APPLIED BIOSCIENCES CORP. This section of this Form 10-Q includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Acquisition of
On
The Common Stock Purchase Agreement included the option for Trace to repurchase 205,410 shares of Common Stock based on the occurrence of certain Repurchase Triggering Events. Based on a review of the Repurchase Triggering Events, we consider it unlikely that any of the events will occur. Additionally, we entered into a Voting Agreement with Trace concurrent with the Common Stock Purchase Agreement. The Voting Agreement provided for the designation of three out of five positions on the Trace Analytics Board of Directors by the Company. The Voting Agreement also detailed certain transactions that require two-thirds approval by the Board of Directors. The Voting Agreement is not considered to impact the ability of the Company to control the operations and assets of Trace Analytics.
On
Results of Operations
Our revenue, operating expenses, and net loss from operations for our three and
nine months ended
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Three Months Ended December 31, 2019 Compared to Three Months Ended December 31,
2018
Three Months Three Months Percentage
Ended Ended $ Change Change
December 31, 2019 December 31, 2018 Inc (Dec) Inc (Dec)
REVENUE, NET
Products $ 22,357 $ 413,109 $ (390,752 ) (95 )%
Services 147,218 - 147,218 -
Total costs of (59
revenue 169,575 413,109 (243,534 ) )%
COST OF REVENUE
Products 17,137 379,582 (362,445 ) (95 )%
Services 34,206 - 34,206 -
Total costs of (86
revenue 51,343 379,582 (328,239 ) )%
GROSS MARGIN 118,232 33,527 84,705 253 %
EXPENSES
Sales and (50
marketing 50,590 100,730 (50,140 ) )%
General and (24
administrative 997,055 1,317,469 (320,414 ) )%
Depreciation
and
Amortization 40,828 292 40,536 13,882 %
TOTAL OPERATING (23
EXPENSES 1,088,473 1,418,491 (330,018 ) )%
OPERATING LOSS (970,241 ) (1,384,964 ) (414,723 ) (30 )%
Other Income
(Expense)
Unrecognized
loss on equity
investment (327,381 ) - (327,381 ) -
Change in fair
value of
derivative (39,231 ) - (39,231 ) -
Interest (82
Expense (89,017 ) (506,579 ) 417,562 )%
Total other (10
income, net (455,629 ) (506,579 ) 50,950 )%
NET LOSS (1,425,870 ) (1,891,543 ) (465,673 ) (25 )%
Less: Net loss
attributable to (31,074
non controlling
interest 72,480 (234 ) 72,714 )%
NET LOSS
ATTRIBUTABLE TO
APPLIED (28
BIOSCIENCES
CORP. $ (1,353,390 ) $ (1,891,777 ) $ (538,387 ) )%
Revenues: Revenues relate to shipments of cannabidiol ("CBD") brand products and
lab testing services. During the three months ended
Cost of Revenue: Cost of goods sold is driven by product sales, and primarily
consists of purchases of inventory for sale. We generally purchase products that
are private labels and brand the products using our tradenames. During the three
months ended
Gross Margin: For the three months ended
Sales and marketing: Sales and marketing expenses are mainly comprised of
advertising, public relations, investor relations, events, and website marketing
costs. Sales and marketing expenses decreased to
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General and administrative: General and administrative expenses are mainly
comprised of professional fees, travel expenses, meals and entertainment and
other office support costs. General and administrative expenses decreased
Depreciation and amortization: Depreciation expense was
Unrecognized Gain on Equity Investments: We remeasure our equity investments at
each reporting period at fair value with changes in fair value recognized in net
income. During the three months ended
Change in Fair Value of Derivative Liability: In accordance with the FASB
authoritative guidance, the conversion feature of our senior secured convertible
note issued by us in
Interest Expense: During the three months ended
Nine months EndedDecember 31, 2019 Compared to Nine Months EndedDecember 31, 2018 Nine Months Nine Months Percentage Ended Ended $ Change Change December 31, December 31, 2019 2018 Inc (Dec) Inc (Dec) REVENUE, NET Products$ 192,011 $ 472,509 $ (280,498 ) (59 )% Services 433,295 - 433,295 - Total costs of revenue 625,306 472,509 152,797 32 % COST OF REVENUE Products 167,546 439,740 (272,194 ) (62 )% Services 81,967 - 81,967 - Total costs of revenue 249,513 439,740 (190,227 ) (43 )% GROSS MARGIN 375,793 32,769 343,024 1,047 % EXPENSES Sales and marketing 256,775 556,167 (299,392 ) (54 )% General and administrative 2,271,546 1,712,667 558,879 33 % Depreciation and Amortization 120,324 877 119,447 13,620 % TOTAL OPERATING EXPENSES 2,648,645 2,269,711 378,934 17 % OPERATING LOSS (2,272,852 ) (2,236,942 ) 35,910 2 % Other Income (Expense) Unrecognized (loss) gain on (181 equity investments (327,381 ) 404,763 (732,144 ) )% Change in fair value of derivative (34,977 ) - (34,977 ) - Interest Expense (153,818 ) (574,880 ) 421,062 (73 )% Total other income, net (516,176 ) (170,117 ) (346,059 ) 203 % NET LOSS (2,789,028 ) (2,407,059 ) 381,969 16 % Less: Net loss attributable to non controlling interest 233,995 9,358 224,637 2,400 % NET LOSS ATTRIBUTABLE TO APPLIED BIOSCIENCES CORP.$ (2,555,033 ) $ (2,397,701 ) $ 157,332 7 % 22 Table of Contents
Revenues: During the nine months ended
Cost of Revenue: During the nine months ended
Gross Margin: For the nine months ended
Sales and marketing: Sales and marketing expenses decreased to
General and administrative: General and administrative expenses increased by
Depreciation and amortization: Depreciation expense was
Unrecognized Gain on Equity Investments: We remeasure our equity investments at
each reporting period at fair value with changes in fair value recognized in net
income. During the nine months ended
Change in Fair Value of Derivative Liability: In accordance with the FASB
authoritative guidance, the conversion feature of our senior secured convertible
note issued by us in
Interest Expense: During the nine months ended
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Liquidity and Capital Resources
Cash Flows
A summary of our cash flows for the nine months ended
Net cash used in operating activities was
Net cash used in investing activities during the nine months ended
Net cash provided by financing activities for the nine months ended
Going Concern
As reflected in the condensed consolidated financial statements contained
elsewhere is this Form 10-Q, as of
As of the date of this Form 10-Q, our cash resources are insufficient to meet
our current operating expense requirements and planned business objectives
without additional financing. Our ability to continue as a going concern is
dependent on our ability to raise additional capital and to ultimately achieve
sustainable revenues and income from our operations. During the nine months
ended
These and other factors raise substantial doubt about our ability to continue as
a going concern. Further, our independent auditors in their audit report for our
fiscal year ended
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Summary of Significant Accounting Policies
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Among other things, our estimates include the collectability of our accounts receivable, recoverability of inventory, assumptions made in determining impairment of investments and intangible assets, accruals for potential liabilities, and realization of deferred tax assets. These estimates generally involve complex issues and require judgments, involve analysis of historical information and the prediction of future trends, and are subject to change from period to period. Actual amounts could differ significantly from these estimates.
Investments
We measure our equity investments at their fair value at end of each reporting period. Specifically, we follow ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Among other things, this guidance requires certain equity investments to be measured at fair value with changes in fair value recognized in net income.
Investments accounted for under the equity method or cost method of accounting are included in the caption "Equity investments" in our Condensed Consolidated Balance Sheets.
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, we use a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, we review our convertible securities to determine their classification is appropriate.
Recent Accounting Pronouncements
See our discussion of recent accounting policies in Footnote 2 to the condensed consolidated financial statements contained elsewhere in this Form 10-Q.
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