | |||
2025 | 41,269 | |||
Total future minimum lease payments | $ | 392,060 |
For the period ended June 30, 2020 the Company incurred $0 of rent expense related to this lease.
Lease Agreement – Pleasanton, CA
In June 2020, the Company entered into a 5-year, 1-month operating lease agreement for office space in Pleasanton, California starting in August 2020. The agreement called for a security deposit of $10,000 and monthly payments of $8,085 for the first year, with subsequent annual rent increases of 3% over the next four years. Additionally, the Company is responsible for 25% of the common area maintenance charges of the complex.
Future minimum payments under this lease are as follows:
2020 | $ | 32,340 | ||
2021 | 97,990 | |||
2022 | 100,930 | |||
2023 | 103,958 | |||
2024 | 107,077 | |||
2025 | 72,798 | |||
Total future minimum lease payments | $ | 515,092 |
For the period ended June 30, 2020 the Company incurred $0 of rent expense related to this lease.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.
NOTE 9: CONCENTRATIONS
The Company has significant concentrations in its account receivables, where approximately 48% and 76% of its accounts receivable balance as of June 30, 2020 and December 31, 2019, respectively, were held with one pharmacy services administration organization (PSAO) payor and 13% of its accounts receivable were held with a pharmacy benefits manager (PBM) as of June 30, 2020. Should these payors no longer be able to satisfy these obligations to the Company, it would have a significantly adverse effect to the Company.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Approximately 85% of the Company’s products are procured through a single supplier. Should this supplier no longer be willing or able to satisfy the Company’s product needs it could adversely affect the Company’s business.
NOTE 10: RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance throughout the ASC. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures, including but not limited to a review of accounting policies, internal controls and processes. The Company adopted this new standard retroactively effective January 1, 2019 and did not realize any significant impacts to its past or 2019 revenues as a result.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
NOTE 11: SUBSEQUENT EVENTS
Stock Issuances
Through the issuance of these financial statements, the Company has received additional gross proceeds in the 2019 Regulation A Offering of $9,162,135 through the issuance of 2,657,455 shares of Series B Preferred Stock at $3.4477 per share.
Lease Agreement – Hayward, CA
In July 2020, the Company entered into a 5-year, 1-month operating lease agreement for office space in Hayward, California starting in August 2020. The agreement called for a security deposit of $7,455 and monthly payments of $6,624 for the first year, with subsequent annual rent increases of 3% over the next four years.
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NOWRX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2020 (unaudited) and December 31, 2019 (audited) and for the six-month periods ended June 30, 2020 and 2019 (unaudited)
Lease Agreement – Van Nuys, CA
In August 2020, the Company entered into a 5-year, 1-month operating lease agreement for office space in Van Nuys, California starting in October 2020. The agreement called for a security deposit of $9,805 and monthly payments of $9,805 for the first year, with average subsequent annual rent decreases of 1.51% over the next four years.
Management’s Evaluation
Management has evaluated subsequent events through September 23, 2020, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
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Item 4. Exhibits
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this report, in each case as indicated below.
Exhibit Number | Description | |
2.1 | Second Amended and Restated Certificate of Incorporation (1) | |
2.2 | Bylaws (2) | |
3.1 | Series A Preferred Stock Conversion Agreement (3) | |
3.2 | Series B Preferred Stock Conversion Agreement (4) | |
4.1 | Form of Series B Subscription Agreement (5) | |
4.2 | Form of Series A Subscription Agreement (6) | |
6.1 | Revenue Loan and Security Agreement dated as of April 29, 2020 | |
8 | Form of Escrow Agreement (7) |
(1) Filed as an exhibit to the NowRx, Inc. Current Report on Form 1-U dated November 19, 2019 and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000110465919067702/tm1923944d1_ex2-1.htm
(2) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10792) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420418002814/tv481456_ex2-3.htm
(3) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11058) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420419040140/tv526960_ex3-3.htm
(4) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11058) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420419040140/tv526960_ex3-3.htm
(5) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11058) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420419044606/tv529216_ex4.htm
(6) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10792) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420418014641/tv488125_ex4-1.htm
(7) Filed as an exhibit to the NowRx, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11058) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1702206/000114420419044606/tv529216_ex8.htm
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, California, on September 25, 2020.
NowRx, Inc. | ||
/s/ Cary Breese | ||
By: Cary Breese, Chief Executive Officer |
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the date indicated.
/s/ Cary Breese | |
Cary Breese, Chief Executive Officer, | |
Principal Financial Officer, Principal Accounting Officer, Director | |
Date: September 25, 2020 | |
/s/ Sumeet Sheokand | |
Sumeet Sheokand, Director | |
Date: September 25, 2020 | |
/s/ Barry Karlin | |
Barry Karlin, Director | |
Date: September 25, 2020 |
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