UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 
 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to ____

 

Commission File No. 000-55523

  

 APPLIED BIOSCIENCES CORP.

 (Exact name of registrant as specified in its charter)

 

Nevada

81-1699502

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

9701 Wilshire Blvd., Suite 1000

Beverly Hills, California 90212

(Address of principal executive offices) (Zip Code)

 

(310) 356-7374

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

x

Emerging growth company

x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act): Yes ¨ No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of August 7, 2019 there were 13,447,110 shares of common stock, $0.00001 par value per share, outstanding.

 

 
 
 
 

 

APPLIED BIOSCIENCES CORP.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2019

 

INDEX

 

Index

 

 

Page

 

 

 

 

Part I. Financial Information

 

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

2

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and March 31, 2019.

 

 

2

 

 

 

 

Condensed Unaudited Consolidated Statements of Operations for the three months ended June 30, 2019 and June 30, 2018.

 

 

3

 

 

 

 

Condensed Unaudited Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2019.

 

 

4

 

 

 

 

Condensed Unaudited Consolidated Statement of Cash Flows for the three months ended June 30, 2019 and June 30, 2018.

 

 

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

 

17

 

 

 

Item 4.

Controls and Procedures.

 

 

17

 

 

 

 

Part II. Other Information

 

 

 

 

 

Item 1.

Legal Proceedings.

 

 

18

 

 

 

Item 1A.

Risk Factors.

 

 

18

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 

18

 

 

 

Item 3.

Defaults Upon Senior Securities.

 

 

18

 

 

 

Item 4.

Mine Safety Disclosures.

 

 

18

 

 

 

Item 5.

Other Information.

 

 

18

 

 

 

Item 6.

Exhibits.

 

 

19

 

 

 

 

Signatures

 

 

20

 

 

 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q of Applied Biosciences Corp., a Nevada corporation (the “Company”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: the possibility that we will not receive sufficient customers to grow our business, the Company’s need for and ability to obtain additional financing, other factors over which we have little or no control; and other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”).

 

Our management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

1

 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Financial statements.

 

APPLIED BIOSCIENCES CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2019

 

 

March 31, 2019

 

ASSETS

 

(unaudited)

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$37,940

 

 

$47,044

 

Accounts receivable, net

 

 

70,010

 

 

 

163,405

 

Inventory

 

 

115,354

 

 

 

78,737

 

Prepaids and other current assets

 

 

16,269

 

 

 

65,273

 

Total Current Assets

 

 

239,573

 

 

 

354,459

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

412,299

 

 

 

452,048

 

Equity investments

 

 

898,292

 

 

 

898,292

 

Goodwill

 

 

1,941,149

 

 

 

1,941,149

 

Other assets

 

 

29,990

 

 

 

5,500

 

TOTAL ASSETS

 

$3,521,303

 

 

$3,651,448

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$245,386

 

 

$278,546

 

Note Payable

 

 

25,000

 

 

 

25,000

 

Convertible note payable, net of debt discount of $50,336 at June 30, 2019

 

 

199,603

 

 

 

-

 

Convertible note payable to related party net of debt discount of $5,088 at June 30, 2019

 

 

134,912

 

 

 

-

 

Accrued expenses

 

 

69,767

 

 

 

70,720

 

Total Current Liabilities

 

 

674,668

 

 

 

374,266

 

Commitments and Contingencies

 

 

 

 

 

-

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock; $0.00001 par value; 5,000,000 shares authorized;

 

 

 

 

 

 

 

 

none issued and outstanding at June 30, 2019 (unaudited) and March 31, 2019, respectively

 

 

-

 

 

 

-

 

Common stock; $0.00001 par value; 200,000,000 shares authorized:

 

 

 

 

 

 

 

 

13,447,110 issued and outstanding at June 30, 2019 (unaudited) and 13,397,110 at March 31, 2019, respectively

 

 

136 

 

 

 

135 

 

Additional paid in capital

 

 

7,019,622

 

 

 

6,892,242

 

Common stock to be issued, 358,805 and 408,805 shares at

 

 

 

 

 

 

 

 

June 30, 2019 (unaudited) and March 31, 2019, respectively

 

 

723,807

 

 

 

773,807

 

Accumulated deficit

 

 

(5,955,157)

 

 

(5,531,260)

Total Applied BioSciences Corp. Stockholders’ Equity

 

 

1,788,408

 

 

 

2,134,924

 

Non-controlling interest

 

 

1,058,227

 

 

 

1,142,258

 

Total Stockholders’ Equity

 

 

2,846,635

 

 

 

3,277,182

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$3,521,303

 

 

$3,651,448

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
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APPLIED BIOSCIENCES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months

 

 

Three Months

 

 

 

Ended

 

 

Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

(unaudited)

 

 

(unaudited)

 

REVENUE, NET

 

 

 

 

 

 

Products

 

$85,740

 

 

$10,434

 

Services

 

 

125,717

 

 

 

-

 

Total revenues, net

 

 

211,457

 

 

 

10,434

 

 

 

 

 

 

 

 

 

 

COST OF REVENUE

 

 

 

 

 

 

 

 

Products

 

 

78,892

 

 

 

17,758

 

Services

 

 

20,905

 

 

 

-

 

Total costs of revenue

 

 

99,797

 

 

 

17,758

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN (LOSS)

 

 

111,660

 

 

 

(7,324)

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

Sales and marketing

 

 

109,626

 

344,044

 

General and administrative

 

 

444,049

 

 

 

207,146

 

Depreciation and amortization

 

 

39,749

 

 

 

293

 

TOTAL OPERATING EXPENSES

 

 

593,424

 

 

 

551,483

 

OPERATING LOSS

 

 

(481,764)

 

 

(558,807)

Other Income (Expense)

 

 

 

 

 

 

 

 

Change in fair value of equity investments

 

 

-

 

 

 

158,929

 

Interest Expense

 

 

(26,164)

 

 

(1,879)

Total other (expense), net

 

 

(26,164)

 

 

157,050

 

NET LOSS

 

 

(507,928)

 

 

(401,757)

Less: Net loss attributable to non- controlling interest

 

 

84,031

 

 

 

6,256

 

NET LOSS ATTRIBUTABLE TO APPLIED BIOSCIENCES CORP.

 

$(423,897)

 

$(395,501)

 

 

 

 

 

 

 

 

 

LOSS PER COMMON SHARE

 

$(0.03)

 

$(0.04)

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic and diluted

 

 

13,805,915

 

 

 

10,499,610

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
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APPLIED BIOSCIENCES CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 31, 2019 AND 2018 (UNAUDITED)

 

 

 

Common Stock 

 

 

Common

 

 

Additional

 

 

 Non-

 

 

 

 

 

 

 

 

 

$0.00001 Par

 

 

Stock to be

 

 

Paid In

 

 

Controlling

 

 

Accumulated

 

 

Stockholders’

 

 

 

Number

 

 

Amount

 

 

Issued

 

 

Capital

 

 

Interest

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

 

13,397,110

 

 

$135

 

 

$773,807

 

 

$6,892,242

 

 

$1,142,258

 

 

$(5,531,260)

 

$3,277,182

 

Issuance of common stock previously committed but not issued

 

 

50,000

 

 

 

1

 

 

 

(50,000)

 

 

49,999

 

 

 

 

 

 

 

 

 

 

 

-

 

Beneficial conversion feature associated with issuance of convertible notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,381

 

 

 

 

 

 

 

 

 

 

 

77,381

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84,031)

 

 

(423,897)

 

 

(507,928)

Balance, June 30, 2019 (unaudited)

 

 

13,447,110

 

 

$136

 

 

$723,807

 

 

$7,019,622

 

 

$1,058,227

 

 

$(5,955,157)

 

$2,846,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

 

 

10,499,610

 

 

$105

 

 

$526,000

 

 

$3,054,297

 

 

$(9,027)

 

$(2,901,933)

 

$669,442

 

Issuance of common stock previously committed but not issued

 

 

50,000

 

 

 

1

 

 

 

(100,000)

 

 

99,999

 

 

 

 

 

 

 

 

 

 

 

-

 

Issuance of common stock for cash

 

 

 

 

 

 

 

 

 

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,000

 

Fair value of shares issued to consultant for services

 

 

90,000

 

 

 

1

 

 

 

45,926

 

 

 

179,999

 

 

 

 

 

 

 

 

 

 

 

225,926

 

Fair value of shares issued to advisory board member

 

 

25,000

 

 

 

-

 

 

 

 

 

 

 

51,000

 

 

 

 

 

 

 

 

 

 

 

51,000

 

Beneficial conversion feature associated with a convertible note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,705

 

 

 

 

 

 

 

 

 

 

 

28,705

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,256)

 

 

(395,501)

 

 

(401,757)

Balance, June 30, 2018 (unaudited)

 

 

10,664,610

 

 

$107

 

 

$546,926

 

 

$3,414,000

 

 

$(15,283)

 

$(3,297,434)

 

$648,316

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
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APPLIED BIOSCIENCES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months

 

 

Three Months

 

 

 

Ended

 

 

Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(507,928)

 

$(401,757)

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Unrecognized gain on equity investments

 

 

-

 

 

 

(158,929)

Amortization of debt discount

 

 

21,957

 

 

 

1,799

 

Fair value of shares issued to consultants

 

 

-

 

 

 

193,760

 

Depreciation

 

 

39,749

 

 

 

293

 

Allowance for bad debt

 

 

25,000

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

76,420

 

 

 

(1,419)

Inventory

 

 

(36,617)

 

 

(25,319)

Prepaid and other current assets

 

 

16,489

 

 

 

109,771

 

Accounts payable and accrued expenses

 

 

(34,112)

 

 

119,765

 

Net cash used in operating activities

 

 

(399,043)

 

 

(162,036)

 

 

 

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes

 

 

389,939

 

 

 

29,500

 

Proceeds from issuance of common stock

 

 

-

 

 

 

75,000

 

Net cash provided by financing activities

 

 

389,939

 

 

 

104,500

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

(9,104)

 

 

(57,536)

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF PERIOD

 

 

47,044

 

 

 

60,934

 

 

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

 

$37,940

 

 

$3,398

 

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Fair value of shares issued to consultants recorded as prepaid

 

$-

 

 

$83,166

 

Fair value of beneficial conversion feature related to issuance of convertible notes

 

$77,381

 

 

$28,705

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
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NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

Description of the Company

 

Applied BioSciences Corp. (formerly First Fixtures, Inc. and Stony Hill Corp. or the “Company”) was incorporated in the State of Nevada on February 21, 2014 and established a fiscal year end of March 31. The Company is a vertically integrated company focused on the development of science-driven cannabinoid therapeutics / biopharmaceuticals, and delivering high-quality CBD products as well as state-of-the-art testing and analytics capabilities.

 

Effective October 24, 2016 the Company changed its name from First Fixtures Inc. to Stony Hill Corp. and on March 6, 2018, the Company changed its name from Stony Hill Corp. to Applied BioSciences Corp.

 

In January 2019, the Company closed on a purchase of 520,410 shares of common stock of Trace Analytics, Inc., a Washington corporation (“Trace Analytics”), for an aggregate purchase price of $1,250,000, of which $750,000 was paid in cash and $500,000 was paid in shares of common stock of the Company. Trace Analytics is a cannabis testing laboratory. Immediately following the purchase, the Company held 51% of the issued and outstanding shares of common stock of Trace Analytics and have included the financial results of Trace Analytics in the condensed consolidated financial statements from the date of acquisition, January 1, 2019.

 

On April 8, 2019, the Company formed Applied Biopharma LLC, a wholly-owned subsidiary, in the state of Nevada, with the intention of establishing and growing the biopharmaceutical business of the Company. Applied Biopharma LLC is focused on the development and commercialization of novel therapeutics to treat metabolic diseases, peripheral neuropathy, progressive lung disease and ischemic reperfusion injury. Its principal business objective is to develop science-driven synthetic cannabinoid therapeutics that satisfy unmet medical needs and continue to drive innovation in the endocannabinoid space.

 

Basis of presentation – Unaudited Financial Statements

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2020, or for any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended March 31, 2019, which are included in the Company’s Report on Form 10-K for such year filed on July 1, 2019.

 

Going concern

 

These condensed statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As reflected in the condensed consolidated financial statements, the Company incurred a net loss of $507,928 and used $399,043 of cash in operating activities during the three months ended June 30, 2019. Further, the Company’s independent auditor in their audit report for fiscal year ended March 31, 2019 expressed substantial doubt about the Company’s ability to continue as a going concern. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

 
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The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and income from operations. During the three months ended June 30, 2019, the Company issued convertible notes for total proceeds of $389,939 in private placements with accredited investors. However, the Company will need and is currently working on obtaining additional funds to operate its business through and beyond the date of this Form 10-Q filing. There is no assurance that such funds will be available or at terms acceptable to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Applied Products LLC, VitaCBD LLC, an 80% owned entity, Trace Analytics, Inc., a 51% owned entity, all Washington limited liability companies, and Applied Biopharma LLC and SHL Management LLC, both 100% owned Nevada limited liability companies. Intercompany transactions and balances have been eliminated in consolidation. Management evaluates its investments on an individual basis for purposes of determining whether or not consolidation is appropriate.

 

Use of Estimates and Assumptions

 

Preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management 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, management estimates include the collectability of its 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.

 

Revenue Recognition

 

The Company’s revenue is principally derived from its subsidiaries, Applied Products LLC, and Trace Analytics.

 

 

·Applied Products LLC revenues are generated from sales of high-quality CBD products for consumer and pet health and wellness. Sales of these products are made to individual distributors and through online sales. Revenue from the sale of these products was $85,740 and $10,434 during the three months ended June 30, 2019 and 2018, respectively

 

 

 

 

·Trace Analytics generates revenue from services by offering state-of-the-art testing and analytics capabilities to CBD and hemp companies. Sales of these services are to marijuana producers and processors, dispensaries, and CBD and hemp companies. Revenue from the sale of these services was $125,717 during the three months ended June 30, 2019.

 

The Company recognizes revenue in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying the Company’s performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. 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 services it transfers to its clients.

 

 
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Advertising

 

The Company expenses advertising costs as incurred. Advertising expense for the three-month periods ended June 30, 2019 and 2018 amounted to $38,476 and $27,358, respectively, and were included in “Sales and marketing expenses” in the Consolidated Statements of Operations.

 

Earnings (Loss) per Share

 

The basic earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the weighted average number of common shares during the period. Shares of common stock to be issued are included in weighted average shares calculation from the date of grant. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items.

 

Investments

 

The Company follows 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. As such, the Company measures its equity investments at their fair value at end of each reporting period.

 

Investments accounted for under the equity method or cost method of accounting above are included in the caption “Equity investments” on the Condensed Consolidated Balance Sheets.

 

Goodwill

 

Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. Estimations and assumptions regarding the number of reporting units, future performances, results of the Company’s operations and comparability of its market capitalization and net book value will be used. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is measured by the resulting amount. Because the Company has one reporting unit, as part of the Company’s qualitative assessment an entity-wide approach to assess goodwill for impairment is utilized. There were no indicators of impairment as of June 30, 2019.

 

 
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Stock Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification (“ASC”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using a Black-Scholes-Merton option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company’s statements of operations. In prior periods up to March 31, 2019, the Company accounted for share-based compensation issued to nonemployees and consultants in accordance with the provisions of FASB ASC 505-50, Equity - Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718):Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. The Company adopted ASU 2018-07 on April 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the three months ended June 30, 2019 or the previously reported financial statements.

 

Segments

 

The Company operates in one segment for the distribution of products and services. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial statements.

 

Recent Accounting Pronouncements

  

Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not, or are not believed by management to have, a material impact on the Company’s present or future consolidated financial statements.

 

 
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NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

 

 

June 30, 2019

 

 

March 31, 2019

 

Lab Equipment

 

$569,484

 

 

$569,484

 

Office Furniture and Equipment

 

 

57,562

 

 

 

57,562

 

Leasehold Improvements

 

 

21,557

 

 

 

21,557

 

 

 

 

648,603

 

 

 

648,603

 

Less: Accumulated Depreciation

 

 

(236,304)

 

 

(196,555)

 

 

$412,299

 

 

$452,048

 

 

NOTE 4 – EQUITY INVESTMENTS

 

Equity investments relate to purchases of stock in certain entities with ownership percentages of less than 5% and consist of the following:

 

 

 

June 30, 2019

 

 

March 31, 2019

 

(A) GemmaCert

 

$93,529

 

 

$93,529

 

(B) Hightimes Holdings Corp.

 

 

654,763

 

 

 

654,763

 

(C) Precision Cultivation Systems, LLC

 

 

50,000

 

 

 

50,000

 

(D) Bailey Venture Partners XII LLC

 

 

100,000

 

 

 

100,000

 

 

 

$898,292

 

 

$898,292

 

 

(A) In November 2016, the Company purchased 29,571 shares of Preferred A stock of Cannabi-Tech Ltd. (“Cannabi”), at a price of $1.69086 per share for total investment of $50,000. Cannabi is a private company incorporated in the State of Israel that provides lab-grade medical cannabis quality control testing systems used to test the quality of medical marijuana flowers. Cannabi subsequently changed its name to GemmaCert. In October 2017, the Company purchased an additional 7,309 shares of Preferred A-1 stock of GemmaCert at a price of $2.536 per share for total investment of $18,537.

 

As a private company, GemmaCert does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in GemmaCert during the three months ended June 30, 2019. As such, the Company has measured the value of the investment $2.536 per share, reflecting the most recent purchase price, which is believed to approximate market value.

 

(B) In January 2017, the Company entered in to an agreement to purchase 59,524 shares of Class A common stock at a price of $4.20 per share for total investment of $250,000, which accounts for less than 5% investment in Hightimes Holdings Corp. (“Hightimes”). During the fiscal year ended March 31, 2019, the Company was able to obtain observable evidence that the investment had a market value of $11.00 per share, or an aggregate value of $654,763. Hightimes owns High Times Magazine and hosts festivals, events and competitions including the High Times Cannabis Cup and multiple e-commerce properties, including HighTimes.com, CannabisCup.com and 420.com. There have been no observable price changes from transactions for similar investments in Hightimes during the three months ended June 30, 2019.

 

(C) In June 2017, the Company entered in a Subscription Agreement to purchase 0.5% interest in Precision Cultivation Systems, LLC (“Precision”), a Delaware limited liability company, for a purchase price of $50,000. Precision is developing a growth system that capitalizes on a patent-pending cultivation method that utilizes proprietary irrigation and root zone conditioning. As part of the Subscription Agreement, $42,500 of the investment is subject to repayment on a pro-rata basis with other investors who have entered into similar Subscription Agreements. Amounts subject to repayment are solely at the discretion of Precision. 

 

 
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As a private company, Precision does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in Precision during the three months ended June 30, 2019. As such, the Company has measured the value of the investment at cost as of June 30, 2019, which management believes approximates market value.

 

(D) In January 2018, the Company paid $100,000 for the purchase of a Membership Interest in Bailey Venture Partners XII LLC (“Bailey”) representing less than 5% interest in Bailey. Along with other funds received from third-party investors, Bailey plans to invest funds received in various strategic investments.

 

As a private company, Bailey does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in Bailey during the fiscal year ended March 31, 2019. As such, the Company has measured the value of the investment at cost as of June 30, 2019, which management believes approximates market value.

 

As the Company does not participate in the management of these companies nor has the ability to exercise significant influence over these companies, the Company recorded these investments at cost and adjusts the cost basis to market at the end of each reporting period. Dividends, if any, are recognized when received.

 

NOTE 5 – ACQUISITION OF TRACE ANALYTICS, INC.

 

On January 7, 2019, the Company closed on a purchase of 520,410 shares of common stock of Trace Analytics, Inc., a Washington corporation (“Trace Analytics”). Pursuant to a Common Stock Purchase Agreement, the Company purchased Trace Analytics at a purchase price of $2.40 per share, for an aggregate purchase price of $1,250,000, of which $750,000 was paid in cash and $500,000 was paid through the issuance of shares of the Company’s common stock. Trace Analytics is a cannabis testing laboratory acquired to enable the Company to position itself as the leading provider of testing solutions for CBD products for both compliance requirements and consumer safety as these products continue to increase in popularity. Immediately following the purchase, the Company holds 51% of the issued and outstanding shares of common stock of Trace Analytics. 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, it is considered unlikely that any of the events will occur. Additionally, the Company 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.

 

The Company accounted for the transaction as a business combination in accordance with ASC 805 “Business Combinations”. The Company is in the process of performing an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). The provisional allocation of the purchase price is based on management’s preliminary estimates. Once management completes its analysis to finalize the purchase price allocation, it is reasonably possible that there could be changes to the preliminary values. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.

 

Based on management’s analysis of the acquisition transaction pursuant to the provisions of ASC 805, the Company determined that any customer lists or business licenses held by Trace Analytics are immaterial in relation to the overall value of Trace; additionally, Trace Analytics does not hold any patents or proprietary technology, and does not have long-term contractual arrangements with customers. As such, there are no separately identifiable intangible assets meeting the criteria of ASC 805. Concurrently, the Company preliminarily allocated the $1,941,149 excess of the purchase price over the identifiable net assets of $509,831 to goodwill.

 

The following unaudited pro forma information presents the combined results of operations as if the business combination with Trace Analytics had been completed on April 1, 2017, the beginning of the comparable prior annual reporting period. These unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations:

 

 

 

For the three months ended

June 30, 2018

 

 

 

(unaudited)

 

 

 

 

 

Revenue

 

$230,954

 

Operating loss

 

 

(588,994)

Net loss

 

 

(425,688)

Net loss per share

 

 

(0.04)

    

 
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NOTE 6 – CONVERTIBLE NOTES

 

During the three months ended June 30, 2019, the Company issued separate Convertible Promissory Notes (“Notes”) having a total principal amount of $249,939 to an accredited holder at an interest rate of 1% per month. The note holder, at his sole discretion and election, is allowed to convert any part or all of the then outstanding principal and/or interest on these Notes into shares of common stock of the Company at a fixed price per share of $1.00. As of June 30, 2019, none of the Notes were converted, and as such, principal balance of was $249,939 as of the period then ended.

 

The Notes were issued when the market price of the Company’s common stock was in excess of the $1.00 per share conversion price creating a beneficial conversion feature associated with these Notes with an aggregate amount of $71,381 at issuance dates. As such, the Company recorded the $71,381 intrinsic value of the beneficial conversion feature at issuance dates of the Notes as additional paid-in capital, and recognized as a debt discount. The debt discount is being amortized as interest expense over the terms of the related notes. During the three-month period ended June 30, 2019, the Company recorded amortization of the debt discount of $21,045 as interest expense. As such, unamortized debt discount as of June 30, 2019 related to these Notes was $50,336.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Transaction with SBS Management LLC

 

During the period SBS Management LLC, a company controlled by Mr. Scott Stevens, who was appointed to the Company’s board of directors on April 15, 2019 made advances to the Company to cover certain operating expenses. These advances are unsecured, non-interest bearing, with no formal terms of repayment. As of June 30, 2019, the amounts due SBS were $19,805 and are included in accounts payable on the accompanying balance sheet. During the three months ended June 30, 2019, the Company paid SBS Management LLC $37,500 for management services. In addition, the Company reimbursed SBS Management LLC $15,000 for rent expense which amount has been included in general and administrative expense for the period. There were no such amounts invoiced during the three months ended June 30, 2018.

 

Convertible Notes Payable - Related Parties

 

On May 15, 2019, the Company’s Board of Directors approved the issuance of a convertible promissory note (the “Note”) in the principal amount of $250,000 to Greys Peak Ventures LLC, an investment firm whose partners include Scott Stevens and Chris Bridges, both directors of the Company. The Note is due December 31, 2019, holds a 0% interest rate, and is convertible at any time, in the sole discretion of the holder of the Note, into shares of common stock of the Company at a purchase price of $1.00 per share. As of June 30, 2019, the Company had borrowed $140,000 against the Note.

 

A portion of the Notes were issued when the market price of the Company’s common stock was in excess of the $1.00 per share conversion price creating a beneficial conversion feature associated with these Notes with an aggregate amount of $6,000 at issuance dates. As such, the Company recorded the $6,000 intrinsic value of the beneficial conversion feature at issuance dates of the Notes as additional paid-in capital, and recognized as a debt discount. The debt discount is being amortized as interest expense over the terms of the related notes. During the three-month period ended June 30, 2019, the Company recorded amortization of the debt discount of $912 as interest expense. As such, unamortized debt discount as of June 30, 2019 related to these Notes was $5,088.

  

NOTE 8 – SUBSEQUENT EVENTS

 

Convertible Debt

 

From July 2019 to date of the filing of this Form 10-Q, the Company issued Convertible Promissory Notes (“Notes”) having a total principal amount of $25,000 to an accredited holder, Greys Peak Ventures LLC, an investment firm whose partners include Scott Stevens and Chris Bridges, both directors of the Company. Interest is 0% per month and the note holder, at its sole discretion and election, is allowed to convert any part or all of the then outstanding principal and/or interest on these Notes into shares of common stock of the Company at a fixed price per share of $1.00.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 Trace Analytics, Inc.

 

On January 7, 2019, we closed on a purchase of 520,410 shares of common stock of Trace Analytics, Inc., a Washington corporation (“Trace Analytics”). Pursuant to a Common Stock Purchase Agreement, the Company purchased Trace Analytics at a purchase price of $2.40 per share, for an aggregate purchase price of $1,250,000, of which 141,850 shares remain to be issued. Trace Analytics is a cannabis testing laboratory acquired to enable the Company to position itself as the leading provider of testing solutions for CBD products for both compliance requirements and consumer safety as these products continue to increase in popularity. Immediately following the purchase, we held 51% of the issued and outstanding shares of common stock of Trace Analytics and have included the financial results of Trace Analytics in our condensed consolidated financial statements from the date of acquisition, January 1, 2019.

 

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 considered 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.

 

Applied Biopharma LLC

 

On April 8, 2019, the Company formed Applied Biopharma LLC, a wholly-owned subsidiary, in the state of Nevada, with the intention of establishing and growing the biopharmaceutical business of the Company. Applied Biopharma LLC is focused on the development and commercialization of novel therapeutics to treat metabolic diseases, peripheral neuropathy, progressive lung disease and ischemic reperfusion injury. Its principal business objective is to develop science-driven synthetic cannabinoid therapeutics that satisfy unmet medical needs and continue to drive innovation in the endocannabinoid space.

 

Results of Operations

 

Our revenue, operating expenses, and net loss from operations for our three months ended June 30, 2019 as compared to our three months ended June 30, 2018 were as follows:

 

 
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Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

 

 

 

Three Months

 

 

Three Months

 

 

 

 

 

Percentage

 

 

 

Ended

 

 

Ended

 

 

$ Change

 

 

Change

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

Inc (Dec)

 

 

Inc (Dec)

 

REVENUE, NET

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$85,740

 

 

$10,434

 

 

$75,306

 

 

 

722%

Services

 

 

125,717

 

 

 

-

 

 

 

125,717

 

 

 

-

 

Total costs of revenue

 

 

211,457

 

 

 

10,434

 

 

 

201,023

 

 

 

1927%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

78,892

 

 

 

17,758

 

 

 

61,134

 

 

 

344%

Services

 

 

20,905

 

 

 

-

 

 

 

20,905

 

 

 

-

 

Total costs of revenue

 

 

99,797

 

 

 

17,758

 

 

 

82,039

 

 

 

462%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN (LOSS)

 

 

111,660

 

 

 

(7,324)

 

 

118,984

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

109,626

 

 

 

344,044

 

 

 

(234,418)

 

 

(68)%

General and administrative

 

 

444,049

 

 

 

207,146

 

 

 

236,903

 

 

 

114%

Depreciation and Amortization

 

 

39,749

 

 

 

293

 

 

 

39,456

 

 

 

13466%

TOTAL OPERATING EXPENSES

 

 

593,424

 

 

 

551,483

 

 

 

41,941

 

 

 

8%

OPERATING LOSS

 

 

(481,764)

 

 

(558,807)

 

 

(77,043)

 

 

(14)%

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of equity investments

 

 

-

 

 

 

158,929

 

 

 

(158,929)

 

 

-

 

Interest Expense

 

 

(26,164)

 

 

(1,879)

 

 

(24,285)

 

 

1,292%

Total other income, net

 

 

(26,164)

 

 

157,050

 

 

 

(183,214)

 

 

-

 

NET LOSS

 

 

(507,928)

 

 

(401,757)

 

 

106,171

 

 

 

26%

Less: Net loss attributable to non controlling interest

 

 

84,031

 

 

 

6,256

 

 

 

77,775

 

 

 

1,243%

NET LOSS ATTRIBUTABLE TO APPLIED BIOSCIENCES CORP.

 

$(423,897)

 

$(395,501)

 

$28,396

 

 

 

7%

 

Revenues: Revenue relate to shipments of cannabidiol (“CBD”) brand products and lab testing services. During the three months ended June 30, 2019, revenue from our CBD product lines was $85,740 as compared to $10,434 for the three months ended June 30, 2018. The increase reflects higher sales across all of our CBD brand product lines, most notably in our topical products, combined with expansion into sales of bulk hemp seed and raw CBD. Service revenue resulting from our lab testing is attributed solely to the acquisition of Trace Analytics in January 2019, and totaled $125,717 for the three months ended June 30, 2019.

 

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 June 30, 2019, we incurred $78,892 of costs to purchase product which represented 92% of our product revenues as compared to $17,758 or 170% of our product revenues for the three months ended June 30, 2018. Similar to revenues, product costs for the three months ended June 30, 2019 were driven by costs of bulk hemp seed and raw CBD. For the three months ended June 30, 2018, the Company incurred significant labeling costs associated with its product sales. Cost of services of $20,905 related to our lab testing services, and is attributed solely to the acquisition of Trace Analytics.

 

Gross Margin: For the three months ended June 30, 2019, gross margin from sale of our CBD products was $6,848 or 8% of products revenue as compared to a net margin loss of $7,324 for the three months ended June 30, 2018. The improved gross margin percentage is primarily due reduced labeling costs driven by higher volume sales of CBD products. Overall Gross Margin on product sales remains low due to lower margins on sales of bulk hemp seed and raw CBD. Gross margin from our lab testing services, which started January 1, 2019, totaled $104,812 or 83% of our lab testing revenues.

 

 
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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 $109,626 for the three months ended June 30, 2019 as compared to $344,044 for the three months ended June 30, 2018. The decrease is due to a significant reduction in spending for investor relations services as the Company moves to a more focused approach to build awareness and increase its profile with the investor community.

 

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 increased $236,903 to $444,049 for the three months ended June 30, 2019 as compared to $207,146 for the three months ended June 30, 2018. Over 95% of the increase can be attributed to the acquisition of Trace Analytics, with general and administrative expenses for the remainder of the Company essentially flat compared to the three months ended June 30, 2018.

 

Depreciation and amortization: Depreciation expense was $39,749 for the three months ended June 30, 2019 as compared to $293 for the three months ended June 30, 2018. The increase is driven solely by depreciation on equipment acquired in connection with the acquisition of Trace Analytics in January 2019.

 

Change in fair value of Equity Investments: On April 1, 2018, we adopted ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. As such, during the three months ended June 30, 2018, we measured our equity investments at each reporting period at fair value with changes in fair value recognized in net income. During the three months ended June 30, 2018, we were able to obtain observable evidence that the fair value of certain equity investments had increased by $158,929. As such, we recorded an unrecognized gain from the change in market value of $158,929 during the three months ended June 30, 2018. There was no observable evidence in the change in fair market value for any of our equity investments during the three months ended June 30, 2019. As such no unrecognized gains or losses were recorded on our equity investments during this period.

 

Interest Expense: During the three months ended June 30, 2019 and 2018, we recorded $4,207 and $80, respectively, of interest costs related to convertible notes along with amortization of $21,957 and $1,799, respectively, of debt discount recorded in conjunction with the convertible notes. The increases were driven by increased funding from convertible notes for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.

 

Liquidity and Capital Resources

 

Cash Flows

 

A summary of our cash flows for the three months ended June 30, 2019 is as follows:

 

Net cash used in operating activities was $399,043 for the three months ended June 30, 2019 as compared to $162,036 for the three months ended June 30, 2018. The increase in cash used in operations was primarily driven by the acquisition of Trace Analytics and the general and administrative costs associated with Trace operations. Additional increases were due to sales and marketing costs related to growth in CBD products revenue.

 

Net cash used in investing activities during the three months ended June 30, 2019 and 2018 was nil.

 

Net cash provided by financing activities for the three months ended June 30, 2019 was $389,939 as compared to $104,500 for the three months ended June 30, 2018. The increase in cash provided by financing activities was driven by the issuance of convertible notes with proceeds used to support increased general and administrative and sales and marketing activities during the three months ended June 30, 2019 as noted above. We anticipate additional financing activities in the coming months to support continued growth in our products and services revenue along with acquisitions of assets to establish and grow our biopharmaceutical operations.

 

 
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Going Concern

 

As reflected in the condensed consolidated financial statements contained elsewhere is this Form 10-Q, as of June 30, 2019 we had cash on hand and had an accumulated deficit of $37,940 and $5,955,157, respectively, and during the three months ended June 30, 2019, we utilized cash for operations and incurred a net loss of $399,043 and $507,928, respectively. Our uses of cash have been primarily for strategic investments along with support for operations and marketing efforts to promote and develop our CBD products and our company. Our principal sources of liquidity have been cash provided by financing, primarily through the sale of equity securities and issuance of convertible notes, along with revenues from our principal business activities. Further, we have used cash for various strategic investments for which we typically receive returns when such investments are sold and when or if dividends are declared.

 

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 three months ended June 30, 2019, we raised $389,939 through the issuance of convertible notes to accredited investors. However, we anticipate that significant additional expenditures will be necessary to expand and bring to market our products and investments before sufficient and consistent positive operating cash flows will be achieved. Additionally, substantial cash will be needed to establish and advance our biopharmaceutical operations. As such, we will need additional funds to operate our business through and beyond the date of this Form 10-Q filing. There can be no assurance that such funds will be available or at terms acceptable to us. Even if we are able to obtain additional financing, it may contain undue restrictions and covenants on our operations, in the case of debt financing or cause substantial dilution for our stockholders in the case of convertible debt and equity financing.

 

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 March 31, 2019 expressed substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

 

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 used either the equity method or the cost method of accounting. We use the equity method for unconsolidated equity investments in which we are considered to have significant influence over the operations of the investee. We use the cost method for all other investments. Under the cost method, there is no change to the cost basis unless there is an other-than-temporary decline in value or dividends are received. If the decline is determined to be other-than-temporary, we write down the cost basis of the investment to a new cost basis that represents realizable value.

 

On April 1, 2018 we adopted 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 new guidance requires certain equity investments to be measured at fair value with changes in fair value recognized in net income. As such, we measure our equity investments at their fair value at end of each reporting period.

 

Investments accounted for under the equity method or cost method of accounting above are included in the caption “Equity investments” in our Condensed Consolidated Balance Sheets.

 

 
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Goodwill

 

Goodwill will be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

In connection with this quarterly report, as required by Rule 15d-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s principal executive officer and principal financial officer. Based upon that evaluation, management concluded that as of June 30, 2019, our disclosure controls and procedures were not effective. The most significant issues identified were: 1) lack of segregation of duties due to very small staff and significant reliance on outside consultants, and 2) risks of executive override also due to lack of established policies, and small employee staff. As the company’s operations increase, the company intends to take measures to mitigate the issues identified and implement a functional system of internal controls over financial reporting. Such measures will include, but not be limited to hiring of additional employees in its finance and accounting department; preparation of risk-control matrices to identify key risks and develop and document policies to mitigate those risks; and identification and documentation of standard operating procedures for key financial activities.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 
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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Currently we are not subject to any pending litigation or legal proceeding.

 

Item 1A. Risk Factors.

 

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act we are not required to provide the information required under this item.

 

Item 2. Unregistered Sales of Securities and Use of Proceeds.

 

Not applicable

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

On March 8, 2019, the Company’s Board of Directors approved the offer and sale of a convertible promissory note (the “Note”) in the principal amount of $250,000. The Note is due March 31, 2020, bears interest at 1% per month, and is convertible at any time, in the sole discretion of the holder of the Note, into shares of common stock of the Company at purchase price of $1.00 per share. The Company made the offering to an “accredited investor” in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506, promulgated thereunder.

 

On May 15, 2019, the Company’s Board of Directors approved the offer and sale of a convertible promissory note (the “Note”) in the principal amount of $250,000. The Note is due December 31, 2019, holds a 0% interest rate, and is convertible at any time, in the sole discretion of the holder of the Note, into shares of common stock of the Company at a purchase price of $1.00 per share. The Company made the offering to an “accredited investor” in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506, promulgated thereunder. Through the date of this filing, the amount outstanding under the Note is $165,000.

 

 
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Item 6. Exhibits.

 

(a) Exhibits required by Item 601 of Regulation SK.

 

Number

Description

 

2.1

Share Exchange Agreement, dated November 4, 2016, by and among the Applied Biosciences Corp., Stony Hill Ventures Corp., a Nevada corporation, and the holders of common stock of Stony Hill Ventures Corp. (3)

 

3.1.1

Articles of Incorporation (1)

 

3.1.2

 

Certificate of Amendment (3)

 

3.1.3

 

Certificate of Change (3)

 

3.1.4

Certificate of Amendment (4)

 

3.2

 

Bylaws (2)

 

4.1

 

Convertible Promissory Note, dated March 8, 2019

 

4.2

 

Convertible Promissory Note, dated May 15, 2019

 

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

 

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS *

 

XBRL Instance Document

 

101.SCH *

 

XBRL Taxonomy Extension Schema Document

 

101.CAL *

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF *

 

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB *

 

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE *

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

(1)

Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-197443), filed with the Securities and Exchange Commission on July 16, 2014.

(2)

Incorporated by reference to the Registrant’s Registration Statement on Form S-1/A (File No. 333-197443), filed with the Securities and Exchange Commission on October 16, 2014.

 

(3)

Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-52223), filed with the Securities and Exchange Commission on November 10, 2016.

 

(4)

Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-52223) filed with the Securities Exchange Commission on March 5, 2018

 

*

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

APPLIED BIOSCIENCES CORP.

 

(Name of Registrant)

 

Date: August 14, 2019

By:

/s/ Raymond W. Urbanski

 

Name: Raymond W. Urbanski M.D, Ph.D.

 

Title: Chief Executive Officer

(principal executive officer,

principal accounting officer and principal financial officer)

 

 
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