UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
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by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Securities registered pursuant to Section 12(b) of the Act:
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As of November 1, 2023 there were shares of the registrant’s common stock, $0.001 par value, outstanding.
Table of Contents
IMPACT BIOMEDICAL, INC.
FORM 10-Q
TABLE OF CONTENTS
| 1 |
Impact BioMedical Inc and Subsidiaries
Condensed Consolidated Balance Sheets
| Sep 30, 2023 (unaudited) |
December 31, 2022 |
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| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
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$ |
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| Current portion of notes receivable |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Other investments |
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| Notes receivable |
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| Goodwill |
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| Other intangible assets, net |
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| Total assets | $ |
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$ |
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| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ |
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$ |
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| Accrued expenses |
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| Note payable, related party |
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| Total current liabilities |
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| Deferred tax liability, net |
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| Total liabilities |
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| Commitments and contingencies (Note 13) | ||||||||
| Stockholder’s equity | ||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022) |
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| Additional paid-in capital |
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| Accumulated deficit |
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| Total stockholder’s equity of the company |
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| Non-controlling interest in subsidiary |
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| Total stockholder’s equity |
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| Total liabilities and stockholder’s equity | $ |
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$ |
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See accompanying notes to the consolidated financial statements.
| 2 |
Impact BioMedical Inc and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue |
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| Costs and expenses: | ||||||||||||||||
| Research and development |
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| Professional services |
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| Depreciation and amortization |
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| Other general expenses |
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| Selling, general and administrative compensation |
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| Total costs and expenses |
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| Operating loss |
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| Other income (expense): | ||||||||||||||||
| Interest income |
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| Other income |
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| Interest expense |
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| Loss from continuing operations before income taxes |
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| Income tax benefit (loss) |
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| Net loss | $ |
(
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) | $ |
(
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) | $ |
(
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| Loss from continuing operations attributed to noncontrolling interest |
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| Net loss attributable to common stockholders | $ |
(
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) | $ |
(
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(
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) | $ |
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| Loss per common share: | ||||||||||||||||
| Basic | $ |
(
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) | $ |
(
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) | $ |
(
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(
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| Diluted | $ |
(
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) | $ |
(
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(
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| Shares used in computing loss per common share: | ||||||||||||||||
| Basic |
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| Diluted |
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See accompanying notes to the consolidated financial statements.
| 3 |
Impact BioMedical Inc and Subsidiaries
Condensed Consolidated Statements of Stockholder’s Equity
(unaudited)
| Common Stock |
Additional
Paid-in |
Accumulated |
Non-
controlling Interest in |
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| Shares | Amount | Capital | Deficit | Subsidiary | Total | |||||||||||||||||||
| Balance, December 31, 2022 |
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$ |
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$ |
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$ |
(
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) | $ |
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$ |
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| Net loss | - |
(
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(
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| Balance September 30, 2023 |
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$ |
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$ |
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$ |
(
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) | $ |
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$ |
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| Balance, December 31, 2021 |
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$ |
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$ |
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$ |
(
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) | $ |
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$ |
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| Net loss | - |
(
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(
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| Balance, September 30, 2022 |
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$ |
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$ |
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$ |
(
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) | $ |
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$ |
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See accompanying notes to the consolidated financial statements.
| 4 |
Impact BioMedical Inc and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(unaudited)
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ |
(
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) | $ |
(
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| Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
| Depreciation and amortization |
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| Deferred tax benefits |
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| Decrease (increase) in assets: | ||||||||
| Prepaid expenses and other current assets |
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| Increase (decrease) in liabilities: | ||||||||
| Accounts payable |
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| Accrued expenses |
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| Net cash used for operating activities |
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| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment |
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| Purchase of investments |
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| Note receivable investment, net |
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| Net cash used for investing activities |
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| Cash flows from financing activities: | ||||||||
| Borrowings from note payable, related party |
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| Net cash provided by financing activities |
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| Net increase in cash |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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$ |
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See accompanying notes to the consolidated financial statements.
| 5 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Basis of Presentation
Nature of Operations
Impact
BioMedical, Inc., incorporated in the State of
Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses on research in four main areas: (i) the “Linebacker” project, which aims to develop a universal therapeutic drug platform; (ii) a new sugar substitute called “Laetose,”; (iii) a multi-use fragrance called “3F” (Functional Fragrance Formulation); and (iv) Equivir/Nemovir, a blend of natural polyphenols designed as an antimicrobial medication.
Linebacker
Unlike the traditional approach to treat individual diseases with specific drugs, the Linebacker platform seeks to offer a breakthrough therapeutic option for multiple diseases. Linebacker is designed to work by inhibiting a cascade of inflammatory responses responsible for many diseases. Its design is in direct contrast to the traditional approach of targeting individual diseases with specific drugs.
Laetose
We have also developed a low-calorie, low glycemic level, natural modified sugar through Global BioLife. The product, “Laetose,” is designed to possess low glycemic properties and mitigate inflammation. The Company is presently seeking to license Laetose. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute.
Functional Fragrance Formulation (“3F”)
Global BioLife has established a collaboration with U.S.-based Chemia Corporation (“Chemia”) to develop specialized fragrances to counter mosquito-borne diseases such as Zika and Dengue, among other medical applications. The 3F mosquito fragrance product is made from specialized oils sourced from botanicals that mosquitos avoid. Global BioLife is seeking to commercialize this product. Together with Chemia, we are attempting to license 3F. Any potential profits from the 3F project will be split between Global BioLife and Chemia pursuant to the terms of the 20- year Royalty Agreement.
Equivir
Equivir, is a polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir is a patented medication, that has broad antiviral efficacy against multiple types of infectious diseases.
As of the date of this report, we have not generated significant revenues from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including possible delays in our research, testing and marketing efforts or wider economic downturns.
Basis of Presentation and Principles of Consolidation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its
majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than
| 6 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
|
Name of consolidated
subsidiary |
State or other
jurisdiction of incorporation or organization |
Date of incorporation
or formation |
Attributable
interest as of September 30, 2023 |
Attributable
interest as of December 31, 2022 |
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| Global BioMedical, Inc. |
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% |
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% | ||||||
| Global BioLife, Inc. |
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% |
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% | ||||||
| BioLife Sugar, Inc |
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% |
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% | ||||||
| Happy Sugar Inc |
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% |
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% | ||||||
| Sweet Sense Inc. |
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% |
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% | ||||||
| Global Sugar Solutions Inc. |
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% |
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% | ||||||
As
of September 30, 2023, and December 31, 2022, the aggregate noncontrolling interest was equity of $
Note 2. Re vision of Financial Statements
During the preparation of the financial statements for the nine months ended September 30,
2023, the Company determined that the reporting of interest income and operating expenses were understated on the condensed
consolidated financial statements of the Company for the nine months ended September 30, 2022. Interest income was understated by
approximately $
Note 3. Summary of Significant Accounting and Reporting Policies
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed like basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the nine months ended September 30, 2023 or 2022.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The carrying amounts reported in the balance sheet of cash and cash equivalents, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do reflect recent market conditions. The Company’s investments are recorded at cost as the fair value of these investment in is not readily available. The fair value of notes payable approximates its carrying value as the stated interest rate reflects recent market conditions.
| 7 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Cash and cash equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
There were
Investments
Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings.
For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. (See Note 6 for further discussion on investments)
Goodwill
Goodwill
is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business
combination. Goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests, which
takes place during the fourth quarter, if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
FASB ASC Topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events
or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Some of the qualitative factors considered in applying this test include consideration of macroeconomic conditions, industry
and market conditions, cost factors affecting the business, and overall financial performance of the business. If, after completing the
assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value,
the Company will proceed to a quantitative test. If qualitative factors are not deemed sufficient to conclude that the fair value of
the reporting unit more likely than not exceeds its carrying value, then a one-step approach is applied in making an evaluation. The
evaluation utilizes an income approach (discounted cash flow analysis). The computations require management to make significant estimates
and assumptions, including, among other things, selection of comparable publicly traded companies, the discount rate applied to future
earnings reflecting a weighted average cost of capital, and earnings growth assumptions. The Company believes the estimates and assumptions
used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions
could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. A discounted
cash flow analysis requires management to make various assumptions about future sales, operating margins, capital expenditures, working
capital, and growth rates. Cash flow projections are derived from one-year budgeted amounts plus an estimate of later period cash flows,
all of which are determined by management. Subsequent period cash flows are developed for each reporting unit using growth rates that
management believes are reasonably likely to occur. Impairment of goodwill is measured as the excess of the carrying amount of goodwill
over the fair values of recognized and unrecognized assets and liabilities of the reporting unit.
Intangible Assets
The
estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash
flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired
intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually as of December 31
st
,
or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated
fair values. Impairment is tested under ASC 350.
Revenue Recognition
The Company has adopted ASC Topic 606 , Revenue from Contracts with Customers (“Topic 606”). The Company enters into licensing and development agreements with collaborators for the development of its technologies. The terms of these agreements contain multiple performance obligations which may include (i) licenses, or options to obtain licenses, to the Company’s technology, (ii) rights to future technological improvements, and/or (iii) research activities to be performed on behalf of the collaborative partner, Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments based upon the achievement of certain milestones, and royalties on product sales. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.
Research and Development
Research
and development costs are expensed as incurred. Total research and development costs were $
| 8 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Recent Accounting Standards
The Financial Accounting Standards Board (FASB) issues various Accounting Standards Updates relating to the treatment and recording of certain accounting transactions. There are several new accounting pronouncements issued by FASB which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. As of September 30, 2023, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.
On January 1, 2022, the Company adopted amended accounting guidance “ ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. As of September 30, 2023 the Company has deemed that no reserve on credit losses were necessary.
Continuing Operations and Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. As reflected in the accompanying financial statements the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern.
To continue as a going concern, the Company has entered into an updated revolving promissory note which extended the maturity through September 30, 2024, and DSS, Inc. (“DSS”), the majority shareholder of the Company, intends to continue to fund the operations of the Company through a year from the date these financial statements were available to be issued. The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters include, among other things, monetization of its intellectual properties, and tightly controlling operating costs. The Company also anticipates raising additional funds through an initial public offering. Based on this, the Company has concluded that substantial doubt of its ability to continue as a going concern has been alleviated.
Notes receivable, unearned interest, and related recognition
The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes receivable on the consolidated balance sheet as current or long-term based on the maturity date of the underlying notes. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan.
| 9 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4. Prepaid Expenses and other current assets
Prepaid
expenses for the nine months ended September 30, 2023, includes a receivable for items sold in relation to the Company’s distribution agreement with BioMed Technologies Asia
Pacific Holdings Limited (see Note 4) of approximating $
Note 5. Notes Receivable
On
February 19, 2021, Impact BioMedical, Inc, entered into a promissory note with an individual. The Company loaned the principal sum of
$
Note 6. Investments
On
December 19, 2020, Impact BioMedical, entered into a subscription agreement (the “Subscription Agreement”) with BioMed
Technologies Asia Pacific Holdings Limited (“BioMed”), a limited liability company incorporated in the British Virgin
Islands, pursuant to which the Company agreed to purchase
ordinary
shares or
of
BioMed at a purchase price of approximately $
Effective
January 1, 2021, the Company entered into a securities purchase agreement (“SPA”) with Nano9, LLC.
(“Nano9”), a Utah limited partnership. For the consideration of $
| 10 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On
March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement
#1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase
shares of its common stock at the per share price
of $
, with an option to purchase
additional shares at the per share price of $
.
Under the terms of the Vivacitas Agreement #1, the Company will be allocated
two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”)
to purchase from the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price of $
On
April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”),
whereas Vivacitas wished to employ the service of the Chief Business Officer of Impact Biomedical, and in return for the services of
this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the
value of $
per share shall be $
On
July 22, 2021, the Company exercised
of the available options under the Vivacitas Agreement #1 for $
Note 7. PROPERTY PLANT AND EQUIPMENT and INVESTMENT IN REAL ESTATE, NET
Property, plant and equipment consisted of the following as of:
| Estimated | September 30, | December 31, | ||||||||
| Useful Life | 2023 | 2022 | ||||||||
| Machinery and equipment |
|
$ |
|
$ |
|
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| Construction in progress |
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| Total Cost |
|
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| Less accumulated depreciation |
|
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| Property, plant and equipment, net | $ |
|
$ |
|
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Depreciation
expense for the nine months ended September 30, 2023 and 2022 were approximately $
Note 8. Goodwill
Goodwill balances and activity for the nine months ended September 30, 2023 and year ended December 31, 2022 consisted of the following:
| Balance at December 31, 2022 | $ |
|
||
| Goodwill adjustment | ||||
| Balance at September 30, 2023 | $ |
|
During
the year ended December 31, 2022, management performed annual goodwill impairment testing. No goodwill impairment was identified as a
result of these tests. We used qualitative factors to determine whether it was more likely than not (likelihood of more than
Note 9. Intangible Assets
The definite-lived intangible assets, to be amortized over 20 years, balances, and activity for the nine months ended September 30, 2023, year ended December 31, 2022 consisted of the following:
| 09/30/2023 | 12/31/2022 | |||||||||||||||||||||||
|
Gross
Amount |
Accumulated Amortization |
Net
Amount |
Gross
Amount |
Accumulated Amortization |
Net
Amount |
|||||||||||||||||||
| Definitive-lived: | ||||||||||||||||||||||||
| Developed technology | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||
| Total | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||
The following table represents future amortization of developed technologies for the years ending December 31:
| 2023 | $ |
|
||
| 2024 | $ |
|
||
| 2025 | $ |
|
||
| 2026 | $ |
|
||
| 2027 | $ |
|
||
| Thereafter | $ |
|
| 11 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10. Debt
On
December 31, 2020, and later amended on September 30, 2023, the Company executed a Revolving Promissory Note (“Note”)
with DSS, a related party, which accrues interest at a rate of
Note 11. Stockholders’ Equity
On
May 10, 2023, the Company, the Company’s Board of Directors approved an amendment to the Articles of Incorporation of the Company
to increase the total number of shares of Common Stock to
shares with a par value of $
.
On August 8, 2023 DSS, the Company’s largest shareholder, distributed to its shareholders of record on July 10, 2023 4 shares of Impact Bio’s stock for 1 share they owned. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.
On
October 31, 2023, the Company effected a reverse stock split of
Note 12. Related Party Transactions
Research and Development Activities
Based
on Shareholders Agreement entered into on April 26, 2017, the Company would fund the scientific operations of GRDG, a company involved
in research and development of biomedical products which is a minority stockholder of two of the Company’s subsidiaries and is
owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products
for the Company. As of September 30, 2023, this funding approximates $
General and Administrative Costs
There
are certain general and administrative costs incurred by DSS, a related party, on behalf of the Company which are passed through to the
Company on a monthly basis. These costs consist of primarily payroll costs for certain DSS employees and are allocated based on estimated
time spent on behalf of the Company. These costs are approximately $
| 12 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13. Commitments and Contingencies
On
August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred
to the Company all of its right to 3F (Functional Fragrance Formulation). This agreement has a 20-year term and auto renews for a period
of 1 year unless mutually agreed upon by both parties. 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on
the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual
property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it is
licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid
On
February 15, 2022, the Company and its subsidiaries, Global BioLife, Inc. (“Global”), and Impact BioLife Sciences, Inc. (“BioLife
Sciences”), and GRDG entered into a Licensing Proceeds Distribution Agreement (“GRDG Agreement”), whereas GRDG would
transfer its
On
March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with a third-party (“Licensee”)
where the Licensor is granted the right, amongst other things, to develop, commercialize, and sell the Company’s Equivir technology.
In exchange, the Licensee shall pay the Company a royalty of
Note 14. Supplemental Cash Flow Information
The following table summarizes supplemental cash flows for the nine-months ended September 30, 2023, and 2022:
| 2023 | 2022 | |||||||
| Assignment of assets to related party | $ |
(
|
) | $ | ||||
| Transfer of debt associated with assigned assets | $ |
|
$ | |||||
Note 15. Subsequent Events
The Company has evaluated all subsequent events and transactions through November 14, 2023, the date that the consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure other than what was identified in Note 11.
| 13 |
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as “estimate,” “project”, “anticipate”, “plan”, “expect”, “intend”, “believe”, “hope”, “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements.
Overview
Impact BioMedical, Inc. (the “Company”, “Impact BioMedical”, “We”) through the utilization of its intellectual property rights, or through investment in, or through acquisition of companies in the biohealth and biomedical fields, focuses on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. The Company is also developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza.
Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses on research in four main areas: (i) the “Linebacker” project, which aims to develop a universal therapeutic drug platform; (ii) a new sugar substitute called “Laetose,”; (iii) a multi-use fragrance called “3F” (Functional Fragrance Formulation); and (iv) Equivir/Nemovir, a blend of natural polyphenols designed as an antimicrobial medication.
Linebacker
Unlike the traditional approach to treat individual diseases with specific drugs, the Linebacker platform seeks to offer a breakthrough therapeutic option for multiple diseases. Linebacker is designed to work by inhibiting a cascade of inflammatory responses responsible for many diseases. Its design is in direct contrast to the traditional approach of targeting individual diseases with specific drugs.
Laetose
We have also developed a low-calorie, low glycemic level, natural modified sugar through Global BioLife. The product, “Laetose,” is designed to possess low glycemic properties and mitigate inflammation. The Company is presently seeking to license Laetose. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute. On November 8, 2019, the Company purchased 50% of Sweet Sense Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of Impact BioMedical.
Functional Fragrance Formulation (“3F”)
Global BioLife has established a collaboration with U.S.-based Chemia Corporation (“Chemia”) to develop specialized fragrances to counter mosquito-borne diseases such as Zika and Dengue, among other medical applications. The 3F mosquito fragrance product is made from specialized oils sourced from botanicals that mosquitos avoid. Global BioLife is seeking to commercialize this product. Together with Chemia, we are attempting to license 3F. Any potential profits from the 3F project will be split between Global BioLife and Chemia pursuant to the terms of the 20- year Royalty Agreement (Note 11).
| 14 |
Equivir
Equivir, is a polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir is a patented medication, which has broad antiviral efficacy against multiple types of infectious disease.
The Company was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 9,000 shares to its sole shareholder Global BioMedical Pte. Ltd., which was wholly owned by Alset International Limited (formally Singapore eDevelopment Limited), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”). On March 31, 2020, the Company issued 125,064,621 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd. On July 24, 2020, the Board approved the Stock Split, pursuant to which each share of the Company’s common stock issued and outstanding was split into nine shares of the Company’s common stock. The numbers of authorized common stock and issued and outstanding common stock in the reporting periods were retrospectively adjusted for the stock split.
Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
The business model of Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution:
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
Costs and expenses
|
Three months
ended September 30, 2023 |
Three months
ended September 30, 2022 |
% Change |
Nine months
ended September 30, 2023 |
Nine months
ended September 30, 2022 |
% Change | |||||||||||||||||||
| Sales, general and administrative compensation | 101,000 | 90,000 | 12 | % | 182,000 | 286,000 | -36 | % | ||||||||||||||||
| Depreciation and amortization | 280,000 | 279,000 | 1 | % | 840,000 | 835,000 | 1 | % | ||||||||||||||||
| Professional services | 435,000 | 183,000 | 138 | % | 1,121,000 | 557,000 | 101 | % | ||||||||||||||||
| Research and development | 239,000 | 330,000 | -28 | % | 684,000 | 704,000 | -3 | % | ||||||||||||||||
| Other general expenses | 23,000 | 7,000 | 229 | % | 62,000 | 40,000 | 55 | % | ||||||||||||||||
| Total costs and expenses | $ | 1,078,000 | $ | 889,000 | 21 | % | $ | 2,889,000 | $ | 2,422,000 | 19 | % | ||||||||||||
| 15 |
Selling, general and administrative compensation costs decreased 36% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 due to decreases in head count at the Company.
Depreciation and amortization expense increases 1% for both the nine months ended September 30, 2023, and the nine months ended September 30, 2022 and represents the amortization of the associated with the developed technology and patents acquired as part of the acquisition of Impact BioMedical by DSS. Amortization of these assets began on January 1, 2021, and will have a 20-year term.
Professional fees increased 101% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 mostly due to increases in consulting and legal services associated with developing and implementing Impact BioMedical’s business plan, cost to patent newly developed technologies and other related fees for the development of new technologies.
Research and development costs represent costs consisting primarily of independent, third-party testing of the various properties of each technology the Company owns possesses as well as research on new technologies. Research and development decreased 3% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.
Other operating expenses consist primarily of office supplies, IT support, sales and marketing costs, travel and insurance costs. These costs increased 55% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to increased IT support and travel costs.
Other Income (Expense)
|
Three months
ended September 30, 2023 |
Three months
ended September 30, 2022 |
% Change |
Nine months
ended September 30, 2023 |
Nine months
ended September 30, 2022 |
% Change | |||||||||||||||||||
| Interest Income | $ | 3,000 | $ | 3,000 | 0 | % | $ | 10,000 | $ | 104,000 | -90 | % | ||||||||||||
| Interest Expense | (102,000 | ) | (92,000 | ) | 11 | % | (319,000 | ) | (363,000 | ) | -12 | % | ||||||||||||
| Other expense | - | - | N/A | 52,000 | - | N/A | % | |||||||||||||||||
| Total other income | $ | (99,000 | ) | $ | (89,000 | ) | -11 | % | $ | (257,000 | ) | $ | (259,000 | ) | -1 | % | ||||||||
Interest income is recognized on the Company’s notes receivables. Interest income decreased for nine months ended September 30, 2023 as compared to the same periods September 30, 2022 due to the assignment of a note receivable to a related party during 2023.
Interest expense is recognized on the Company’s debt to DSS.
| 16 |
Net Loss
|
Three months
ended September 30, 2023 |
Three months
ended September 30, 2022 |
% Change |
Nine months
ended September 30, 2023 |
Nine months
ended September 30, 2022 |
% Change | |||||||||||||||||||
| Net loss | $ | (1,177,000 | ) | $ | (2,236,000 | ) | 47 | % | $ | (3,146,000 | ) | $ | (3,889,000 | ) | 19 | % | ||||||||
For the three and nine months ended September 30, 2023, the Company recorded net losses of $1,177,000 and $3,146,000, respectively as compared to net losses of $2,236,000 and $3,889,000, respectively for September 30, 2022 due primarily to valuation placed against deferred tax assets during the third quarter of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through debt financing. As of September 30, 2023, the Company had cash of approximately $201,000. As of September 30, 2023, the Company believes that it has sufficient availability to cash via its revolving promissory note with DSS to meet its cash requirements for at least the next 12 months from the filing date of this Quarterly Report.
Cash Flow from Continuing Operating Activities
Net cash used for continuing operating activities was $2,418,000 for the nine months ended September 30, 2023 as compared to cash used for operating activities of $1,879,000 for the nine months ended September 30, 2022. This increase is driven by increases in net losses of $743,000.
Cash Flow from Investing Activities
Net cash used for investing activities was $16,000 for the nine months ended September 30, 2023 as compared to net cash used of $74,000 for the nine months ended September 30, 2022. This fluctuation is driven by the purchase of investments approximating $65,000 during the nine months ended September 30, 2022 without similar activities during 2023.
Cash Flow from Financing Activities
Net cash provided by financing activities was $2,633,000 for the nine months ended September 30, 2023 and represents borrowings from DSS. During the nine months ended September 30, 2022, net cash provided by financing activities was driven by borrowings from DSS of $2,008,000.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues, or expenses.
| 17 |
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2022, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures for the quarter ended September 30, 2023, pursuant to Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation and on the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 which remained as of September 30, 2023, our principal executive officer and principal financial officer concluded that as of September 30, 2023, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is being recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is being accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2023, as the Company began implementation of the remediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 18 |
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.
ITEM 1A - RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
| 19 |
ITEM 6 - EXHIBITS
| 20 |
| 21 |
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.
| IMPACT BIOMEDICAL, INC. | ||
| November 13, 2023 | By: | /s/ Frank D. Heuszel |
| Frank D. Heuszel | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 13, 2023 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer | ||
| 22 |