10-Q: Can B Corp. Reports Q1 2024 Results, Grapples with Legal Challenges and Going Concern Doubts

Sentiment:

Quarterly Report 20 May 2024 5:08 PM

Can B Corp.'s Q1 2024 results reveal a net loss, decreased revenues, and ongoing legal battles, raising substantial doubt about the company's ability to continue as a going concern.

Capital raiseThe company has entered into various agreements relating to the sales of future receivables.The company is dependent on future financing transactions to meet its obligations.

Worse than expectedThe company's net loss increased significantly compared to the same period last year.Revenues decreased substantially year-over-year.The company's cash position is weak, and it has negative working capital.

Summary

Can B Corp. reported its Q1 2024 financial results, showing a net loss of $5,049,933 compared to a net loss of $1,739,038 in Q1 2023.
Total revenues decreased to $316,696 from $939,305 year-over-year, primarily due to a normalization of sales activity after a COVID-19 pandemic related surge in 2022.
Cost of revenues increased to $1,193,161 from $524,577, driven by inventory adjustments.
Operating expenses increased to $3,667,191 from $1,849,630, largely due to a loss on the sale of property and equipment.
As of March 31, 2024, the company had cash and cash equivalents of $26,582 and negative working capital of $6,165,773.
An auction of the company's hemp division assets was conducted under Article 9 of the Uniform Commercial Code following allegations of breaches of obligations under certain notes and a forbearance agreement.
The company is facing legal proceedings, including a lawsuit filed by Arena Investors, LP, and related entities.
The company's previous independent registered public accounting firm, BF Borgers CPA PC, is currently not permitted to practice before the SEC, and the company has dismissed them and is in the process of engaging a new firm.
Management has concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024.
The company's primary focus will be on protecting and commercializing cannabis patents recently acquired by Nascent Pharma, LLC.

Sentiment

Score: 2

Explanation: The document presents a highly negative outlook due to significant losses, declining revenues, legal challenges, and doubts about the company's ability to continue as a going concern. The sentiment is further weighed down by ineffective disclosure controls and the dismissal of the company's accounting firm.

Positives

The company is focusing on protecting and commercializing cannabis patents acquired by Nascent Pharma, LLC, which could provide future revenue streams.
The company is attempting to work out a payment schedule to satisfy a judgement against them.
The company is continuing its hemp operations on a reduced scale using equipment provided by third parties and the services of third-party processors.

Negatives

The company reported a significant net loss of $5,049,933 for Q1 2024.
Revenues decreased substantially year-over-year.
The company has a very low cash balance and significant negative working capital.
The auction of hemp division assets indicates financial distress and potential loss of a revenue stream.
The company is involved in multiple legal proceedings, which could result in further financial burdens.
The dismissal of the company's accounting firm and the ineffective disclosure controls raise concerns about financial reporting reliability.
The company is in default of certain terms of their Forbearance Agreement.

Risks

The company's ability to continue as a going concern is in substantial doubt due to its financial condition.
Ongoing legal proceedings could result in significant financial liabilities.
The loss of the hemp division assets could negatively impact future revenue.
The company's reliance on third-party processors for hemp operations introduces operational risks.
The ineffective disclosure controls and procedures could lead to inaccurate financial reporting.
The company's high debt levels and past due notes pose a risk of further defaults and legal actions.
The company's dependence on future financing transactions to meet its obligations creates uncertainty.

Future Outlook

While the company plans to continue its hemp and durable medical equipment operations for the near term, its primary focus will be on protecting and commercializing the cannabis patents recently acquired by Nascent.

Management Comments

The decrease in revenues is largely due to the normalization of sales activity with 2022 positively impacted by the wind down of restrictions related to the Covid-19 Pandemic surrounding elective surgeries, enabling an increase in the usage of the Company's Duramed product lines and ultrasound device associated with patient recovery.
Following the auction, we have continued our hemp operations on a reduced scale using equipment provided by third parties and the services of third-party processors.
Due to reduced support from the hemp division, Duramed is operating with reduced staff which has adversely impacted revenues.

Industry Context

The company operates in the competitive hemp-derived products and durable medical equipment industries, facing challenges such as regulatory uncertainty, market saturation, and evolving consumer preferences. The focus on cannabis patents acquired by Nascent Pharma, LLC, suggests a strategic shift towards higher-margin, intellectual property-protected products.

Comparison to Industry Standards

It is difficult to compare Can B Corp.'s results directly to industry standards without knowing the specific segments in which it competes and the performance of its direct competitors.
However, the significant net loss and revenue decline suggest underperformance compared to peers in the hemp-derived products and durable medical equipment sectors.
Companies like Charlotte's Web Holdings, Inc. and CV Sciences, Inc. are key players in the CBD market, while companies like Stryker Corporation and Medtronic plc dominate the medical equipment industry.
Can B Corp.'s financial struggles and legal challenges contrast with the more stable performance of larger, established companies in these sectors.

Legal Proceedings

The company is involved in a commercial legal action against the company and certain officers by David Weissberg and Donna Marino.
A vendor of the company filed an amended suit against the company in Florida for monies allegedly owed and civil theft relating to such monies and related products and fraud in the inducement.
A Complaint was filed by Evexia Plus, LLC against Can B Corp. in a product payment trade dispute.
Arena Special Opportunities Partners I, LP, Arena Special Opportunities Fund, LP and Arena Investors, LP advised that by virtue of defaults in the performance of the obligations of the Company and its subsidiaries to the Arena Entities, the Arena Entities intended to conduct a public auction of certain assets of the Company and its subsidiaries under Article 9 of the Uniform Commercial Code.
Arena filed a complaint in the Court against the Company, it subsidiaries and certain officers of the Company and its subsidiaries alleging tortious interference with the auction and seeking a declaratory judgment that the Company is in breach of the Arena Notes and the Forbearance Agreement and that Arena has the right to auction certain equipment held at a Company facility that is not owned by the Company or any of its subsidiaries.

Related Party Transactions

Due to related party is listed as $366,243 as of March 31, 2024.

Stakeholder Impact

Shareholders face significant risk due to the company's financial instability and potential inability to continue as a going concern.
Employees may be affected by reduced staff and operational changes.
Customers may experience disruptions in product availability and service.
Suppliers and creditors face increased risk of non-payment.
The company's legal challenges and financial difficulties could negatively impact its reputation and relationships with stakeholders.

Next Steps

The company needs to engage a new independent registered public accounting firm.
The company must address the deficiencies in its disclosure controls and procedures.
The company needs to vigorously defend itself against the legal actions.
The company needs to focus on commercializing the cannabis patents acquired by Nascent Pharma, LLC.
The company needs to secure additional financing to meet its obligations.

Key Dates

Date	Description
2005-10-11	Can B Corp. was originally incorporated as WrapMail, Inc.
2017-05-15	WRAP changed its name to Canbiola, Inc.
2018-12-28	The Company acquired 100% of the membership interests in Pure Health Products, LLC.
2019-02-01	Duramed began operating on or about this date.
2020-01-16	Canbiola, Inc. changed its name to Can B Corp.
2020-12-01	Date of convertible promissory notes with Arena Special Opportunities Partners I, LP and Arena Special Opportunities Fund, LP.
2021-05-01	Date of convertible promissory notes with Arena Special Opportunities Partners I, LP and Arena Special Opportunities Fund, LP.
2021-08-12	Date of Equipment Acquisition Agreement with TWS.
2022-01-01	Date of convertible promissory note with Empire Properties, LLC.
2022-03-01	Date of convertible promissory note with Blue Lake Partners, LLC and Mast Hill Fund, LP.
2022-04-01	Date of convertible promissory note with Fourth Man, LLC.
2022-06-01	Date of convertible promissory note with Alumni Capital, LP.
2022-08-01	Date of convertible promissory note with Walleye Opportunities Master Fund Ltd.
2023-01-01	Date of convertible promissory note with Tysadco Partners, LLC.
2023-02-27	Effective date of amendments to convertible promissory notes with Blue Lake Partners, LLC, Mast Hill Fund, LP, and Fourth Man, LLC.
2023-03-02	Date of sale of promissory note to WOMF pursuant to a Securities Purchase Agreement.
2023-05-01	Date of promissory note issued to WOMF.
2023-10-27	Date of sale of promissory note to WOMF pursuant to a Securities Purchase Agreement.
2024-01-01	Start date for the three months ended March 31, 2024.
2024-02-29	Date of sale of a promissory note to ClearThink.
2024-03-14	Auction of the Companys hemp division assets.
2024-03-31	End date for the three months ended March 31, 2024.
2024-05-03	The SEC issued an order providing that BF Borgers CPA PC is currently not permitted to appear or practice before the Commission.
2024-05-06	The Company dismissed BF Borgers as its independent registered public accounting firm effective this date.
2024-05-19	Date as of which the number of shares of the registrant's only class of common stock issued and outstanding is 54,584,230.
2024-05-20	Date of report.

Keywords

financial results, legal proceedings, going concern, hemp division, cannabinoids, Can B Corp, revenues, losses, debt, notes

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