Impact BioMedical, Inc. — Q2 2023 Form 10-Q
Business context and reporting period: This unaudited quarterly report covers the three and six months ended June 30, 2023. The company is developing and seeking to commercialize biomedical and health-related technologies, including Linebacker, Laetose, 3F fragrances, and Equivir/Nemovir. Its stated business model depends primarily on licensing intellectual property and product distribution. The company reported no revenue in either the quarter or first half of 2023 and said it had not generated significant operating revenue.
Key financial results
Amounts below are in U.S. dollars; comparisons are with the corresponding 2022 periods.
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $0 | $50,000 | $0 | $50,000 |
| Total costs and expenses | $1.008 million | $800,000 | $1.811 million | $1.509 million |
| Operating loss | $1.008 million | $750,000 | $1.811 million | $1.459 million |
| Net loss | $1.121 million | $799,000 | $1.969 million | $1.545 million |
| Net loss attributable to common stockholders | $1.102 million | $732,000 | $1.939 million | $1.412 million |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $1.747 million | $1.077 million |
With no 2023 revenue, gross margin is not meaningful. Basic and diluted loss per share were each reported as $0.00, reflecting the exceptionally large share count; weighted-average shares were 3,877,282,251.
Financial position and liquidity
- At June 30, 2023, cash was $3,000; current assets were $348,000 and current liabilities were $12.055 million, implying a working-capital deficit of approximately $11.707 million.
- Total assets were $45.990 million, including $25.093 million of goodwill and $19.477 million of net intangible assets. Total liabilities were $15.290 million; total stockholders’ equity was $30.700 million.
- Related-party debt owed to DSS was $11.754 million, including interest, versus $9.991 million at December 31, 2022. The revolving note bears 4.25% interest and matures June 30, 2024; DSS has not set a maximum borrowing amount.
- First-half investing cash outflow was $15,000, versus $73,000 in 2022. Financing provided $1.763 million, all from DSS borrowings, versus $1.235 million in 2022. Cash increased by $1,000 to $3,000.
Material changes and management commentary
- First-half net loss increased by $424,000, and operating cash use increased by $670,000. Management attributed the higher losses mainly to increased professional fees and lower interest income.
- First-half professional services expense rose 93% to $686,000, primarily for consulting, legal, patent, and technology-development work. Research and development expense rose 19% to $445,000. Selling, general and administrative compensation declined 52% to $81,000, which management attributed to lower headcount.
- Interest income fell to $7,000 from $186,000 for the first half; management attributed the decline to the assignment of a note receivable to a related party during 2023. Interest expense was $217,000, compared with $272,000.
- The company’s going-concern disclosure cites operating losses and negative operating and investing cash flows. Management said substantial doubt had been alleviated based on the extended DSS revolving note and DSS’s stated intent to fund operations for at least one year from the financial statements’ issuance availability date. Plans also include monetizing intellectual property and controlling costs.
Guidance, risks, contingencies, and unusual items
- No quantified financial guidance or revenue forecast is provided. Commercialization, licensing, research, testing, and marketing outcomes remain uncertain, and the company cautions that it may not succeed in its operations.
- Disclosure controls and procedures were reported as ineffective at June 30, 2023; material weaknesses identified in the 2022 annual report remained. The company said remediation steps had begun.
- Related-party reliance is significant: DSS provides the revolving financing and allocates certain administrative costs, while GRDG performs research and development under related-party arrangements.
- Equivir’s license includes a commitment to reimburse 50% of development costs, subject to a $1.25 million cap on development costs. No liability was recorded because development had not begun and the amount could not be reasonably estimated. A separate GRDG agreement provides for a share of certain future licensing or sale proceeds; no contingent liability was recorded.
- The company reported no material legal proceedings and no material changes to the risk factors in its 2022 Form 10-K. It recognized no goodwill or intangible-asset impairment for the periods described.
- In May 2023, the company approved an increase in authorized common shares to 4.0 billion and effected a forward stock split; 3,877,282,251 common shares were outstanding at June 30. Subsequent to quarter-end, DSS announced a distribution of four Impact BioMedical shares for each DSS share to eligible holders, with resale restrictions described in the filing.
Important facts for investors to verify
- Whether DSS continues to provide funding, and the terms, availability, and repayment requirements of the related-party revolving note before its June 30, 2024 maturity.
- Cash needs, operating-loss trends, and the company’s ability to generate revenue or monetize its intellectual property.
- Progress toward remediation of the disclosed material weaknesses in disclosure controls.
- Development status and potential costs or proceeds under the Equivir, GRDG, Chemia/3F, and other licensing arrangements.
- The effects of the share split, outstanding share count, and post-quarter DSS share distribution, including applicable resale restrictions.