See accompanying notes to the condensed consolidated
financial statements.
See accompanying notes to the condensed consolidated
financial statements.
See accompanying notes to the condensed consolidated
financial statements.
See accompanying notes to the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
UNAUDITED
|
1.
|
ORGANIZATION AND BUSINESS
|
CV Sciences, Inc. (the “Company,”
“we,” “our” or “us”) was incorporated under the name Foreclosure Solutions, Inc. in the State
of Texas on December 9, 2010. On July 25, 2013, the Company’s predecessor, CannaVest Corp., a Texas corporation (“CannaVest
Texas”), merged with the Company, a wholly-owned Delaware subsidiary of CannaVest Texas, to effectuate a change in the Company’s
state of incorporation from Texas to Delaware. On January 4, 2016, the Company filed a Certificate of Amendment of Certificate
of Incorporation reflecting its corporate name change to “CV Sciences, Inc.”, effective on January 5, 2016. In addition,
on January 4, 2016, the Company amended its Bylaws to reflect its corporate name change to “CV Sciences, Inc.” The
Company previously operated under the corporate name of CannaVest Corp. The change in corporate name was undertaken in connection
with the acquisition of CanX Inc., a Florida-based, specialty pharmaceutical corporation (“CanX Acquisition”) as more
fully set forth in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”)
on January 4, 2016.
The Company operates two distinct
business segments: a specialty pharmaceutical segment focused on developing and commercializing novel therapeutics utilizing synthetic
Cannabidiol (“CBD”); and, a consumer product segment in manufacturing, marketing and selling plant-based CBD products
to a range of market sectors.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
– The condensed consolidated financial statements include the accounts of CV Sciences, Inc. and
its wholly-owned subsidiaries US Hemp Oil, LLC, CannaVest Laboratories, LLC, Plus CBD, LLC. and CANNAVEST Acquisition, LLC; and
the accounts of a 70% interest in CannaVest Europe, GmbH (collectively, the “Company”). All intercompany accounts
and transactions have been eliminated in consolidation. The Company commenced commercial operations on January 29, 2013. On May
2, 2016, the Company filed Articles of Dissolution for its wholly-owned subsidiaries US Hemp Oil, LLC and CannaVEST Laboratories,
LLC, with the Secretary of State of Nevada, effective as of April 29, 2016. Neither US Hemp Oil, LLC nor CannaVEST Laboratories,
LLC had any assets or liabilities.
The
unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations
of the SEC. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present
the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial
statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements and notes for the year ended December 31, 2015, filed with the SEC on
the Company’s Annual Report on Form 10-K filed on April 14, 2016. The results for the three months ended March 31, 2016,
are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
Change
in Accounting Policy
– During the first quarter of fiscal 2016, the Company changed its accounting policy for shipping
and handling costs from sales of Company products. Under the new accounting policy, these costs are included in cost of goods
sold, whereas, they were previously included in selling, general and administrative expenses. Including these expenses in cost
of goods sold better aligns these costs with the related revenue in the gross profit calculation. This accounting policy change
has been applied retrospectively.
The
Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 have been reclassified to reflect
this change in accounting policy. The impact of this reclassification was an increase of $86,291 and $53,024 to cost of goods
sold for the first quarter of 2016 and 2015, respectively, and a corresponding decrease to selling, general and administrative
expenses in the same periods. This reclassification had no impact on Net Sales, Operating Loss, Net Loss or Net Loss per Share.
Liquidity
– For the three months ended March 31, 2016 and 2015, the Company had net losses of $1,533,117 and $2,648,809, respectively.
In addition, for the three months ended March 31, 2016 and 2015, the Company had negative cash flows from operations of $112,258
and $2,582,851, respectively. Management believes the Company has the funds needed to continue its consumer product business segment
and meet its other obligations over the next year solely from current revenues and cash flow due to increased sales and because
our current inventory levels are sufficient to support sales for 2016, resulting in reduced cash outflow for inventory purchases.
In addition, we do not intend to purchase raw inventory from our supply chain arrangements from the 2016 crop. The Company’s
pharmaceutical business segment will require additional capital of approximately $1,500,000 over the next 12 months. We currently
have an executed term sheet on a financing arrangement that would provide this capital. Management believes that it will be able
to obtain such financing on terms acceptable to the Company, however, there can be no assurances that the Company will be successful.
If the Company is unable to raise additional capital, the Company would likely be forced to curtail pharmaceutical development.
Business
Combinations
–
We apply the provisions of the Accounting Standards Codification (“ASC”) 805,
Business
Combinations
(“ASC 805”), in the accounting for our acquisitions. ASC 805 establishes principles and
requirements for recognizing and measuring the total consideration transferred to and the assets acquired, liabilities
assumed and any non-controlling interests in the acquired target in an asset purchase. ASC 805 requires us to recognize
separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of
the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values
of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our
estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to
one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of
assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated
statements of operations.
Accounting
for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition
date, including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent
consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable
and appropriate, they are based in part on historical experience and information obtained from the management of the acquired
companies and are inherently uncertain.
Examples
of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to:
|
·
|
future expected cash flow from supply chain relationships with growers and processors of our hemp
extracted CBD oil;
|
|
·
|
expected costs to develop the In-process Research and Development (“IPR&D”) into
commercially viable pharmaceutical products and estimated cash flows from the projects when completed;
|
|
·
|
the acquired company’s brand, trade names and competitive position, as well as assumptions
about the period of time the acquired brand will continue to be used in the combined Company’s product portfolio; and
|
Goodwill and Intangible Assets
– The Company evaluates the carrying value of goodwill and intangible assets annually during the fourth quarter in accordance
with ASC 350
Intangibles – Goodwill and Other
and between annual evaluations if events occur or circumstances change
that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could
include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition,
or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair
value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill.
The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the
market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value,
then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair
value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the
fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values.
The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair
value of goodwill.
We make critical assumptions and
estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several
years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions,
market competition, inflation and discount rates.
We classify
intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets
with indefinite lives not subject to amortization, and (3) goodwill. We determine the useful lives of our identifiable intangible
assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining
useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term
strategy for using the asset, any laws or regulations which could impact the useful life of the asset and other economic factors,
including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily
on a straight-line basis, over their useful lives, generally five years.
IPR&D has an indefinite
life and is not amortized until completion and development of the project, at which time the IPR&D becomes an amortizable asset.
If the related project is not completed in a timely manner or the project is terminated or abandoned, the Company may have an impairment
related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value. The intangible assets
with estimable useful lives are amortized on a straight line basis over their respective estimated useful lives to their estimated
residual values. This method of amortization approximates the expected future cash flow generated from their use.
During
the three months ended March 31, 2016 and 2015, there were no impairments.
Use of Estimates
– The Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of
these consolidated financial statements requires us to make significant estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We evaluate
our estimates, including those related to contingencies, on an ongoing basis. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates
include the valuation of intangible assets, the amortization lives of intangible assets, valuation of contingent
consideration, inputs for valuing warrants and stock-based compensation, and the allowance for doubtful accounts. It is at
least reasonably possible that a change in the estimates will occur in the near term.
Reportable Segment
– With the recent CanX Acquisition, the Company has two business segments. Our consumer products segment develops, manufactures
and markets products based on plant-based CBD, including under the name
PlusCBD™
in a variety of market sectors
including nutraceutical, beauty care, specialty foods and vape. Our drug development segment is newly established to develop a
variety of drug candidates which use synthetic CBD as a primary active ingredient. There were no activities for the Company’s
drug development segment for the three months ended March 31, 2016.
Cash and Cash
Equivalents
– For purposes of the consolidated statements of cash flows, the Company considers amounts held by
financial institutions and short-term investments with an original maturity of three months or less when purchased to be cash
and cash equivalents. At each of March 31, 2016 and December 31, 2015, the Company had no cash equivalents.
Concentrations of Credit
Risk
– As of March 31, 2016, the Federal Deposit Insurance Corporation (“FDIC”) provided insurance
coverage of up to $250,000 per depositor per bank. The Company has not experienced any losses in such accounts and does not
believe that the Company is exposed to significant risks from excess deposits. The Company’s cash balance in excess of
FDIC limits totaled $208,267 at March 31, 2016.
At March 31, 2016, the Company had
three notes receivable totaling $555,784, two of which are from sale of inventory to MediJane Holdings, Inc. and Medical Marijuana,
Inc. (“MJNA”), and the third note is from a litigation settlement with MJNA (Note 3).
One customer represented 64% of our
accounts receivable balance at March 31, 2016 and two customers represented 83% of our accounts receivable balance at December
31, 2015.
Accounts Receivable
– Generally, the Company requires payment prior to shipment. However, in certain circumstances, the Company grants credit
to companies located throughout the U.S. Accounts receivable consists of trade accounts arising in the normal course of business.
Accounts receivable for large accounts are generally secured. Smaller accounts receivable, generally less than $10,000, are unsecured
and no interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered
delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve
made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis.
Management has determined the allowance
for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition
and credit history, and current economic conditions. As of March 31, 2016 and December 31, 2015, the Company had recorded an allowance
for doubtful accounts related to accounts receivable in the amount of $100,000.
Revenue Recognition
- The Company recognizes revenue in accordance with the ASC Topic 605,
Revenue Recognition
which requires persuasive evidence
of an arrangement, delivery of a product or service, a fixed or determinable price and assurance of collection within a reasonable
period of time. The Company records revenue when goods are delivered to customers and the rights of ownership have transferred
from the Company to the customer.
Sales Tax
– The
Company is responsible for collecting tax on sales to end customers and remitting these taxes to applicable jurisdictions. These
taxes are assessed based on the location of the end customer and the laws of the jurisdiction in which they reside.
Shipping and Handling
– Shipping and handling costs totaled $86,291 and $53,024 for the three months ended March 31, 2016 and 2015, respectively,
and are recorded in cost of goods sold.
Returns
–
Finished
Products
– Within ten (10) days of a customer’s receipt of Company’s finished products, the customer
may return (i) finished products that do not conform to Company’s product specifications or (ii), finished products
which are defective, provided that notice of condition is given within five (5) days of receiving the finished products.
The failure to comply with the foregoing time requirements shall be deemed a waiver of the customer’s claim for
incorrect or defective shipments. In the event of the existence of one or more material defects in any finished product upon
delivery to the customer, the Company shall, at its sole option and cost, either (a) take such measures as are required to
cure the defect(s) designated in the notice, or (b) replace such defective finished product(s). The Company may, at its sole
option, require the return or destruction of the defective finished products. The customer shall afford the Company the
opportunity to verify that such defects existed prior to shipment and were not, for purposes of example and not limitation,
the result of improper transport, handling, storage, product rotation or misuse by the customer.
Bulk Oil Products
–
Sales of bulk oil products are generally final, and beginning in 2015 the Company does not accept returns under any circumstances.
There is no allowance for customer returns at March 31, 2016 or December 31, 2015 due to insignificant return amounts experienced
during the fiscal quarter ended March 31, 2016 and the year ended December 31, 2015.
Compensation and
Benefits
– The Company records compensation and benefits expense for all cash and deferred compensation,
benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned
by temporary employees and contractors who perform similar services to those performed by the Company’s employees,
primarily information technology and project management activities.
Stock-Based
Compensation
– Certain employees, officers, directors and consultants of the Company participate in various
long-term incentive plans that provide for granting stock options and restricted stock awards. Stock options generally vest
in equal increments over a two- to four-year period and expire on the tenth anniversary following the date of grant.
Restricted stock awards generally vest 100% at the grant date.
The Company recognizes stock-based
compensation for equity awards granted to employees, officers, and directors as compensation and benefits expense on the condensed
consolidated statements of operation. The fair value of stock options is estimated using a Black-Scholes valuation model on the
date of grant. The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date
of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals
the vesting period.
The Company recognizes stock-based
compensation for equity awards granted to consultants as selling, general and administrative expense on the condensed consolidated
statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant
and unvested awards are revalued at each reporting period. The fair value of restricted stock awards is equal to the closing price
of the Company’s stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized
over the requisite service period of the individual awards, which generally equals the vesting period.
Inventory
–
Inventory is stated at lower of cost or market, with cost being determined on average cost basis. There was no reserve for
obsolete inventory as of March 31, 2016 or December 31, 2015. Amounts paid to suppliers in advance for inventory is
classified as prepaid inventory. Once the Company has assumed ownership, the cost of prepaid inventory is reclassified to
inventory. As of March 31, 2016, the Company had $7,812,530 of inventory in Germany and The Netherlands.
Property &
Equipment
– Equipment is stated at cost less accumulated depreciation. Cost represents the purchase price of
the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line
basis over the assets’ estimated useful lives. Tenant improvements are amortized on a straight-line basis over the
remaining life of the related lease. Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the
historically-recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds
from disposal is charged or credited to other income (expense).
Property and equipment,
net, as of March 31, 2016 and December 31, 2015 were as follows:
|
|
Useful Lives
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Office furniture and equipment
|
|
3 years
|
|
$
|
323,265
|
|
|
$
|
323,265
|
|
Tenant improvements
|
|
14 to 39 months
|
|
|
70,592
|
|
|
|
70,592
|
|
Laboratory and other equipment
|
|
5 years
|
|
|
361,710
|
|
|
|
361,710
|
|
|
|
|
|
|
755,567
|
|
|
|
755,567
|
|
Less: accumulated depreciation
|
|
|
|
|
(364,977
|
)
|
|
|
(315,952
|
)
|
|
|
|
|
$
|
390,590
|
|
|
$
|
439,615
|
|
Depreciation expense for the three months ended March 31,
2016 and 2015 was $49,025 and $44,225, respectively.
Fair Value of Financial
Instruments
– In accordance with ASC Topic 825,
Financial Instruments
, the Company calculates the fair
value of its assets and liabilities which qualify as financial instruments and includes this additional information in the
notes to its financial statements when the fair value is different than the carrying value of those financial instruments.
The estimated fair value of the Company’s current assets and current liabilities approximates their carrying amount due
to their readily available nature and short maturity.
Long-Lived Assets
– In accordance with ASC Topic 360,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the Company
reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of property and equipment is measured by comparing its carrying value to
the undiscounted projected future cash flows that the asset(s) are expected to generate. If the carrying amount of an asset
is not recoverable, we recognize an impairment loss based on the excess of the carrying amount of the long-lived asset over
its respective fair value, which is generally determined as the present value of estimated future cash flows or at the
appraised value. The impairment analysis is based on significant assumptions of future results made by management, including
revenue and cash flow projections. Circumstances that may lead to impairment of property and equipment include a significant
decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition and a significant adverse change in legal factors or in the
business climate that could affect the value of a long-lived asset including an adverse action or assessment by a
regulator.
Debt Issuance Costs –
Debt issuance costs have been capitalized as a discount to secured convertible promissory notes payable and are being amortized
to interest expense using the interest method over the expected terms of the related debt agreements.
Loss per Share
– The Company calculates earning or loss per share (“EPS”) in accordance with ASC Topic 260,
Earnings
per Share
, which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed
based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based
on the weighted average number of shares of common stock outstanding plus all potentially dilutive shares of common stock
outstanding during the period. The Company had 9,723,000 and 6,390,000 of stock options outstanding that are anti-dilutive at
March 31, 2016 and March 31, 2015, respectively. As of March 31, 2016, there was also warrants outstanding to purchase up to
2,000,000 shares of common stock. In addition, during the second quarter of 2016, the Company issued 500,000 shares of common
stock in connection with the purchase of raw materials from our European supplier. The Company may also be required to issue
up to 19,500,000 shares of common stock related to contingent consideration from the CanX Acquisition.
Research and Development
Expense
– Research and development costs are charged to expense as incurred and include, but are not limited
to, employee salaries and benefits, cost of inventory used in product development, consulting service fees, the cost of
renting and maintaining our laboratory facility and depreciation of laboratory equipment.
Income Taxes –
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the
rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely
than not be realized. In accordance with ASC Topic 740,
Income Taxes
, the Company recognizes the effect of uncertain
income tax positions only if the positions are more likely than not of being sustained in an audit, based on the technical
merits of the position. Recognized uncertain income tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which those changes in
judgment occur. The Company recognizes both interest and penalties related to uncertain tax positions as part of the income
tax provision. As of March 31, 2016 and December 31, 2015, the Company did not have a liability for unrecognized tax
uncertainties. The Company is subject to routine audits by taxing jurisdictions. Management believes the Company is no longer
subject to tax examinations for the years prior to 2011.
Recent Issued and Newly Adopted
Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2014-09,
Revenue from Contracts
with Customers
(Topic 606)
(“ASU 2014-09”), which completes the joint effort by the FASB and the International
Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and the International
Financial Reporting Standards. ASU 2014-09 will become effective for the Company beginning January 1, 2017 and early adoption
is not permitted. The Company is currently evaluating the potential impact of ASU 2014-09 on the Company’s consolidated
financial statements.
In August 2014,
the
FASB
issued guidance requiring management to evaluate on a regular basis whether any conditions or events have arisen
that could raise substantial doubt about the entity’s ability to continue as a going concern. The guidance (1) provides a
definition for the term “substantial doubt,” (2) requires an evaluation every reporting period, interim periods included,
(3) provides principles for considering the mitigating effect of management’s plans to alleviate the substantial doubt, (4)
requires certain disclosures if the substantial doubt is alleviated as a result of management’s plans, (5) requires an express
statement, as well as other disclosures, if the substantial doubt is not alleviated, and (6) requires an assessment period of one
year from the date the financial statements are issued. The standard is effective for the Company’s reporting year beginning
January 1, 2017 and early adoption is permitted. The Company is evaluating the potential impact of this guidance on the Company’s
consolidated financial statements.
In July 2015, the FASB issued ASU
2015-11,
Inventory: Simplifying the Measurement of Inventory
, which requires inventory measured using any method other than
last-in, first out or the retail inventory method to be subsequently measured at the lower of cost of net realizable value, rather
than at the lower of cost or market. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and
for interim periods within such annual period. Early application is permitted. The Company is evaluating the potential impact of
this guidance on the Company’s consolidated financial statements.
In September 2015, the FASB issued
ASU 2015-16,
Business Combinations
(“ASU 2015-16”), which simplifies the accounting for measurement-period adjustments
by eliminating the requirement to restate prior period financial statements for measurement period adjustments. The new guidance
requires the cumulative impact of measurement period adjustments, including the impact on prior periods, to be recognized in the
reporting period in which the adjustment is identified. ASU 2015-16 is effective for public companies for fiscal years beginning
after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for any interim and annual
financial statements that have not yet been issued. The Company has implemented this standard during the first quarter of 2016.
In February 2016, the FASB issued
ASU 2016-02,
Leases
(“ASU 2016-02”), which, for operating leases, requires a lessee to recognize a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard
also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term,
on a generally straight-line basis. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the potential
impact of this guidance on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU
2016-09,
Compensation – Stock Compensation
(“ASU 2015-09”), which involve multiple aspects of the accounting
for share-based transactions, including income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating
the potential impact of this guidance on the Company’s consolidated financial statements.
Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the
SEC did not, or are not believed by management to have a material impact on the Company’s present or future financial statements.
Notes receivable at March 31, 2016
and December 31, 2015 was comprised of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Medical Marijuana, Inc. settlement note and accrued interest
|
|
$
|
60,351
|
|
|
$
|
60,351
|
|
Medical Marijuana, Inc. promissory note and accrued interest
|
|
|
480,000
|
|
|
|
480,000
|
|
MediJane Holdings note and accrued interest
|
|
|
15,433
|
|
|
|
77,330
|
|
|
|
|
555,784
|
|
|
|
617,681
|
|
Less current portion
|
|
|
555,784
|
|
|
|
617,681
|
|
Long-term portion
|
|
$
|
–
|
|
|
$
|
–
|
|
The MJNA settlement note relates
to an agreement as reported in the Company’s Form 8-K filed with the SEC on July 20, 2015 (the “July Form 8-K”).
As further discussed in the July Form 8-K, on July 14, 2015, the Company entered into a settlement agreement with MJNA, HempMeds
PX, LLC, Kannaway, LLC, General Hemp, LLC, HDDC Holdings, LLC, Rabbit Hole Technologies, Inc., Hemp Deposit and Distribution Corporation
and MJNA Holdings, LLC (collectively, the “MJNA Parties”) to settle multiple litigation matters between the Company
and the MJNA Parties (the “Settlement Agreement”).
Pursuant to the Settlement Agreement,
the MJNA Parties paid the Company the sum of $150,000 and delivered a promissory note in the principal amount of $600,000 (“Settlement
Note”), bearing interest at the rate of 6% per annum, payable in six equal monthly installments of $101,757 commencing August
15, 2015. The promissory note was secured by shares of the Company’s common stock held by the MJNA Parties. In November 2015,
MJNA failed to timely pay the fourth payment installment under the Settlement Note and therefore defaulted on the Settlement Note.
On December 3, 2015, the Company foreclosed on the Settlement Note collateral consisting of Company common stock. The foreclosure
resulted in the Company obtaining rights to receive 624,750 shares of our common stock in full satisfaction of the remaining principal
and accrued interest balance. At the foreclosure date, the Company took immediate possession of 500,000 shares held in escrow.
At March 31, 2016, the Company was arranging to obtain the remaining 124,750 shares as collateral under the Settlement Note. The
Settlement Note balance of $60,351 at each of March 31, 2016 and December 31, 2015 represents the fair value at the foreclosure
date of the remaining 124,750 shares.
In August 2015, we entered into an
agreement to sell MJNA our products and received from MJNA a promissory note in the principal amount of $2,002,910 (“MJNA
Promissory Note”) that was to be paid in 12 equal installments beginning on November 3, 2015 in exchange for the product
shipped to MJNA. The MJNA Promissory Note is secured by 2,000,000 shares of the Company’s common stock held in escrow. MJNA
has failed to make any payments on the MJNA Promissory Note and is in default. The MJNA Promissory Note is likely not collectible,
and the probable form of collection is for the Company to foreclose on the 2,000,000 shares of Company common stock. At March 31,
2016 and December 31, 2015, the fair value of the collateral was determined to be $480,000, equal to the $0.24 per share closing
price of the Company’s Common Stock as of December 31, 2015, multiplied by the 2,000,000 shares of Company common stock.
The MediJane Holdings, Inc. (“MJMD”)
note relates to the sale of Company products during December 2014 in exchange for a convertible promissory note in the amount
of $1,200,000 (“MJMD Note”). The full amount of the MJMD Note was due on June 23, 2015 along with accrued interest
at 10%. MJMD was unable to secure financing in support of its operations and was not able to sell or otherwise commercialize the
Company products purchased. In February 2016, the Company entered into an amendment to the MJMD Note, providing for the return
of Company products previously sold to MJMD. A portion of the Company products previously sold to MJMD were returned to the Company
in February 2016 with the remaining products to be returned in June 2016. At March 31, 2016 and December 31, 2015, the fair value
of the remaining Company products to be returned was determined to be $15,433 and $77,330, respectively, equal to the cost value
of the Company products to be returned.
Inventory at March 31, 2016 and December
31, 2015 was comprised of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Raw materials
|
|
$
|
13,271,249
|
|
|
$
|
13,668,255
|
|
Finished goods
|
|
|
603,275
|
|
|
|
465,665
|
|
|
|
$
|
13,874,524
|
|
|
$
|
14,133,920
|
|
Accrued expenses at March 31, 2016
and December 31, 2015 were as follows:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Accrued interest on convertible debt
|
|
$
|
–
|
|
|
$
|
69,063
|
|
Accrued payroll expenses
|
|
|
225,488
|
|
|
|
160,960
|
|
Other accrued liabilities
|
|
|
182,944
|
|
|
|
292,696
|
|
|
|
$
|
408,432
|
|
|
$
|
522,719
|
|
|
6.
|
INTANGIBLE ASSETS, NET
|
Intangible assets consisted of the
following at March 31, 2016 and December 31, 2015:
|
|
Original Fair Market Value
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Useful Life (Years)
|
|
Balance - March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor relationships
|
|
$
|
1,170,000
|
|
|
$
|
741,000
|
|
|
$
|
429,000
|
|
|
|
5
|
|
In-process research and development
|
|
|
3,730,000
|
|
|
|
–
|
|
|
|
3,730,000
|
|
|
|
–
|
|
Trade names
|
|
|
330,000
|
|
|
|
150,667
|
|
|
|
179,333
|
|
|
|
5
|
|
Non-compete agreements
|
|
|
2,787,000
|
|
|
|
1,719,683
|
|
|
|
1,067,317
|
|
|
|
5
|
|
|
|
$
|
8,017,000
|
|
|
$
|
2,611,350
|
|
|
$
|
5,405,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor relationships
|
|
$
|
1,170,000
|
|
|
$
|
682,500
|
|
|
$
|
487,500
|
|
|
|
5
|
|
In-process research and development
|
|
|
3,730,000
|
|
|
|
–
|
|
|
|
3,730,000
|
|
|
|
–
|
|
Trade names
|
|
|
330,000
|
|
|
|
134,167
|
|
|
|
195,833
|
|
|
|
5
|
|
Non-compete agreements
|
|
|
2,787,000
|
|
|
|
1,580,333
|
|
|
|
1,206,667
|
|
|
|
5
|
|
|
|
$
|
8,017,000
|
|
|
$
|
2,397,000
|
|
|
$
|
5,620,000
|
|
|
|
|
|
Amortization expense for the three
months ended March 31, 2016 and 2015 totaled $214,350 and $205,500, respectively.
Total receivables from MJNA totaled
$540,351 at both March 31, 2016 and December 31, 2015, respectively.
During the three months ended March
31, 2016 and 2015, the Company paid $2,977 and $1,542,413, respectively, to a stockholder of the Company who is a supplier of
hemp oil and hemp to the Company.
Secured Convertible Promissory
Notes Payable
On May 19, 2015 (the “Closing
Date”), the Company entered into a Securities Purchase Agreement (“SPA”) with Redwood Management, LLC (the “Investor”
or “Redwood”) pursuant to which the Investor committed to lend to the Company up to $6,500,000 (the “Financing”).
During the year ended December
31, 2015, the Company issued four tranches of convertible promissory notes (“Notes”) in the aggregate principal
amount of $1,785,000 to the Investor and other third parties who were assigned rights by the Investor to participate in the
Financing (together with the Investor, the “Investors”). During the first quarter of 2016, the Company repaid all
obligations under the SPA and has no intention of seeking further capital from the Investor, or any other investor(s) in the
Financing.
The
Company’s borrowings and conversions under the SPA for the three months ended March 31, 2016 and for the year ended December
31, 2015 is summarized in the table below:
|
|
|
|
|
March 31,
2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Maturity
|
|
|
Balance
|
|
|
Balance
|
|
|
Interest Rate
|
|
Senior Secured Convertible Promissory Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche 1 (Promissory Note 1)
|
|
May 19, 2016
|
|
|
$
|
–
|
|
|
$
|
510,000
|
|
|
|
10%
|
|
Tranche 2 (Promissory Note 2)
|
|
June 12, 2016
|
|
|
|
255,000
|
|
|
|
510,000
|
|
|
|
10%
|
|
Tranche 3 (Promissory Note 3)
|
|
July 24, 2016
|
|
|
|
510,000
|
|
|
|
510,000
|
|
|
|
10%
|
|
Tranche 4 (Promissory Note 4)
|
|
September 16, 2016
|
|
|
|
255,000
|
|
|
|
255,000
|
|
|
|
10%
|
|
Total borrowings
|
|
|
|
|
|
|
1,020,000
|
|
|
|
1,785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes converted (Promissory Note 1)
|
|
|
|
|
|
|
–
|
|
|
|
(510,000
|
)
|
|
|
|
|
Convertible notes converted (Promissory Note 2)
|
|
|
|
|
|
|
(255,000
|
)
|
|
|
(255,000
|
)
|
|
|
|
|
Convertible notes converted/repaid (Promissory Note 3)
|
|
|
|
|
|
|
(510,000
|
)
|
|
|
–
|
|
|
|
|
|
Convertible notes repaid (Promissory Note 4)
|
|
|
|
|
|
|
(255,000
|
)
|
|
|
–
|
|
|
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
–
|
|
|
|
(99,805
|
)
|
|
|
|
|
Unamortized debt discount - beneficial conversion feature
|
|
|
|
|
|
|
–
|
|
|
|
(38,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount of debt
|
|
|
|
|
|
|
–
|
|
|
|
881,803
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
–
|
|
|
|
881,803
|
|
|
|
|
|
Long-term borrowings - net of current portion
|
|
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
During the three months ended March
31, 2016, the Company repaid the remaining principal and interest balance under the Notes as follows: (i) issued 3,062,535 shares
of its common stock to the Investors in connection with conversion of the remaining $255,000 principal balance of Promissory Note 2; (ii)
repaid $357,000 of the aggregate principal amount of Promissory Note 3 plus interest in the amount of $148,944 in cash to the Investors, and
issued 2,500,000 shares of its common stock to the Investors in connection with the conversion of the remaining principal amount
of $153,000 of Promissory Note 3; and, (iii) repaid the entire principal amount of Promissory Note 4 in the amount of $255,000 plus interest in the amount
of $93,075 in cash to the Investors.
Unsecured Note Payable
On January 29, 2016, the Company
issued an unsecured promissory note to a lender in the principal amount of $850,000 (“Promissory Note”) in consideration
of a loan provided to the Company by the lender. The Promissory Note bears interest at 12% per annum, and the Company is obligated
to make monthly interest-only payments in the amount of $8,500, commencing March 1, 2016. All principal and accrued and unpaid
interest is due under the Promissory Note on February 1, 2018. The Company has the right to prepay the Promissory Note without
penalty or premium, provided that if a prepayment of principal is made before July 1, 2016, the investor is entitled to a prepayment
interest guarantee equal to six months’ interest payments on the Promissory Note. In connection with the Promissory Note,
the Company incurred an original issue discount of $30,000 and $18,570 of other debt issuance costs, which will be amortized over
the Promissory Note term.
The Company’s borrowing under
the Promissory Note for the three months ended March 31, 2016 and for the year ended December 31, 2015 is summarized below:
|
|
|
|
|
March 31,
2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Maturity
|
|
|
Balance
|
|
|
Balance
|
|
|
Interest Rate
|
|
Unsecured promissory note payable
|
|
February 1, 2018
|
|
|
$
|
850,000
|
|
|
$
|
–
|
|
|
|
12%
|
|
Unamortized original issue discount and debt issuance costs
|
|
|
|
|
|
|
(44,522
|
)
|
|
|
–
|
|
|
|
|
|
Unamortized debt discount - fair value of warrants
|
|
|
|
|
|
|
(244,567
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount of debt
|
|
|
|
|
|
|
560,911
|
|
|
|
–
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Long-term borrowings - net of current portion
|
|
|
|
|
|
$
|
560,911
|
|
|
$
|
–
|
|
|
|
|
|
Pursuant to the terms of the Promissory
Note, the Company issued to the lender a common stock purchase warrant providing the lender with the right to purchase up to 2,000,000
shares of the Company’s common stock (the “Warrant”). The Warrant is exercisable, subject to certain limitations,
subsequent to July 1, 2017 and before the date that is five years from the date of issuance at an exercise price of $0.20 per share,
subject to adjustment upon the occurrence of certain events such as stock splits and dividends. The Company recorded the fair value
of the Warrant of $266,800 as a debt discount associated with the Promissory Note. During the three months ended March 31, 2016,
the Company recorded interest expense of $22,233 for amortization of the Warrant fair value. The assumptions used by the Company
for calculating the fair value of the Warrant using the Black-Scholes valuation model were: (i) Volatility of 83.3%; (ii) Risk-Free
Interest Rate of 2.12%; and (iii) Expected Term of five years.
Common
Stock
The Company
is authorized to issue up to 190,000,000 shares of common stock (par value $0.0001). As of March 31, 2016 and December 31, 2015,
the Company had 51,513,924 and 45,451,389 shares of common stock issued and outstanding, respectively. During the three months
ended March 31, 2016, the Company issued 5,562,535 shares of common stock in connection with conversion of convertible debt and
also issued 500,000 shares of common stock in connection with investment banking services.
Preferred
Stock
The Company
is authorized to issue up to 10,000,000 shares of $.0001 par value preferred stock with designations, rights and preferences to
be determined from time to time by the Board of Directors of the Company. Each such series or class shall have voting powers, if
any, and such preferences and/or other special rights, with such qualifications, limitations or restrictions of such preferences
and/or rights as shall be stated in the resolution or resolutions providing for the issuance of such series or class of shares
of preferred stock. As of March 31, 2016 and December 31, 2015 there was no preferred stock issued and outstanding.
Options/Warrants
On July
23, 2014, Company stockholders approved the CV Sciences, Inc. Amended and Restated 2013 Equity Incentive Plan, which provides for
the granting of stock options, restricted stock awards, restricted stock units, stock bonus awards and performance-based awards.
On December 21, 2015, Company stockholders approved an amendment to the CV Sciences, Inc. Amended and Restated 2013 Equity Incentive
Plan, increasing the number of shares that may be issued under such plan to 15,000,000 shares of common stock. This plan serves
as the successor to the 2013 Equity Incentive Plan.
In January
2016, the Company issued a common stock purchase warrant with the right to purchase up to 2,000,000 shares of the Company common
stock (Note 8).
|
10.
|
STOCK-BASED COMPENSATION
|
On July 23, 2014, Company stockholders
approved the CV Sciences, Inc. Amended and Restated 2013 Equity Incentive Plan (as amended, the “Amended 2013 Plan”),
which provides for the granting of stock options, restricted stock awards, restricted stock units, stock bonus awards and performance-based
awards. On December 21, 2015, Company stockholders approved an amendment to the Amended 2013 Plan, increasing the number of shares
that may be issued under such plan to 15,000,000 shares of common stock. The Amended 2013 Plan serves as the
successor to the 2013 Equity Incentive Plan. There were no option awards under the 2013 Equity Incentive Plan. As of March 31,
2016, the Company had 5,277,000 of authorized unissued shares reserved and available for issuance upon exercise and conversion
of outstanding awards.
The stock options are exercisable
at no less than the fair market value of the underlying shares on the date of grant, and restricted stock and restricted stock
units are issued at a value not less than the fair market value of the common stock on the date of the grant. Generally, stock
options awarded are vested in equal increments ranging from two to four years on the annual anniversary date on which such equity
grants were awarded. The stock options generally have a maximum term of 10 years. The following table summarizes stock option activity
for the Amended 2013 Plan during the three months ended March 31, 2016:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contract Term (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding - December 31, 2015
|
|
|
9,799,036
|
|
|
$
|
1.97
|
|
|
|
9.20
|
|
|
$
|
–
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
(76,036
|
)
|
|
|
2.82
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Outstanding - March 31, 2016
|
|
|
9,723,000
|
|
|
|
1.97
|
|
|
|
8.96
|
|
|
|
159,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exercisable - March 31, 2016
|
|
|
7,337,346
|
|
|
|
2.10
|
|
|
|
8.91
|
|
|
|
124,550
|
|
Total unvested - March 31, 2016
|
|
|
2,385,654
|
|
|
|
1.56
|
|
|
|
9.11
|
|
|
|
32,250
|
|
Total vested or expected to vest - March 31, 2016
|
|
|
9,723,000
|
|
|
|
1.97
|
|
|
|
8.96
|
|
|
|
159,800
|
|
The following table summarizes
unvested stock options as of March 31, 2016:
|
|
Number of Shares
|
|
|
Weighted Average Fair Value Per Share on Grant Date
|
|
Unvested stock options - December 31, 2015
|
|
|
2,511,055
|
|
|
$
|
1.37
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(125,401
|
)
|
|
|
2.44
|
|
Cancellations
|
|
|
–
|
|
|
|
–
|
|
Unvested stock options - March 31, 2016
|
|
|
2,385,654
|
|
|
|
1.31
|
|
The Company recognized expenses
of $405,151 and $1,165,994 relating to stock options issued to employees, consultants, officers, and directors during the three
months ended March 31, 2016 and 2015, respectively. The Company recognized expenses of $0 and $590,000 relating
to common stock issued to employees, consultants, officers, and directors during the three months ended March 31, 2016
and 2015, respectively. For the three months ended March 31, 2016 and 2015, stock-based compensation of $405,151 and $1,743,327,
was expensed to selling, general and administration, respectively. For the three months ended March 31, 2016 and 2015, stock-based
compensation of $0 and $12,667, was expensed to research and development, respectively. As of March 31, 2016, total unrecognized
compensation cost related to non-vested stock-based compensation arrangements granted to employees, officers, and directors was $2,718,572,
which is expected to be recognized over a weighted-average period of 2.04 years.
|
11.
|
COMMITMENTS AND CONTINGENCIES
|
Commitments
The Company has non-cancelable operating
leases, which expire through 2017. The leases generally contain renewal options ranging from 1 to 3 years and require the Company
to pay costs such as real estate taxes and common area maintenance. The following table provides the Company’s lease commitments
at March 31, 2016:
|
|
|
Total Operating Leases
|
|
For the years ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
$
|
488,107
|
|
2017
|
|
|
|
266,675
|
|
|
|
|
|
$
|
754,782
|
|
The Company incurred rent expense
of $139,382 and $74,492 for the three months ended March 31, 2016 and 2015, respectively.
The Company has two supply arrangements
in place with European farmers to supply raw material in future years. The first arrangement contemplates growth and processing
of 2,600 kilograms of product and the second contract provides up to 1 million kilograms of raw product to the Company. At March
31, 2016, there was approximately $302,000 remaining to be paid under this second contract related to the 2015 crop. We have contractual
rights for the growth and processing of hemp oil for delivery through October 2018 under both of these contracts. We anticipate
the cost under both contracts will remain consistent with current year prices.
Contingencies
On
April 23, 2014, Tanya Sallustro filed a purported class action complaint (the “Complaint”) in the Southern District
of New York (the “Court”) alleging securities fraud and related claims against the Company and certain of its officers
and directors and seeking compensatory damages including litigation costs. Ms. Sallustro alleges that between March 18-31, 2014,
she purchased 325 shares of the Company’s common stock for a total investment of $15,791. The Complaint refers to Current
Reports on Form 8-K and Current Reports on Form 8-K/A filings made by the Company on April 3, 2014 and April 14, 2014, in which
the Company amended previously disclosed sales (sales originally stated at $1,275,000 were restated to $1,082,375 - reduction of
$192,625) and restated goodwill as $1,855,512 (previously reported at net zero). Additionally, the Complaint states after the filing
of the Company’s Current Report on Form 8-K on April 3, 2014 and the following press release, the Company’s stock price
“fell $7.30 per share, or more than 20%, to close at $25.30 per share.” Subsequent to the filing of the Complaint,
six different individuals filed a motion asking to be designated the lead plaintiff in the litigation. On March 19, 2015,
the Court issued a ruling appointing Steve Schuck as lead plaintiff. Counsel for Mr. Schuck filed a “consolidated amended
complaint” on September 14, 2015. On December 11, 2015, the Company filed a motion to dismiss the consolidated amended complaint.
After requesting several extensions, counsel for Mr. Schuck filed an opposition to the motion to dismiss on March 21, 2016.
The Company’s reply brief was filed on April 25, 2016. No hearing date has been set by the Court at this time.
Management intends to vigorously defend the allegations and an estimate of possible loss cannot be made at this time.
On
March 17, 2015, stockholder Michael Ruth filed a shareholder derivative suit in Nevada District Court alleging two causes of action:
1) Breach of Fiduciary Duty, and 2) “Gross Mismanagement.” The claims are premised on the same event as the already-pending
securities class action case in New York discussed above – it is alleged that the Form 8-K filings misstated goodwill and
sales of the Company, which when corrected, lead to a significant drop in stock price. The Company filed a motion to dismiss the
suit on June 29, 2015. Instead of opposing the Company’s motion, Mr. Ruth filed an amended complaint on July 20, 2015.
Thereafter, Mr. Ruth and the Company agreed to stay the action pending the outcome of the securities class action case in New York
discussed above. Management intends to vigorously defend the allegations. Since no discovery has been conducted and
the case remains stayed, an estimate of the possible loss or recovery cannot be made at this time.
Royalties
In
addition to the contingent consideration in connection with the CanX Acquisition (Note 2), the Company is obligated to pay a 5%
royalty of net sales on each of the first and second CBD drug products respectively, subject to, and commencing with the first
commercial release by the Company of each of the first and second CBD drug products by the Company formulated to treat human medical
conditions.
On
May 2, 2016, the Company filed Articles of Dissolution for its wholly-owned subsidiaries US Hemp Oil, LLC and CannaVEST Laboratories,
LLC, with the Secretary of State of Nevada, effective as of April 29, 2016. Neither US Hemp Oil, LLC nor CannaVEST Laboratories,
LLC had any assets or liabilities.
During the second quarter of 2016, the Company issued 500,000 shares of common stock in connection with the purchase of raw materials from our European supplies.