NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Jones Soda Co. develops, produces, markets and distributes premium beverages which
it
sell
s
and distribute
s
primarily in the
United States and Canada
through
its
network of independent distributors and directly to
its
national and regional retail accounts.
We are a Washington corporation and have two operating subsidiaries, Jones Soda Co. (USA) Inc. and Jones Soda (Canada) Inc. (together, our “Subsidiaries”).
Basis of presentation and consolidation
The accompanying condensed consolidated balance sheet as of December 31, 2018, which has been derived from our audited consolidated financial statements, and unaudited interim condensed consolidated financial statements as of June 30, 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. The condensed consolidated financial statements include our accounts and the accounts of our Subsidiaries. All intercompany transactions between us and our Subsidiaries have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments, consisting only of those of a normal and recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods presented. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to such estimates and assumptions include, but are not limited to, inventory valuation, depreciable lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern assumption and related disclosures. Actual results could differ from those estimates. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Liquidity
As of
June 30, 2019
, we had cash and cash-equivalents of $138,000 and working capital of approximately
$696,000
. Net cash used in operations during the six months ended June 30, 2019 totaled approximately $1.5 million compared to $1.7 million used in operations for the same period a year ago. The net decrease in cash used in operations compared to the same period a year ago is primarily due to the timing of the collection of receivables, the build-up of inventory due to the timing of promotional programs, and the increase in net loss. We reported a net loss of $1.4 million for the six months ended June 30
, 2019, compared to a net loss of approximately $832,000 for the same period a year ago
.
We have experienced recurring losses from operations and negative cash flows from operating activities. This situation creates uncertainties about our ability to execute our business plan, finance operations, and indicates substantial doubt about the Company’s ability to continue as a going concern. On July 11, 2019 the Company received proceeds of $9 million in connection with the securities purchase agreement described below in Note 8, Subsequent Events. The Company believes that the recent financing alleviates the conditions which initially indicated substantial doubt about the Company's ability to continue as a going concern. However, the Company has experienced and continues to experience negative cash flows from operations, as well as an ongoing requirement for additional capital to support working capital needs. The amount of additional capital that the Company may require, the timing of capital needs and the availability of financing to fund those needs will depend on a number of factors, including strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing.
As of the date of this Report, as a result of the recent financing, we believe that our current cash and cash equivalents, combined with our Loan Facility and anticipated cash from operations, will be sufficient to meet the Company’s funding requirements for one year after these consolidated financial statements are issued. The Loan Facility is described below and in Note 4 to Consolidated Financial Statements.
We have a revolving secured credit facility with
Pacific West Bank
(the “Loan Facility”). The Loan Facility allows us to borrow a maximum aggregate amount of up to
$3.2 million based on eligible accounts receivable and inventory. As of June 30, 2019, our accounts receivable and inventory eligible borrowing base was approximately $2.0 million before adjustments, of which we had drawn down $1.2 million.
See Note 4 below for further information.
We may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for available debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. We believe it is imperative that we meet these sales objectives in order to lessen our reliance on external financing in the future. We intend to continually monitor and adjust our operating plan as necessary to respond to developments in our business, our markets and the broader economy. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of the Company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, a rights offering, and other strategic alternatives; however, these options may not ultimately be available or feasible when needed.
Seasonality and other fluctuations
Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. We historically have generated a greater percentage of our revenues during the warm weather months of April through September. Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline” of a new distribution partner or a large retail partner. Sales results may also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
Revenue recognition
The Company recognizes revenue under
Accounting Standards Update (“ASU”)
No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),”
(“ASU 2014-09”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
See Note 7, Segment information, for information on revenue disaggregated by geographic area.
Because the Company’s agreements generally have an expected duration of one year or less, the Company has elected to not disclose information about its remaining performance obligations.
The Company’s performance obligations are satisfied at the point in time when products are received by the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Shipping and handling amounts paid by customers are primarily for online orders, and are included in revenue, and totaled $13,000 and $54,000 for the three months ended June 30, 2019 and 2018, respectively. Shipping and handling included in revenue for the six months ended June 30, 2019 and 2018, were $44,000 and $100,000, respectively. Sales tax and other similar taxes are excluded from revenue.
Revenue is recorded net of provisions for discounts, slotting fees payable by us to retailers to stock our products and promotion allowances, which are typically agreed to upfront with the customer and do not represent variable consideration. Discounts, slotting fees and promotional allowances vary the consideration the Company is entitled to in exchange for the sale of products to distributors. The Company estimates these discounts, slotting fees and promotional allowances in the same period that the revenue is recognized for products sales to customers. The amount of revenue recognized represents the amount that will not be subject to a significant future reversal of revenue. The liability for promotional allowances is included in accrued expenses on the consolidated balance sheets. Amounts paid for slotting fees are recorded as prepaid expenses on the consolidated balance sheets and amortized over the corresponding term.
For the quarters ended June 30, 2019 and 2018, our revenue was reduced by $506,000 and $388,000 respectively, for slotting fees and promotion allowances. For the six months ended June 30, 2019 and 2018, our revenue was reduced by $834,000 and $647,000 respectively, for slotting fees and promotion allowances.
All sales to distributors and customers are generally final. In limited instances the Company may accept returned product due to quality issues or distributor terminations and in such situations the Company would have variable consideration. To date, returns have not been material. The Company’s customers generally pay within 30 days from the receipt of a valid invoice. The Company offers prompt pay discounts of up to 2% to certain customers typically for payments made within 15 days. Prompt pay discounts are estimated in the period of sale based on experience with sales to eligible customers. Early pay discounts are recorded as a deduction to the accounts receivable balance presented on the consolidated balance sheets.
The accounts receivable balance primarily includes balances from trades sales to distributors and retail customers. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based primarily on historical write-off experience. Account balances that are deemed uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowances for doubtful accounts of $41 and $40 as of June 30, 2019 and December 31, 2018, respectively, were netted against accounts receivable. No impairment losses were recognized as of June 30, 2019 and December 31, 2018, respectively. Changes in accounts receivable are primarily due to the timing and magnitude of orders of products, the timing of when control of products is transferred to distributors and the timing of cash collections.
Deferred financing costs
We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan and are included as a component of interest expense on the accompanying consolidated statements of operations.
Operating leases
At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date.
After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the right-of use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.
Use of estimates
The preparation of the condensed consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, inventory valuation, depreciable lives and valuation of capital assets, valuation allowances for receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for deferred income tax assets, contingencies, and forecasts supporting the going concern assumption and related disclosures. Actual results could differ from those estimates.
Recent accounting pronouncements
In February 2016,
the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2016-02
, Leases: Topic 842
(“ASU 2016-2”), which replaces existing lease guidance. ASU 2016-2 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months to its balance sheets. ASU 2016-2 also expands the required quantitative and qualitative disclosures surrounding leases. Although ASU 2016-02 is required to be adopted at the earliest period presented using a modified retrospective approach, the FASB issued ASU No. 2018-11,
Leases (Topic 842): Targeted Improvements
(“ASU 2018-11”), which allows for an alternative transition method of adoption by recognizing a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit in the period of adoption.
The Company adopted ASU 2016-02 and related ASUs, collectively “ASC Topic 842,” on January 1, 2019, utilizing the alternative transition method allowed for under ASU 2018-11. As a result, the Company recorded a lease liability and right-of-use asset of $124,000 and $116,000, respectively, on the condensed consolidated balance sheet as of January 1, 2019. The adoption of ASC Topic 842 did not have a material impact on either the condensed consolidated statement of operations or condensed consolidated statement of cash flows for the six months ended June 30, 2019.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments: Credit Losses
(“ASU 2016-13”), which changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU is effective for us in the first quarter of 2020 and must be adopted using a modified retrospective transition approach. We are currently evaluating the potential impact that the adoption of ASU 2016-13 will have on our consolidated financial statements.
2. Inventory
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Finished goods
|
|
$
|
1,440
|
|
$
|
948
|
Raw materials
|
|
|
662
|
|
|
401
|
|
|
$
|
2,102
|
|
$
|
1,349
|
Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging.
3.
Operating lease
We currently lease approximately 6,500 square feet of retail/office space in Seattle, Washington for our principal executive and administrative offices. The term of the lease is five years expiring February 2020 with an option to extend for additional one-year terms, indefinitely. In the normal course of business, it is expected that this lease will be renewed or replaced by leases on another property. The Company has not included these options to extend in its calculation of right-of-use assets or lease liabilities as it is not reasonably certain to exercise these options. The lease agreement does not contain any residual value guarantees, material restrictions or covenants.
Upon adoption, the Company elected the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating lease as an operating lease under the new guidance, without reassessing (a) whether the contract contains a lease under ASC Topic 842, (b) whether classification of the operating lease would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before the transition adjustments would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2019, a lease liability of $124,000 which represents the remaining lease payments and a right-of-use-asset of $116,000. The difference between the right-of-use asset and lease liability relates to the deferred rent liability of $8,000 that was included on the Company’s condensed consolidated balance sheets prior to adoption of ASC Topic 842. This amount was eliminated at the time of adoption and is included in the lease liability balance. The discount on the lease liability was not material and was not recognized.
As of June 30, 2019, we have $53,000 in lease payments remaining in 2019 and $16,000 lease payments remaining in 2020.
Operating lease cost for the three months ended June 30, 2019 was $25,000. Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended June 30, 2019 was $27,000. Operating lease cost for the six months ended June 30, 2019 was $50,000. Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2019 was $53,000.
The Company has elected the practical expedient for short-term leases. Operating lease cost for the Company’s short-term leases for the six months ended June 30, 2019, was immaterial.
4. Line of Credit
We have an amended and restated revolving secured credit facility (the “Loan Facility”) with Pacific West Bank (previously known as Capital Source Business Finance Group). The current term of the Loan Facility expires on December 27, 2019, unless renewed.
Under this
Loan Facility, we may periodically request advances equal to the lesser of: (a) $3.2 million, or (b) the borrowing base which is, in the following priority, the sum of: (i) 85% of eligible U.S. accounts receivable, plus (ii) 50% of eligible Canadian accounts receivable not to exceed $300,000 (subject to any reserve amount established by Pacific West Bank), plus (iii) 35% of finished goods inventory not to exceed $475,000, or 50% of eligible accounts receivable collateral
.
As of June 30, 2019, our accounts receivable and inventory eligible borrowing base was approximately $2.0 million before adjustments, of which we had drawn down approximately $1.2 million.
Advances under the Loan Facility bear interest at the prime rate plus 0.75%, where prime may not be less than 0% (resulting in an interest rate of 6.25% as of June 30, 2019), and a loan fee of 0.10% on the daily loan balance is payable monthly. The Loan Facility provides for a minimum cumulative amount of interest of $30,000 per year to be paid to Pacific West Bank, regardless of whether or not we draw on the Loan Facility.
Pacific West Bank has the right to terminate the Loan Facility at any time upon 120 days’ prior written notice. All present and future obligations of our Subsidiaries under the Loan Facility are guaranteed by us and are secured by a first priority security interest in all of our assets. The Loan Facility contains customary representations and warranties as well as affirmative and negative covenants. As of June 30, 2019, we were in compliance with all covenants under the Loan Facility. During 2019, the draws on the Loan Facility were used to fulfill working capital needs. We will continue to utilize the Loan Facility, as needed, for working capital needs in the future.
5. Convertible Subordinated Notes Payable
The Company issued certain convertible subordinated promissory notes with an aggregate principal amount of $2,920,000 at issuance (the “Convertible Notes”) during the first half of 2018 to certain institutional investors, our management team, and other individual accredited investors.
The Convertible Notes have a four-year term, begin to mature on March 23, 2022, and bear interest at 6%. The holders can convert the Convertible Notes at any time into the number of shares of our common stock equal to the quotient obtained by dividing (i) the amount of the unpaid principal and interest on such Convertible Note by (ii) $0.32 (the “Conversion Price”). The Conversion Price is subject to a down round adjustment if we issue shares or equity-linked instruments at a conversion price below $0.32 per share. No payments of principal or interest are due until the maturity.
The Convertible Notes are subordinated in right of payment to the prior payment in full of all of our Senior Indebtedness, which is defined as amounts due in connection with our indebtedness for borrowed money to banks, commercial finance lenders (including Pacific West Bank), or other lending institutions regularly engaged in the business of lending money, with certain restrictions.
During the period from January 1, 2019 through June 30, 2019, Convertible Notes in the aggregate principal amount of $687,500 and related accrued interest were converted into 2,313,976 shares of common stock in accordance with the original terms of the Convertible Notes. As a result, the carrying amount of the converted principal amount of such Convertible Notes, along with the converted accrued interest, in an aggregate amount of $740,000, was credited to common stock and additional paid-in capital and unamortized discounts in an amount equal to $142,000 were recognized as interest expense for the six months ended June 30, 2019.
The principal balance of Convertible Notes outstanding was equal to $2,232,500 and $2,920,000 at June 30, 2019 and December 31, 2018, respectively. The balance of Convertible Notes is presented net of unamortized discounts in an amount equal to $250,000 and $392,000 at June 30, 2019 and December 31, 2018, respectively. The principal balance of Convertible Notes payable to related parties was equal to $120,000 at both June 30, 2019 and December 31, 2018.
6. Shareholders’ Equity
Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a)
1,300,000
shares, (b)
4.0%
of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed
10%
of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of June 30, 2019, the total number of shares of common stock authorized under the Plan was 10,784,032 shares.
Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. Awards may consist of stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards or other stock or cash-based awards. Stock options are granted with an exercise price equal to the closing price of our stock on the date of grant, and generally have a
ten
-year term and vest over a period of
48 months
with the first
25%
of the shares subject to the option vesting
one year
from the grant date and the remaining 75% of the shares subject to the option vesting in equal monthly increments over the subsequent 36 months. Restricted stock awards generally vest over one year. As of
June 30, 2019
, there were 5,916,665 shares of unissued common stock authorized and available for future awards under the Plan.
A summary of our stock option activity is as follows:
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance at January 1, 2019
|
|
3,825,083
|
|
$
|
0.48
|
Options granted
|
|
205,000
|
|
|
0.28
|
Options exercised
|
|
(65,445)
|
|
|
0.40
|
Options cancelled/expired
|
|
(203,753)
|
|
|
0.40
|
Balance at June 30, 2019
|
|
3,760,885
|
|
$
|
0.46
|
Exercisable, June 30, 2019
|
|
3,163,718
|
|
$
|
0.47
|
Vested and expected to vest
|
|
3,609,060
|
|
$
|
0.46
|
|
(b)
|
|
Restricted stock awards:
|
Effective as of January 1, 2018, equity compensation for non-employee director service is an annual restricted stock unit award that vests over one year, the number of shares underlying such award is determined by dividing $15,000 by the closing share price on the date of grant (which shall be the first business day in January in each calendar year); when joining the Board each non-employee director shall receive an initial restricted stock unit award that vests over one year, the number of shares underlying such award be determined by dividing $15,000 by the Company’s closing stock price on the date of grant (which shall be the first trading day following the date on which such director is appointed), prorated based on the date on which such director is appointed.
A summary of our restricted stock activity is as follows:
|
|
|
|
|
|
|
|
|
|
Restricted Shares
|
|
|
Weighted-Average Grant Date Fair Value
|
|
Weighted-Average Contractual Life
|
Non-vested restricted stock at January 1, 2019
|
|
253,363
|
|
$
|
0.31
|
|
9.4
|
Granted
|
|
358,560
|
|
|
0.25
|
|
—
|
Vested
|
|
(121,623)
|
|
|
0.37
|
|
—
|
Cancelled/expired
|
|
(175,910)
|
|
|
0.26
|
|
—
|
Non-vested restricted stock at June 30, 2019
|
|
314,390
|
|
$
|
0.26
|
|
9.4
|
We withheld a total of 10,135 shares as payment for withholding taxes due in connection with the vesting of restricted stock awards during the six months ended June 30, 2019, and the average price paid per share of $0.25 reflects the average market value per share of the shares withheld for tax purposes.
(c)
Stock-based compensation expense:
Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of
forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.
At June 30
, 2019
, we had unrecognized compensation expense related to stock options and non-vested restricted stock of $135
,000
to be recognized over a weighted-average period of
1.5
years.
The following table summarizes the stock-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Type of awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
23
|
|
$
|
30
|
|
$
|
55
|
|
$
|
61
|
Restricted stock
|
|
|
3
|
|
|
4
|
|
|
34
|
|
|
22
|
|
|
$
|
26
|
|
$
|
34
|
|
$
|
89
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement account:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
$
|
10
|
|
|
14
|
|
$
|
25
|
|
$
|
29
|
General and administrative
|
|
|
16
|
|
|
20
|
|
|
64
|
|
|
54
|
|
|
$
|
26
|
|
$
|
34
|
|
$
|
89
|
|
$
|
83
|
We employ the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2019
|
|
2018
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Expected stock price volatility
|
|
|
65.4
|
%
|
|
|
67.0
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
Expected term (in years)
|
|
|
6.0
|
years
|
|
|
5.6
|
years
|
Weighted-average grant date fair-value
|
|
$
|
0.17
|
|
|
$
|
0.23
|
|
The aggregate intrinsic value of stock options outstanding at
June 30, 2019
and 2018 was approximately
$480,000
and
$2,000, respectively,
and for options exercisable was
$308,000
and
$2,000
, respectively. The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. There were 65,445 options exercised with an aggregate intrinsic value of $20,000 during the six months ended June 30, 2019. There were no options exercised during the six months ended June 30, 2018.
7. Segment Information
We have
one
operating segment with operations primarily in the United States and Canada. Sales are assigned to geographic locations based on the location of customers. Sales by geographic location are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,556
|
|
$
|
2,929
|
|
$
|
4,790
|
|
$
|
5,069
|
Canada
|
|
|
917
|
|
|
945
|
|
|
1,482
|
|
|
1,625
|
Other countries
|
|
|
16
|
|
|
53
|
|
|
41
|
|
|
70
|
Total revenue
|
|
$
|
3,489
|
|
$
|
3,927
|
|
$
|
6,313
|
|
$
|
6,764
|
During each of the three months ended
June 30, 2019
and
2018
, three of our customers represented an aggregate of approximately 43
%
and 45%, of our revenue, respectively. During each of the six months ended June 30, 2019 and 2018, three of our customers represented approximately 48% of our revenue.
8. Subsequent Events
On July 11, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Heavenly Rx Ltd. (the “Investor”) pursuant to which the Company sold to the Investor in a private placement (the “Financing”): (a) 15,000,000 shares (the “Shares”) of Common Stock and (b) a warrant to purchase up to an additional 15,000,000 shares of Common Stock (the “Warrant”). The aggregate purchase price for the Shares and the Warrant was $9,000,000 in cash, which was paid to the Company at the closing of the purchase and sale on July 11, 2019. The Company intends to use the proceeds for general working capital and other purposes, including sales and marketing, product development and capital expenditures for its legacy business and new business initiatives. The Company may receive up to an additional $11.7 million in capital in connection with the exercise of the Warrant. The Warrant is immediately exercisable, has a term of one-year, and provides the Investor with the right to purchase up to 15,000,000 shares of Common Stock (“Warrant Shares”) at an exercise price of $0.78 per share, subject to adjustment in the event of certain stock splits, stock dividends or distributions, reorganizations, reclassifications or other similar events. The Warrant shall be automatically exercised upon the occurrence of certain events. The Financing and documentation related thereto is further described in the Company’s Current Report on Form 8-K filed with the Securities Exchange Commission on July 12, 2019, which is incorporated herein by reference.
Subsequent to June 30, 2019, Convertible Notes in the aggregate principal amount of $508,500 and related accrued interest were converted into 1,698,752 shares of common stock in accordance with the original terms of the Convertible Notes.