Notes
to the Condensed Consolidated Financial Statements
March
31, 2023
(Unaudited)
Unless
the context requires otherwise, references to the “Company”, “we”, “us”, “our”, “our
Company”, or “our business” refer to Progressive Care Inc. and its subsidiaries.
Note
1. Organization & Nature of Operations
Progressive
Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.
Progressive,
through its wholly-owned subsidiaries, Pharmco, LLC (“Pharmco 901”), Touchpoint RX, LLC doing business as Pharmco Rx 1002,
LLC (“Pharmco 1002”), Family Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX”
or “Pharmco 1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”),
and ClearMetrX Inc. (“ClearMetrX”) is a personalized healthcare services and technology company that provides prescription
pharmaceuticals and risk and data management services to healthcare organizations and providers.
Pharmco
901 was formed on November 29, 2005 as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive. Pharmco 901
was acquired by Progressive on October 21, 2010. We currently deliver prescriptions to Florida’s diverse population and ship medications
to patients in states where we hold non-resident pharmacy licenses as well. We currently hold Florida Community Pharmacy Permits at all
Florida pharmacy locations and our Pharmco 901 location is licensed as a non-resident pharmacy in the following states: Arizona, Colorado,
Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to dispense to patients
in the state of Massachusetts without a non-resident pharmacy license because Massachusetts does not require such a license for these
activities.
Pharmco
1103 is a pharmacy with locations in North Miami Beach and Orlando, Florida that provides Pharmco’s pharmacy services to Broward
County, the Orlando/Tampa corridor, and the Treasure Coast of Florida. Progressive acquired all the ownership interests in Pharmco 1103
in a purchase agreement entered into on June 1, 2019.
Pharmco
1002 is a pharmacy located in Palm Springs, Florida that provides Pharmco’s pharmacy services to Palm Beach, St. Lucie and Martin
Counties, Florida. Progressive acquired all the ownership interests in Pharmco 1002 in a purchase agreement entered into on July 1, 2018.
ClearMetrX
was formed on June 10, 2020 and provides third-party administration (“TPA”) services to 340B covered entities. ClearMetrX
also provides data analytics and reporting services to support and improve care management for health care organizations.
RXMD
Therapeutics was formed on October 1, 2019. RXMD Therapeutics had no operating activity to date.
Note
2. Basis of Presentation and Principles of Consolidation
The
accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2022 Form
10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto included in the 2022 Form 10-K. In the opinion of management,
the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals)
necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of stockholders’
equity and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily
indicative of the results that can be expected for a full year.
The accompanying Unaudited Condensed
Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation. Certain 2022 financial information has been reclassified to conform to the 2023 presentation. Such reclassifications
do not impact the Company’s previously reported financial position or net income (loss).
Note
3. Summary of Significant Accounting Policies
The
significant accounting policies of the Company were described in Note 3 to the Audited Consolidated Financial Statements included in
the Company’s Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the Company’s
significant accounting policies for the three months ended March 31, 2023.
Concentrations
The
Company had significant concentrations with one vendor. The purchases from this significant vendor were 96% and 98% of total vendor purchases
for the three months ended March 31, 2023 and 2022, respectively.
Recently
Adopted Accounting Standards
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12,
“Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which removes certain
exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is required
to be adopted for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December
15, 2022 with early adoption permitted. The Company adopted this guidance effective January 1, 2023 and the adoption had no material
impact on our consolidated financial statements and related disclosures.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on
Financial Instruments” (“ASU 2016-13”), which introduces an impairment model based on expected, rather than incurred,
losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors
the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected
credit losses that have taken place during the period. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted
for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements
to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.”
This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification
Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326.
ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The
Company adopted this guidance effective January 1, 2023 and the adoption had no material impact on our consolidated financial statements
and related disclosures. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime
expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables.
Subsequent
Events
Resignation
of Officer
On
April 29, 2023, Mrs. Birute Norkute resigned from her position as Chief Operating Officer (“COO”) of the Company,
effective May 1, 2023. Mrs. Norkute remains engaged with the Company as Operations Manager (“OM”). There has been no
modifications to Mrs. Norkute’s compensation or benefits in connection with the change of Mrs. Norkute’s position from COO to OM.
Appointment
of Officer
Effective
May 1, 2023, Dr. Pamela Roberts serves as COO of the Company. Prior to her appointment as COO, Dr. Roberts served as the Company’s
Director of Pharmacy and Pharmacist in Charge. In connection with such appointment, Dr. Roberts has entered into an employment agreement,
which increased her base salary to $180,000
in addition to certain other benefits.
Securities
Purchase Agreement
On May 5, 2023, the Company entered into a Securities Purchase Agreement (the
“SPA”) with NextPlat Corp. (“NextPlat”), pursuant to which NextPlat agreed to purchase 455,000 newly issued units
of securities from the Company (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million
(the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, of Progressive Care (“Common
Stock”) and one warrant to purchase a share of Common Stock (the “PIPE Warrants”). The PIPE Warrants have a three-year
term and will be immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of Common Stock. On May 9, 2023, the Company
and NextPlat closed the transactions contemplated in the SPA. The Company intends to use the net proceeds from the Unit Purchase for its
working capital needs. The Company received cash proceeds of $880,000, net of placement agent commission of $70,000 and legal fees of
$50,000.
Simultaneous
with the closing, the Company entered into a Debt Conversion Agreement
(the “DCA”) with NextPlat and the other holders (the “Holders”) of that certain Amended and Restated Secured Convertible
Promissory Note, dated as of September 2, 2022, made by the Company in the original face amount of $2,790,886 (the “Note”).
Pursuant to the DCA, NextPlat and the other Holders agreed to convert the total $2,887,229 of outstanding principal and accrued and unpaid
interest to Common Stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of
Common Stock issued upon conversion of the Note pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Company’s
Chairman and Chief Executive Officer, received 228,240 shares, and Rodney Barreto, the Company’s Vice-Chairman of the Board of Directors,
received 228,240 shares. In addition, each of the Holders also received a warrant to purchase one share of Common Stock for each share
of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year
term and will be immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock.
At the same time, the Company and NextPlat entered into a First Amendment
(the “Amendment”) to that certain Securities Purchase Agreement dated November 16, 2022 (the “Debenture Purchase Agreement”).
Under the Debenture Purchase Agreement, the Company agreed to issue, and NextPlat agreed to purchase, from time to time during the three-year
term of the Debenture Purchase Agreement, up to an aggregate of $10.0 million of secured convertible debentures from NextPlat (the “Debentures”).
Pursuant to the Amendment, NextPlat and Progressive Care agreed to amend the Debenture Purchase Agreement and the form of Debenture attached
as an exhibit thereto to have a conversion price of $2.20 per share. As of May 12, 2023, the date the Unaudited Condensed Consolidated
Financial Statements were available to be issued, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement.
Dawson
James Securities, Inc. (the “Placement Agent”) served as placement agent for the Unit Purchase. In consideration for the Placement
Agent’s services, the Company issued to the Placement Agent and its affiliates warrants to purchase 91,000 shares of Common Stock
(the “Placement Agent Warrants”). The Placement Agent Warrants have a five-year term and will be exercisable in December 2023.
Each Placement Agent Warrant is exercisable at $2.20 per share of Common Stock.
In addition, the Company issued 330,000 warrants to certain existing Progressive
Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez
and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants
have a three-year term and will be immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Common Stock.
Note
4. Fair Value Measurements
Accounting
standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to
measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and
liabilities.
The
following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
|
● |
Cash,
accounts receivable, and accounts payable and accrued liabilities: The amounts reported in the accompanying Condensed Consolidated
Balance Sheets approximate fair value due to their short-term nature. |
|
● |
Notes
payable and lease liabilities: The carrying amount of notes payable approximated fair value due to variable interest rates at
customary terms and rates the Company could obtain in current financing. The carrying value of lease liabilities approximated fair
value due to the implicit rate in the lease in relation to the Company’s borrowing rate and the duration of the leases (Level
2 inputs). |
Note
5. Revenue
The
Company recognizes pharmacy revenue and 340B contract revenue from dispensing prescription drugs at the time the drugs are
physically delivered to a customer or when a customer picks up their prescription or purchases merchandise at the store, which is
the point in time when control transfers to the customer. Each prescription claim is considered an arrangement with the customer and
is a separate performance obligation. Payments are received directly from the customer at the point of sale, or the customers’
insurance provider is billed electronically. For third-party medical insurance and other claims, authorization is obtained to ensure
payment from the customer’s insurance provider before the medication is dispensed to the customer. Authorization is obtained
for these sales electronically and a corresponding authorization number is issued by the customers’ insurance
provider.
The
Company recognizes COVID-19 testing revenue when the tests are performed and results are delivered to the customer. Each test is
considered an arrangement with the customer and is a separate performance obligation. Payment is generally received in advance from
the customer.
Billings
for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are
nominal. Prescription revenues were 92% and 86% of total revenue for the three months ended March 31, 2023 and 2022, respectively.
The
Company accrues an estimate of pharmacy benefit manager (“PBM”) fees, including direct and indirect remuneration
(“DIR”) fees, which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a
reduction of revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to
revenue when the change becomes known.
The
following table disaggregates net revenue by categories:
Schedule of
Disaggregates Net Revenue by Categories
| |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | |
| |
2023 | | |
2022 | |
Prescription revenue | |
$ | 10,440,944 | | |
$ | 8,605,882 | |
340B contract revenue | |
| 1,576,295 | | |
| 387,956 | |
COVID-19 testing revenue | |
| 45,456 | | |
| 1,291,017 | |
Rent and other revenue | |
| 15 | | |
| 207 | |
Sub total | |
| 12,062,710 | | |
| 10,285,062 | |
PBM fees | |
| (670,766 | ) | |
| (234,067 | ) |
Revenues, net | |
$ | 11,391,944 | | |
$ | 10,050,995 | |
Note
6. Earnings (Loss) per Share
The
components of basic and diluted earnings (loss) per share (“EPS”) were as follows:
Schedule of Basic and Diluted Earnings (Loss) Per Share
| |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | |
| |
2023 | | |
2022 | |
Net loss attributable
to common shareholders | |
$ | (130,339 | ) | |
$ | (1,361,476 | ) |
| |
| | | |
| | |
Basic weighted average
common shares outstanding | |
| 3,355,546 | | |
| 2,727,482 | |
Potentially
dilutive common shares | |
| — | | |
| — | |
Diluted weighted average
common shares outstanding | |
| 3,355,546 | | |
| 2,727,482 | |
| |
| | | |
| | |
Basic
weighted average loss per common share | |
$ | (0.04 | ) | |
$ | (0.50 | ) |
Diluted
weighted average loss per common share | |
$ | (0.04 | ) | |
$ | (0.50 | ) |
Note
7. Accounts Receivable – Trade, net
Accounts
receivable consisted of the following at:
Schedule
of Accounts Receivable
| |
March
31, 2023 | | |
December
31, 2022 | |
Gross accounts receivable – trade | |
$ | 4,517,544 | | |
$ | 3,875,686 | |
Less: allowance for doubtful accounts | |
| (213,000 | ) | |
| (203,900 | ) |
Accounts receivable – trade, net | |
$ | 4,304,544 | | |
$ | 3,671,786 | |
For
the three months ended March 31, 2023 and 2022, the Company recognized bad debt expense (recovery) in the amount of approximately $9,000
and $(38,000), respectively.
The
Company’s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the
insured is responsible for payment should the insurance company not reimburse the Company.
Accounts receivable – trade,
net as of January 1, 2022 and March 31, 2022 were approximately $2.2 million and $1.5 million, respectively.
The
Company generated reimbursements from three significant PBMs:
Schedule
of Billing Concentrations
| |
| | |
| |
| |
Three
Months Ended March 31, | |
| |
2023 | | |
2022 | |
A | |
| 53 | % | |
| 57 | % |
B | |
| 37 | % | |
| 35 | % |
C | |
| 7 | % | |
| 5 | % |
Concentration risk percentage | |
| 7 | % | |
| 5 | % |
Note
8. Property and Equipment, net
Property
and equipment, net consisted of the following:
Schedule
of Property And Equipment, Net
| |
March
31, 2023 | | |
December
31, 2022 | |
Building | |
$ | 1,651,069 | | |
$ | 1,651,069 | |
Building improvements | |
| 513,075 | | |
| 513,075 | |
Furniture and equipment | |
| 441,318 | | |
| 423,829 | |
Leasehold improvements and fixtures | |
| 276,614 | | |
| 276,614 | |
Vehicles | |
| 251,715 | | |
| 251,715 | |
Land | |
| 184,000 | | |
| 184,000 | |
Computer equipment | |
| 101,230 | | |
| 101,230 | |
Total | |
| 3,419,021 | | |
| 3,401,532 | |
Less: accumulated depreciation | |
| (862,518 | ) | |
| (818,779 | ) |
Property and equipment, net | |
$ | 2,556,503 | | |
$ | 2,582,753 | |
Depreciation
expense for the three months ended March 31, 2023 and 2022 was approximately $52,000 and $42,000, respectively.
Note
9. Intangible Assets
Intangible
assets consisted of the following at:
Schedule
of Intangible Assets
| |
March
31, 2023 | | |
December
31, 2022 | |
Trade names | |
$ | 362,000 | | |
$ | 362,000 | |
Pharmacy records | |
| 263,000 | | |
| 263,000 | |
Non-compete agreements | |
| 166,000 | | |
| 166,000 | |
Software | |
| 86,424 | | |
| 86,424 | |
Website | |
| 67,933 | | |
| 67,933 | |
Subtotal | |
| 945,357 | | |
| 945,357 | |
Less accumulated amortization | |
| (830,846 | ) | |
| (818,661 | ) |
Net intangible assets | |
$ | 114,511 | | |
$ | 126,696 | |
Amortization
of intangible assets amounted to approximately $12,000 and $8,000 for the three months ended March 31, 2023 and 2022, respectively. The
following table represents the total estimated future amortization of intangible assets for the five succeeding years:
Schedule
of Estimated Amortization Expense for Intangible Assets
Year | |
Amount | |
2023 (remaining nine months) | |
$ | 36,587 | |
2024 | |
| 30,390 | |
2025 | |
| 17,285 | |
2026 | |
| 17,285 | |
2027 | |
| 12,964 | |
Total | |
$ | 114,511 | |
Note
10. Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of the following at:
Schedule
of Accounts Payable and Accrued Liabilities
| |
March
31, 2023 | | |
December
31, 2022 | |
Accounts payable – trade | |
$ | 7,940,209 | | |
$ | 6,517,496 | |
Accrued payroll and payroll taxes | |
| 317,100 | | |
| 228,957 | |
Accrued DIR fees | |
| 552,031 | | |
| 500,589 | |
Other accrued liabilities | |
| 451,064 | | |
| 137,294 | |
Total | |
$ | 9,260,404 | | |
$ | 7,384,336 | |
Note
11. Notes Payable
Notes
payable consisted of the following at:
Schedule of Notes Payable
| |
March
31, 2023 | | |
December
31, 2022 | |
A. Convertible note payable and accrued interest - collateralized | |
$ | 2,872,318 | | |
$ | 2,837,910 | |
B. Mortgage note payable - commercial bank - collateralized | |
| 1,204,689 | | |
| 1,225,913 | |
C. Note payable - uncollateralized | |
| 25,000 | | |
| 25,000 | |
D. Notes payable - collateralized | |
| 123,596 | | |
| 137,017 | |
Insurance premiums financing | |
| 32,456 | | |
| 70,302 | |
Subtotal | |
| 4,258,059 | | |
| 4,296,142 | |
Less: unamortized debt discount | |
| (1,724,427 | ) | |
| (1,820,585 | ) |
Total | |
| 2,533,632 | | |
| 2,475,557 | |
Less: current portion of notes payable | |
| (185,831 | ) | |
| (226,931 | ) |
Long-term portion of notes payable | |
$ | 2,347,801 | | |
$ | 2,248,626 | |
The
corresponding notes payable above are more fully discussed below:
(A)
Convertible Note Payable – collateralized
NextPlat
Investors
In
August 2022, the Company entered into the Modification Agreement with the NextPlat investors wherein the terms were modified for an existing
Secured Convertible Promissory Note originally held by Iliad Research (“the Note”) and sold to the NextPlat investors (“the
NextPlat Investors Note”). The NextPlat investors purchased the Note as part of a Confidential Note Purchase and Release Agreement
between Iliad Research and the NextPlat investors. As of the date of the SPA, the aggregate amount of principal and interest outstanding
on the NextPlat Investors Note was approximately $2.8 million. As part of the Modification Agreement, the NextPlat investors agreed to
modify the following terms of the NextPlat Investors Note:
|
1. |
The
Maturity Date was extended to August 31, 2027. |
|
2. |
The
Outstanding Balance shall bear interest at the simple annual rate of five percent (5%) per annum. |
|
3. |
The
Company is prohibited from prepaying the Note. |
|
4. |
The
Conversion Price for the Note was modified to a fixed price of $4.00 per share of common Stock. |
|
5. |
The
Note shall provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split,
and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global
Market, or the New York Stock Exchange. |
The
outstanding balance on the NextPlat Investors Note was approximately $2.9 million as of March 31, 2023, inclusive of accrued interest
in the amount of approximately $81,000. The Note is reported net of a debt discount of approximately $1.7 million on the Condensed Consolidated
Balance Sheets as of March 31, 2023.
Debt
Issuance Costs and Debt Discount Associated with the NextPlat Investors Note
Debt
issuance costs consist of fees incurred from the Placement Agent and Investment Advisor associated with the NextPlat Investors Debt Modification
Agreement. Debt discount consists of the discount recorded from the issuance of approximately 105,000 shares of common stock to the NextPlat
Investors as consideration for the Debt Modification Agreement.
Debt
issuance costs and debt discount are amortized to interest expense over the term of the related debt using the straight-line method.
Total amortization expense for the three months ended March 31, 2023 was approximately $96,000.
(B)
Mortgage Note Payable – collateralized
In
2018, Pharmco 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase
price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the amount of $1,530,000.
The promissory note is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December
14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began
in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed
by Progressive Care Inc.
(C)
Note Payable – Uncollateralized
As
of March 31, 2023 and December 31, 2022, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand
from an investor.
(D)
Notes Payable – Collateralized
In
September 2019, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to pay off a capital
lease obligation on pharmacy equipment in the amount of $85,429. The terms of the promissory note payable require 48 monthly payments
of $2,015, including interest at 6.5%. The balance outstanding on the note payable was approximately $10,000 and $16,000 as of March
31, 2023 and December 31, 2022, respectively. The promissory note is secured by equipment with a net book value of approximately $11,000
and $16,000 as of March 31, 2023 and December 31, 2022, respectively.
In
April 2021, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy
equipment in the amount of $29,657.
During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory
note payable requires 46 monthly payments of $331,
including interest at 6.9%.
The balance outstanding as of March 31, 2023 and December 31, 2022 on the note payable was approximately $8,300
and $9,000,
respectively.
In
July 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy
equipment in the amount approximately of $90,000.
The terms of the promissory note payable require 60
monthly payments of $1,859,
including interest at 8.78%
starting January 2023. The balance outstanding on the note payable was approximately $86,000
and $90,000
as of March 31, 2023 and December 31, 2022, respectively.
In
September 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase a
vehicle in the amount approximately of $25,000.
The terms of the promissory note payable require 24
monthly payments of $1,143,
including interest at 8.29%
starting October 2022. The balance outstanding on the note payable was approximately $19,000
and $22,000
as of March 31, 2023 and December 31, 2022, respectively.
Principal
outstanding as of March 31, 2023, is expected to be repayable as follows:
Schedule
of Future Principle Maturities
Year | |
Amount | |
2023 (remaining nine months) | |
$ | 154,440 | |
2024 | |
| 121,126 | |
2025 | |
| 114,419 | |
2026 | |
| 118,630 | |
2027 | |
| 123,597 | |
Thereafter | |
| 3,625,847 | |
Total | |
$ | 4,258,059 | |
Interest
expense on these notes payable, exclusive of debt discount and debt issue cost amortization, was approximately $51,000 and $173,000 for
the three months ended March 31, 2023 and 2022, respectively.
Note
12. Stockholders’ Equity
On
December 29, 2022, we effected a 1-for-200 reverse stock split of our common stock and the number of shares of common stock that we are
authorized to issue was reduced to 100 million. All fiscal year 2022 common stock share information has been retrospectively adjusted
to reflect the reverse stock split.
Preferred
Stock
The Company has 10,000,000 shares of preferred stock authorized.
On
August 30, 2022, pursuant to a SPA with NextPlat, the Company sold 3,000
units wherein each unit is made up of one share
of Series B Convertible Preferred Stock, $0.001
par value, and Investor Warrants. Each warrant
entitles the holder to purchase one share of Series B Convertible Preferred Stock at an exercise price of $2,000.
The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Series B Convertible Preferred
Stock has a stated value of $2,000
per share and each Preferred Stock share has
the equivalent voting rights of 500
common stock shares. Each share of Series B Convertible
Preferred Stock is convertible at any time at the option of the holder into shares of the Company’s common stock determined by
dividing the stated value by the conversion price which is $4.00.
As of March 31, 2023 and December
31, 2022, 100,000 shares are designated as Series B Preferred Stock, par value $0.001 per share and 9,900,000 shares of undesignated preferred
shares, par value $0.001 per share.
With respect to all matters upon
which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of
Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters on which separate
class voting is required by applicable law or the Certificate of Incorporation or By-laws.
Note
13. Stock-Based Compensation
For
the three months ended March 31, 2023 and 2022, the Company recorded total stock-based compensation expense of approximately $60,000
and $126,000, respectively. There were no income tax benefits recognized from stock-based compensation during the three months ended March
31, 2023 and 2022 due to cumulative losses and valuation allowances.
Note
14. Commitments and Contingencies
Legal
Matters
On
May 3, 2022, a complaint was filed by the Plaintiff Positive Health Alliance, Inc. (“PHA”) against Pharmco LLC, a wholly
owned subsidiary of the Company, in the U.S. Circuit Court of Miami Dade, Florida, alleging that defendant failed to pay amounts due
and owing to PHA under the parties’ contract for discounted prescription drugs. PHA is seeking judgment against Pharmco for compensatory
damages in the amount of $407,504, plus attorneys’ fees and costs. PHA and Pharmco entered into a settlement agreement on July
1, 2022, pursuant to which Pharmco paid to PHA the total amount of $407,504 in 13 installment payments. The complaint was dismissed with
prejudice on July 8, 2022. The balance outstanding was approximately $190,000 and $280,000 as March 31, 2023 and December 31, 2022, respectively
(recorded in Accounts Payable and Accrued Liabilities).
On
June 8, 2022, a complaint was filed by the Company against KeyCentrix, LLC (“KCL”), in the U.S. District Court for the Southern
District of Florida, alleging fraudulent inducement, breach of express warranty and breach of implied warranty. The complaint stems from
an agreement by KCL to license to the Company certain pharmacy management software known as “Newleaf” for use in the operations
of pharmacies operated by the Company.
Note
15. Related Party Transactions
On
February 1, 2023, the Company entered into a Management Services Agreement with NextPlat Corp to provide certain management and administrative
services to the Company for $25,000 per month fee. During the three months ended March 31, 2023, the Company paid $50,000 to NextPlat
as management fees.
On
August 30, 2022, NextPlat, Charles M. Fernandez, Rodney Barreto, and certain other purchasers purchased from Iliad Research a Secured
Convertible Promissory Note, dated March 6, 2019, made by the Company to Iliad (the “Note”). The accrued and unpaid principal
and interest under the note at the time of the purchase was approximately $2.8
million. In connection with the Note Purchase,
NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with the Company.
In consideration of the concessions in the Debt Modification Agreement, the Company issued 105,000
shares of its common stock to the purchasers
of the Note, of which NextPlat, Messrs. Fernandez and Barreto, received 45,653,
18,261,
and 18,261
shares, respectively.