CV Sciences Inc

Previous wording

The following discussion of our financial condition and results of operations for the three and six months ended June 30, 2024 and 2023, respectively, should be read in conjunction with our condensed consolidated financial statements and the notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Current wording

The following discussion of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023, respectively, should be read in conjunction with our condensed consolidated financial statements and the notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Previous wording

We had net product sales of $4.0 million and gross profit of $1.9 million, representing a gross margin of 47.0%, in the second quarter of 2024, compared to net product sales of $4.0 million and gross profit of $1.7 million, representing a gross margin of 43.3%, in the second quarter of 2023. Our net product sales remained flat in the second quarter of 2024 when compared to the second quarter 2023. Our B2B sales declined slightly, offset by higher B2C sales. The total number of units sold during the second quarter 2024 decreased by 12.5% compared to the second quarter 2023, offset by higher average sales price per unit of 12.1%. The average sales price per unit increased due to product and channel mix. In addition, 47.7% of our net revenue for the second quarter 2024 was from new products launched since January 1, 2022. During this time, we launched 32 new products. The overall market continues to be fragmented and highly competitive, which we believe is largely due to the lack of a clear regulatory framework and a patchwork of state regulation.

Current wording

We had net product sales of $3.9 million and gross profit of $1.8 million, representing a gross margin of 46.0%, in the third quarter of 2024, compared to net product sales of $4.1 million and gross profit of $1.8 million, representing a gross margin of 45.1%, in the third quarter of 2023. Our net product sales decreased in the third quarter of 2024 when compared to the third quarter 2023 mostly due to lower B2B sales. The total number of units sold during the third quarter 2024 decreased by 7.9% compared to the third quarter 2023 and our average sales price per unit decreased slightly by 0.5%. In addition, 52.6% of our net revenue for the third quarter 2024 was from new products launched since January 1, 2022. During this time, we launched 39 new products. The overall market continues to be fragmented and highly competitive, which we believe is largely due to the lack of a clear regulatory framework and a patchwork of state regulation.

Previous wording

Cost of goods sold consists primarily of raw materials, packaging, manufacturing overhead (including payroll, employee benefits, stock-based compensation, facilities, depreciation, supplies and quality assurance costs), merchant card fees and shipping. We were able to reduce our cost of goods sold in the second quarter of 2024 compared to the second quarter of 2023 by $0.2 million, or 7%. The reduction is mostly due to the lower number of units sold in the second quarter of 2024. In addition, cost of goods sold in the second quarter of 2024 decreased as a percentage of revenue compared to the second quarter of 2023, mostly due to lower inventory losses and lower freight in the second quarter of 2024 compared to the prior year period. Our gross profit improved by $0.1 million, or 8%, to $1.9 million in the second quarter of 2024 and gross margin improved from 43.3% in the second quarter 2023 to 47.0% in the second quarter of 2024. The improvement in our gross margin is primarily due to our product and channel mix, lower inventory losses and lower freight.

Current wording

Cost of goods sold consists primarily of raw materials, packaging, manufacturing overhead (including payroll, employee benefits, stock-based compensation, facilities, depreciation, supplies and quality assurance costs), merchant card fees and shipping. We were able to reduce our cost of goods sold in the third quarter of 2024 compared to the third quarter of 2023 by $0.2 million, or 7%. The reduction is mostly due to the lower number of units sold in the third quarter of 2024. In addition, cost of goods sold in the third quarter of 2024 decreased as a percentage of revenue compared to the third quarter of 2023, mostly due to lower freight, cost savings and product mix in the third quarter of 2024 compared to the prior year period. Our gross profit remained flat at $1.8 million in the third quarter of 2024 and gross margin improved from 45.1% in the third quarter 2023 to 46.0% in the third quarter of 2024. The improvement in our gross margin is primarily due to our product and channel mix, lower freight, and cost savings.

Previous wording

We had net product sales of $8.0 million and gross profit of $3.7 million, representing a gross margin of 46.7%, in the six months ended June 30, 2024, compared to net product sales of $8.1 million and gross profit of $3.5 million, representing a gross margin of 43.1%, in the six months ended June 30, 2023. Our net product sales decreased by $0.2 million, or 2%, in the first six months of 2024 when compared to first six months of 2023 results. The decline is primarily due to lower B2B sales in 2024, partially offset by higher B2C sales. The total number of units sold during the first six months of 2024 decreased by 13.6% compared to the first six months of 2023, partially offset by higher average sales price per unit of 12.0%. The average sales price per unit increased due to product and channel mix. Our B2C revenue increased by $0.1 million compared to the first six months of 2023, mostly due to additional revenue from our subscriptions customers. In addition, 46.6% of our net revenue for the first six months 2024 was from new products launched since January 1, 2022. During this time, we launched 32 new products. The overall market continues to be fragmented and highly competitive, which we believe is largely due to the lack of a clear regulatory framework and a patchwork of state regulation.

Current wording

We had net product sales of $11.8 million and gross profit of $5.5 million, representing a gross margin of 46.5%, in the nine months ended September 30, 2024, compared to net product sales of $12.2 million and gross profit of $5.3 million, representing a gross margin of 43.8%, in the nine months ended September 30, 2023. Our net product sales decreased by $0.4 million, or 3%, in the first nine months of 2024 when compared to first nine months of 2023 results. The decline is primarily due to lower B2B sales in 2024, partially offset by higher B2C sales. The total number of units sold during the first nine months of 2024 decreased by 11.8% compared to the first nine months of 2023, partially offset by higher average sales price per unit of 7.7%. The average sales price per unit increased due to product and channel mix. Our B2C revenue increased by $0.1 million compared to the first nine months of 2023, mostly due to additional revenue from our subscriptions customers. In addition, 48.5% of our net revenue for the first nine months 2024 was from new products launched since January 1, 2022. During this time, we launched 39 new products. The overall market continues to be fragmented and highly competitive, which we believe is largely due to the lack of a clear regulatory framework and a patchwork of state regulation.

Previous wording

Cost of goods sold consists primarily of raw materials, packaging, manufacturing overhead (including payroll, employee benefits, stock-based compensation, facilities, depreciation, supplies and quality assurance costs), merchant card fees and shipping. We were able to reduce our cost of goods sold in the first six months of 2024 compared to the first six months of 2023 by $0.4 million, or 8%. The reduction is mostly due to the lower number of units sold in the first six months of 2024. In addition, cost of goods sold in the first six months of 2024 decreased as a percentage of revenue compared to the first six months of 2023, mostly due to lower inventory losses and lower freight in the first six months of 2024 compared to the prior year period. Our gross profit improved by $0.2 million, or 6%, to $3.7 million in the first six months of 2024 and gross margin improved from 43.1% in the first six months of 2023 to 46.7% in the first six months of 2024. The improvement in our gross margin is primarily due to our product and channel mix, lower inventory losses and lower freight.

Current wording

Cost of goods sold consists primarily of raw materials, packaging, manufacturing overhead (including payroll, employee benefits, stock-based compensation, facilities, depreciation, supplies and quality assurance costs), merchant card fees and shipping. We were able to reduce our cost of goods sold in the first nine months of 2024 compared to the first nine months of 2023 by $0.5 million, or 8%. The reduction is mostly due to the lower number of units sold in the first nine months of 2024. In addition, cost of goods sold in the first nine months of 2024 decreased as a percentage of revenue compared to the first nine months of 2023, mostly due to lower inventory losses, lower freight and cost savings in the first nine months of 2024 compared to the prior year period. Our gross profit improved by $0.2 million, or 3%, to $5.5 million in the first nine months of 2024 and gross margin improved from 43.8% in the first nine months of 2023 to 46.5% in the first nine months of 2024. The improvement in our gross margin is primarily due to our product and channel mix, lower inventory losses, lower freight and cost savings.

Previous wording

Selling, general and administrative (“SG&A”) expense decreased to $2.4 million in the second quarter of 2024 compared to $2.8 million in the second quarter of 2023, which was primarily a result of the following:

Current wording

Selling, general and administrative (“SG&A”) expense decreased to $2.1 million in the third quarter of 2024 compared to $2.2 million in the third quarter of 2023, which was primarily a result of the following:

Previous wording

Sales expense increased due to higher broker commissions and payroll expense.

Current wording

Sales expense increased mostly due to higher payroll expense.

Previous wording

Marketing expense decreased due to lower digital advertising spend, outside services, and payroll. Our reduced digital marketing expense declined due to lower advertising activity during the second quarter of 2024 and a favorable settlement of disputed invoices with an advertising agency of $0.1 million.

Current wording

Marketing expense decreased due to lower digital advertising spend, outside services, and payroll. Our reduced digital marketing expense declined due to lower advertising activity during the third quarter of 2024.

Previous wording

General and administrative ("G&A") expense for the second quarter of 2024 increased from the prior year period due to additional legal fees, partially offset by lower general administrative expenses. The second quarter 2024 included professional fees of $0.5 million associated with the legal dispute with the Company's founder. The prior year period included legal fees of $0.3 million associated with the settlement of the Lamont legal case. For more information on the Company's legal proceedings, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

General and administrative ("G&A") expense for the third quarter of 2024 increased from the prior year period due to additional legal fee and higher general administrative expenses. Our third quarter 2024 included professional fees of $0.1 million associated with the legal dispute with the Company's founder. For more information on the Company's legal proceedings, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, G&A expense in the third quarter 2024 were impacted by favorable fair value adjustments to the earn-out for our Cultured Foods and Elevated Softgels acquisitions of $0.2 million.

Previous wording

SG&A expense remained flat at $4.9 million during the first six months of 2024 compared to the first six months of 2023, and included the following:

Current wording

SG&A expense decreased from $7.2 million for the first nine months of 2023 to $6.9 million for the first nine months of 2024, and included the following:

Previous wording

Marketing expense decreased due to lower digital advertising spend, outside services, and payroll. Our digital marketing expense declined due to lower advertising activity during the first six months of 2024 and a favorable settlement of disputed invoices with an advertising agency of $0.1 million.

Current wording

Marketing expense decreased due to lower digital advertising spend, outside services, and payroll. Our digital marketing expense declined due to lower advertising activity during the first nine months of 2024 and a favorable settlement of disputed invoices with an advertising agency of $0.1 million.

Previous wording

G&A expense increased by $0.3 million. The increase is mostly due to additional legal fees during the six months ended June 30, 2024. The current year period included professional fees of $0.7 million associated with the legal dispute with the Company's founder. The prior year period included legal fees of $0.3 million associated with the settlement of the Lamont legal case. For more information on the Company's legal proceedings, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

G&A expense increased by $0.4 million. The increase is mostly due to additional legal fees during the nine months ended September 30, 2024. The current year period included professional fees of $0.8 million associated with the legal dispute with the Company's founder. The prior year period included legal fees of $0.3 million associated with the settlement of the Lamont legal case. For more information on the Company's legal proceedings, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, G&A expense in the nine months ended September 30, 2024 were impacted by favorable fair value adjustments to the earn-out for our Cultured Foods and Elevated Softgels acquisitions of $0.2 million.

Previous wording

We previously recorded a contingent liability for payroll taxes associated with the RSU release to our founder in 2019 of $6.7 million. On April 15, 2023, the statute of limitations for federal payroll tax withholding expired. In addition, the statute of limitations for the state tax withholding expired during the six months ended June 30, 2023. As a result of the expiration of the relevant statutes of limitations, neither the IRS nor the State of California have the rights to assess and collect the $6.2 million of income taxes from the Company and we have made a change in accounting estimate and no longer expect to incur a loss with respect to this matter. As a result, we derecognized the contingent liability of $6.2 million during the six months ended June 30, 2023. For more information, please see Note 12, Related Parties, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

We previously recorded a contingent liability for payroll taxes associated with the RSU release to our founder in 2019 of $6.7 million. On April 15, 2023, the statute of limitations for federal payroll tax withholding expired. In addition, the statute of limitations for the state tax withholding expired during the six months ended June 30, 2023. As a result of the expiration of the relevant statutes of limitations, neither the IRS nor the State of California have the rights to assess and collect the $6.2 million of income taxes from the Company and we have made a change in accounting estimate and no longer expect to incur a loss with respect to this matter. As a result, we derecognized the contingent liability of $6.2 million during the nine months ended September 30, 2023. For more information, please see Note 12, Related Parties, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

Other expense, net consists of interest expense and interest income. Other expense decreased by approximately $0.2 million in the three month period ended June 30, 2024 as compared to the three month period ended June 30, 2023, and decreased by approximately $0.3 million in the six month period ended June 30, 2024 as compared to the six month period ended June 30, 2023, in each case due to the repayment of our note payable to Streeterville.

Current wording

Other expense, net consists of interest expense and interest income. Other expense increased by approximately $0.1 million in the three month period ended September 30, 2024 as compared to the three month period ended September 30, 2023 due to the interest expense associated with the new Streeterville note payable. Other expense, net decreased by approximately $0.1 million in the nine month period ended September 30, 2024 as compared to the nine month period ended September 30, 2023. Other expense, net included fair value increases for our financial instruments of $0.2 million in the first nine months of 2023 and interest expense for the new Streeterville note payable of $0.1 million in the first nine months of 2024.

Previous wording

A reconciliation from our net income (loss) to Adjusted EBITDA, a non-GAAP measure, for the three and six months ended June 30, 2024 and 2023 is detailed below:

Current wording

A reconciliation from our net income (loss) to Adjusted EBITDA, a non-GAAP measure, for the three and nine months ended September 30, 2024 and 2023 is detailed below:

Previous wording

During the six months ended June 30, 2024 and the year ended December 31, 2023, our primary sources of capital came from (i) cash generated from our operations, (ii) existing cash, and (iii) funds received from the IRS related to employee retention credits during the year ended December 31, 2023. As of June 30, 2024, we had approximately $0.5 million of cash and working capital of approximately $0.7 million.

Current wording

During the nine months ended September 30, 2024 and the year ended December 31, 2023, our primary sources of capital came from (i) cash generated from our operations, (ii) existing cash, (iii) proceeds from note payable financings, and (iv) funds received from the IRS related to employee retention credits during the year ended December 31, 2023. As of September 30, 2024, we had approximately $1.0 million of cash and working capital of approximately $0.6 million.

Previous wording

Excluding the funds for employee retention credits, we generated negative cash flows from operations of $0.5 million for the year ended December 31, 2023. For the six months ended June 30, 2024, the Company generated negative cash flows from operations of $0.6 million, and we had an accumulated deficit of $85.8 million as of June 30, 2024.

Current wording

Excluding the funds for employee retention credits, we generated negative cash flows from operations of $0.5 million for the year ended December 31, 2023. For the nine months ended September 30, 2024, the Company generated negative cash flows from operations of $0.7 million, and we had an accumulated deficit of $86.3 million as of September 30, 2024.

Previous wording

We believe that a combination of factors have adversely impacted our business operations for the six months ended June 30, 2024 and the year ended December 31, 2023. Due to a low barrier entry market with a lack of a clear regulatory framework, we face intense competition from both licensed and illicit market operators that may also sell herbal supplements and hemp-based CBD consumer products. Because we operate in a market that is rapidly evolving and expanding globally, our customers may choose to obtain CBD products from our competitors, and our success depends on our ability to attract and retain our customers from purchasing CBD products elsewhere. To remain competitive, we intend to continue to innovate new products, build brand awareness, and make significant investments in our business strategy by introducing new products into the markets in which we operate, adopt quality assurance protocols and procedures, build our market presence, and undertake further research and development. In addition, we intend to make additional acquisitions to further diversify our product offerings.

Current wording

We believe that a combination of factors have adversely impacted our business operations for the nine months ended September 30, 2024 and the year ended December 31, 2023. Due to a low barrier entry market with a lack of a clear regulatory framework, we face intense competition from both licensed and illicit market operators that may also sell herbal supplements and hemp-based CBD consumer products. Because we operate in a market that is rapidly evolving and expanding globally, our customers may choose to obtain CBD products from our competitors, and our success depends on our ability to attract and retain our customers from purchasing CBD products elsewhere. To remain competitive, we intend to continue to innovate new products, build brand awareness, and make significant investments in our business strategy by introducing new products into the markets in which we operate, adopt quality assurance protocols and procedures, build our market presence, and undertake further research and development. In addition, we intend to make additional acquisitions to further diversify our product offerings.

Previous wording

The Cultured Foods Earnout Payment shall be paid within 10 business days after the final determination of Cultured Foods net revenue for fiscal 2024, as determined in accordance with the Cultured Foods Purchase Agreement.

Current wording

The Cultured Foods Earnout Payment shall be paid within 10 business days after the final determination of Cultured Foods net revenue for fiscal 2024, as determined in accordance with the Cultured Foods Purchase Agreement. Net revenues of Cultured Foods are expected to be insufficient to trigger any earn-out payments.

Previous wording

In consideration for the Softgels Acquisition, at closing, the Company (i) made a cash payment of $100,000 to the Softgels Member, less certain transaction expenses and certain other adjustments provided for in the Softgels Purchase Agreement (the “Softgels Closing Payment”), (ii) issued an aggregate of 15,854,185 restricted shares of Company common stock to the Member valued at $637,000, and (iii) issued an aggregate of 1,567,996 restricted shares of Company common stock to the selling broker of Elevated Softgels valued at $63,000. The Company common stock was valued based on the thirty-day volume weighted average price of the Company’s common stock on the thirty trading days prior to the date of the Softgels Purchase Agreement (the “Softgels Closing Shares,” and together with the Softgels Closing Payment, the “Softgels Closing Consideration”). The Softgels Closing Payment is subject to adjustment, upward or downward, based on post-closing adjustments to the net working capital of Elevated Softgels within 120 days of closing, as reflected in the Final Working Capital Statement (as defined in the Softgels Purchase Agreement). Additionally, within 90 days following the final determination of the Final Working Capital Statement (the “Softgels Receivables Date”), the Company shall be entitled to recover from the Softgels Member an amount equal to the unpaid balance, as of the Receivables Date, of all accounts receivable which were included in as assets in the Final Working Capital Statement.

Current wording

In consideration for the Softgels Acquisition, at closing, the Company (i) made a cash payment of $100,000 to the Softgels Member, less certain transaction expenses and certain other adjustments provided for in the Softgels Purchase Agreement (the “Softgels Closing Payment”), (ii) issued an aggregate of 15,854,185 restricted shares of Company common stock to the Member valued at $637,000, and (iii) issued an aggregate of 1,567,996 restricted shares of Company common stock to the selling broker of Elevated Softgels valued at $63,000. The Company common stock was valued based on the thirty-day volume weighted average price of the Company’s common stock on the thirty trading days prior to the date of the Softgels Purchase Agreement (the “Softgels Closing Shares,” and together with the Softgels Closing Payment, the “Softgels Closing Consideration”). The Softgels Closing Payment is subject to adjustment, upward or downward, based on post-closing adjustments to the net working capital of Elevated Softgels within 120 days of closing, as reflected in the Final Working Capital Statement (as defined in the Softgels Purchase Agreement). Additionally, within 90 days following the final determination of the Final Working Capital Statement (the “Softgels Receivables Date”), the Company shall be entitled to recover from the Softgels Member an amount equal to the unpaid balance, as of the Softgels Receivables Date, of all accounts receivable which were included in as assets in the Final Working Capital Statement.

Previous wording

The Softgels Earnout Payment shall be paid within 10 business days after the final determination of the Company’s Net Revenue for the 12-month period following the closing date, as determined in accordance with the Softgels Purchase Agreement. 50% of the Softgels Earnout payment shall be paid in cash and 50% of the Softgels Earnout payment shall be in the form of restricted common stock of the Company, with the number of shares determined based upon the thirty-day volume weighted average price of the Company's common stock as of the 12-month anniversary of the closing date.

Current wording

The Softgels Earnout Payment shall be paid within 10 business days after the final determination of the Company’s Net Revenue for the 12-month period following the closing date, as determined in accordance with the Softgels Purchase Agreement. 50% of the Softgels Earnout payment shall be paid in cash and 50% of the Softgels Earnout payment shall be in the form of restricted common stock of the Company, with the number of shares determined based upon the thirty-day volume weighted average price of the Company's common stock as of the 12-month anniversary of the closing date. Net revenues of Elevated Softgels are expected to be insufficient to trigger any earn-out payments.

Previous wording

In November 2023, we entered into a finance agreement with First Insurance Funding in order to fund a portion of our insurance policies. The amount financed is $0.3 million, which incurs interest at an annual rate of 8.42%. We are required to make monthly payments of $29,781 from November 2023 through July 2024. The outstanding balance as of June 30, 2024 was $29,781.

Current wording

In October 2024, we entered into a new finance agreement with First Insurance Funding in order to fund a portion of our insurance policies for the upcoming policy year. The amount financed is $0.2 million, which incurs interest at an annual rate of 8.42%. We are required to make monthly payments of $20,396 from November 2024 through July 2025.

Previous wording

In November 2022, we entered into a finance agreement with First Insurance Funding in order to fund a portion of our insurance policies. The amount financed was $0.2 million, which incurred interest at an annual rate of 6.32%. We were required to make monthly payments of $27,900 from November 2022 through July 2023. There was no outstanding balance as of June 30, 2024.

Current wording

In November 2023, we entered into a finance agreement with First Insurance Funding in order to fund a portion of our insurance policies. The amount financed was $0.3 million, which incurred interest at an annual rate of 8.42%. We were required to make monthly payments of $29,781 from November 2023 through July 2024. There was no outstanding balance as of September 30, 2024.

Previous wording

On November 5, 2021, Mona Jr. filed a complaint against the Company for breach of contract and negligence in Nevada state court seeking to recover from the Company the amount of federal and state taxes, interest and penalties owed by Mona Jr. for taxes on income received by him upon the vesting and settlement of RSU's in 2019. The hearing on the merits began on April 8, 2024, and the Arbitrator heard five days of testimony. The hearing resumed on May 21, 2024 and concluded on May 23, 2024. Post-hearing briefing is expected to conclude on November 6, 2024. A decision from the Arbitrator is expected to follow. Management believes that Mona Jr.'s claims lack merit. Nevertheless, an unfavorable outcome would have a material impact on the Company's financial condition and results of operations. For more information, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

On November 5, 2021, Mona Jr. filed a complaint against the Company for breach of contract and negligence in Nevada state court seeking to recover from the Company the amount of federal and state taxes, interest and penalties owed by Mona Jr. for taxes on income received by him upon the vesting and settlement of RSU's in 2019. The hearing on the merits began on April 8, 2024, and the Arbitrator heard five days of testimony. The hearing resumed on May 21, 2024 and concluded on May 23, 2024. Post-hearing briefing has been submitted to the Arbitrator. A decision from the Arbitrator is expected to follow. Management believes that Mona Jr.'s claims lack merit. Nevertheless, an unfavorable outcome would have a material impact on the Company's financial condition and results of operations. For more information, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

U.S. GAAP requires management to assess a company's ability to continue as a going concern within one year from the financial statement issuance date and to provide related note disclosure in certain circumstances. Our consolidated financial statements and corresponding notes have been prepared assuming the Company will continue as a going concern. The Company generated negative cash flows from operations of $0.5 million and $0.6 million for the year ended December 31, 2023 and the six months ended June 30, 2024, respectively, and had an accumulated deficit of $85.8 million as of June 30, 2024. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund our operations and growth initiatives. The Company intends to position itself so that it will be able to raise additional funds through the capital markets, issuance of debt, and/or securing lines of credit in order to continue its operations. However, there can be no assurances that additional working capital will be available to us on favorable terms, or at all, which would be likely to have a material adverse effect on the Company's ability to continue its operations.

Current wording

U.S. GAAP requires management to assess a company's ability to continue as a going concern within one year from the financial statement issuance date and to provide related note disclosure in certain circumstances. Our consolidated financial statements and corresponding notes have been prepared assuming the Company will continue as a going concern. Excluding the funds for employee retention credits, we generated negative cash flows from operations of $0.5 million and $0.7 million for the year ended December 31, 2023 and the nine months ended September 30, 2024, respectively, and had an accumulated deficit of $86.3 million as of September 30, 2024. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund our operations and growth initiatives. The Company intends to position itself so that it will be able to raise additional funds through the capital markets, issuance of debt, and/or securing lines of credit in order to continue its operations. However, there can be no assurances that additional working capital will be available to us on favorable terms, or at all, which would be likely to have a material adverse effect on the Company's ability to continue its operations.

Previous wording

A summary of our changes in cash flows for the three and six months ended June 30, 2024 and 2023 is provided below:

Current wording

A summary of our changes in cash flows for the three and nine months ended September 30, 2024 and 2023 is provided below:

Previous wording

Cash used in operating activities was $0.6 million in the six months ended June 30, 2024, compared to cash provided by operating activities of $2.4 million in the six months ended June 30, 2023. The period over period decrease in our cash flow from operating activities by $3.0 million was mostly due to the receipt of the ERC funds in the prior year period and the fact that we did not receive similar funds in the 2024 period. Our net loss for the six months ended June 30, 2024, adjusted for non-cash items, resulted in a net loss of $0.7 million, compared to a net loss, adjusted for non-cash items, of $1.0 million in the prior year period, an improvement of $0.3 million. Changes in working capital generated $0.1 million during the first six months of 2024, compared to cash generated of $3.4 million during the same period of 2023, a decrease of $3.3 million. Our changes in working capital decreased primarily due to the fact that we received the ERC funds of $2.5 million from the IRS during the first six months of 2023 and we did not receive similar funds in the 2024 period. Our net income (loss) declined by $5.6 million from a net income of $4.4 million in the first six months of 2023 to a net loss of $1.2 million in the first six months of 2024, mostly due to the benefit for the reversal of accrued payroll taxes. Non-cash adjustments decreased by $5.9 million, as we recognized a benefit for the reversal of accrued payroll tax of $6.2 million related to the RSU's previously issued to Mona Jr. during the six months ended June 30, 2023. Recurring non-cash adjustments consists of depreciation, amortization, interest expense and stock-based compensation.

Current wording

Cash used in operating activities was $0.7 million in the nine months ended September 30, 2024, compared to cash provided by operating activities of $2.4 million in the nine months ended September 30, 2023. The period over period decrease in our cash flow from operating activities by $3.1 million was mostly due to the receipt of the ERC funds in the prior year period and the fact that we did not receive similar funds in the 2024 period. Our net loss for the nine months ended September 30, 2024, adjusted for non-cash items, resulted in a net loss of $1.0 million, compared to a net loss, adjusted for non-cash items, of $1.3 million in the prior year period, an improvement of $0.3 million. Changes in working capital generated $0.3 million during the first nine months of 2024, compared to cash generated of $3.6 million during the same period of 2023, a decrease of $3.3 million. Our changes in working capital decreased primarily due to the fact that we received the ERC funds of $2.5 million from the IRS during the first nine months of 2023 and we did not receive similar funds in the 2024 period. Our net income (loss) declined by $5.8 million from a net income of $4.0 million in the first nine months of 2023 to a net loss of $1.9 million in the first nine months of 2024, mostly due to the benefit for the reversal of accrued payroll taxes. Non-cash adjustments decreased by $6.1 million, as we recognized a benefit for the reversal of accrued payroll tax of $6.2 million related to the RSU's previously issued to Mona Jr. during the nine months ended September 30, 2023. Recurring non-cash adjustments consists of depreciation, amortization, interest expense and stock-based compensation.

Previous wording

Cash used in investing activities was $40,000 in the six months ended June 30, 2024 related to our acquisition of Elevated Softgels in May 2024. We did not use any cash in investing activities in the six month ended June 30, 2023.

Current wording

Cash used in investing activities was $6,000 in the nine months ended September 30, 2024 related to our acquisition of Elevated Softgels in May 2024. We did not use any cash in investing activities in the nine months ended September 30, 2023.

Previous wording

Net cash used in financing activities was $0.2 million for the six months ended June 30, 2024 compared to $1.3 million for the six months ended June 30, 2023. Our financing activities for the six months ended June 30, 2024 consisted of repayments of our insurance financing and the notes payable that we assumed in connection with the Cultured Foods acquisition. Our financing activities for the six months ended June 30, 2023 consisted of repayments of the Streeterville note payable of $1.1 million and our insurance financing of $0.2 million.

Current wording

Net cash provided by financing activities was $0.4 million for the nine months ended September 30, 2024 compared net cash used in financing activities of $1.3 million for the nine months ended September 30, 2023. Our financing activities for the nine months ended September 30, 2024 consisted of proceeds from our note payable financing with Streeterville of $0.9 million, offset by repayments of our insurance financing, the Streeterville note payable and the notes payable that we assumed in connection with the Cultured Foods acquisition. Our financing activities for the nine months ended September 30, 2023 consisted of repayments of the Streeterville note payable of $1.1 million and our insurance financing of $0.2 million.

Previous wording

There can be no assurance that the Company’s business and corresponding financial performance will not be adversely affected by general economic or consumer trends. In particular, global economic conditions remain constrained, and if such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s business, financial condition and results of operations. Additionally, inflation has risen, Federal Reserve interest rates increased during 2023, and the general consensus among economists suggests that we should continue to expect a higher recession risk to continue over the next year, all of which may also materially adversely our business and corresponding financial position and cash flows.

Current wording

There can be no assurance that the Company’s business and corresponding financial performance will not be adversely affected by general economic or consumer trends. In particular, global economic conditions remain constrained, and if such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s business, financial condition and results of operations. Additionally, inflation has risen and Federal Reserve interest rates remain high after increases during 2023, which may also materially adversely our business and corresponding financial position and cash flows.

Previous wording

Furthermore, such economic conditions have produced downward pressure on share prices and on the availability of credit for financial institutions and corporations. If current levels of market disruption and volatility continue, the Company might experience reductions in business activity, increased funding costs and funding pressures, as applicable, a decrease in the market price of shares of our common stock, a decrease in asset values, additional write-downs and impairment charges and lower profitability. Additionally, it is possible that U.S. policy changes and uncertainty about such changes, including changes and uncertainty as a result of the upcoming U.S. presidential election, could increase market volatility.

Current wording

Furthermore, such economic conditions have produced downward pressure on share prices and on the availability of credit for financial institutions and corporations. If current levels of market disruption and volatility continue, the Company might experience reductions in business activity, increased funding costs and funding pressures, as applicable, a decrease in the market price of shares of our common stock, a decrease in asset values, additional write-downs and impairment charges and lower profitability. Additionally, it is possible that U.S. policy changes and uncertainty about such changes, including changes and uncertainty as a result of the U.S. presidential election, could increase market volatility.

Previous wording

There is currently a lack of a clear federal regulatory framework by the FDA regarding the development, sale and use of CBD products, which has created legislative and regulatory uncertainties. As a result, a patchwork of differing state regulations emerged and continues to emerge. Several states, including without limitation, Florida, Maryland, Minnesota, New York, Utah and Virginia, have adopted new regulations that may impact our ability to sell certain of our products in these states. There is also substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the importation of derivatives from exempted portions of the Cannabis plant and the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the FDA and the extent to which manufacturers of products containing cannabinoids may engage in interstate commerce. If these uncertainties continue, they may have an adverse effect on our business. Additionally, restrictive state regulations could adversely impact our revenue and earnings going forward.

Current wording

There is currently a lack of a clear federal regulatory framework regarding the development, sale and use of CBD products in the United States. As a result, differing state regulations have emerged, which regulations are constantly evolving and differ significantly from state to state in many cases. Several states, including without limitation, California, Florida, Maryland, Minnesota, New York, Utah and Virginia, have recently adopted regulations that may impact our ability to sell certain of our products in these states. In September 2024, California Governor Gavin Newsom signed an emergency order into law, effectively banning the sale of hemp products intended for human use that contain detectable amounts of THC or certain other cannabinoids in California, amongst other things. The emergency order will remain in effect until March 25, 2025, unless extended in accordance with applicable law. We have certain products which fall under this category that we have historically sold in California. It is currently unknown whether the duration of the emergency order will be extended, and/or whether it will be replaced with a permanent law with similar or more stringent prohibitions. This emergency order had a negative impact on our operating results for the three months ended September 30, 2024 and we expect that it will continue to have a negative impact on our business going forward for so long as it, or any permanent law with similar or more stringent prohibitions, remains in effect; however, it is currently impossible to quantify the expected impact on our business. There is also substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the FDA and the extent to which manufacturers of products containing cannabinoids may engage in interstate commerce. These uncertainties have had, and may continue to have, an adverse effect on our business. Additionally, restrictive state regulations could adversely impact our revenue and earnings going forward.