Good afternoon and welcome to the cbdMD Second Quarter Fiscal 2020 Earnings Call and Update. Today, the company issued a press release that provided an overview of its second quarter results, which followed the filing of its report on Form 10-Q. Today’s conference is being recorded and will be available online at cbdmd.com in accordance with cbdMD’s retention policies. All participants on this call will be in a listen-only mode. At this time, I would now like to turn the conference over to Mark Elliott, the company’s Chief Financial Officer. Mark, please go ahead.

Thanks, Christy, and thank you all for joining cbdMD Second Quarter Fiscal 2020 Earnings Conference Call. On the call today, we also have our Chairman and Co-CEO, Marty Sumichrast. Following the Safe Harbor statement, Marty will provide an overview of our business, and then I’ll provide a summary of the quarterly financial results. Following that, we’ll open up the call for questions. We’d like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. cbdMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the company’s annual report on Form 10-K for the year ended September 30, 2019, as amended and has filed with the SEC, and our other filings with the SEC, all of which can be reviewed on the company’s website at www.cbdmd.com or on the SEC’s website at www.sec.com. Any forward-looking statements made on this conference call speak only as of today’s date, Monday, May 18, 2020, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today’s date. With that, I’d like to turn the call over to Chairman and Co-CEO, Marty Sumichrast. Marty?

Mark, thank you. And thanks to all of those who are listening in on today's call this afternoon. Before we talk about our second quarter, let me update everyone on how the Covid-19 pandemic has affected our business. In early March, we started to take measures at our company to help secure the health of our employees and vendors. When the stay-at-home order in North Carolina was implemented, we temporarily closed our corporate office, instituted a remote workforce and altered work schedules at our manufacturing and warehouse facilities. We also took steps to increase production to build up our finished goods inventory, as well as purchase additional raw material inventory items thereby allowing us to maintain production, if supply chain interruptions were to happen which at this point I'm happy to say has not happened. In short, while we have had to make significant logistical changes during the past 60 days, our team has risen to the challenge and our business has remained fully open and operational. We are happy to report that as of today we are not aware of any of our employees who have tested positive for Covid-19. Along with taking the necessary safety measures, we also immediately instituted a rigorous cost containment plan across all departments and shifted resources from our B2B retail brick-and-mortar sales to our direct-to-consumer online sales. The result has been quite remarkable. While we normally don't discuss results to mid-quarter, we are in an unprecedented time and therefore I've decided to talk about what our company's operations now look like in April, our first full post-Covid impacted month. First of all, our overall sales in April were in line with monthly sales from our March ending quarter, effectively meaning our sales have not gone down. Second, we are seeing a significant shift in our overall sales blend where now our direct-to-consumer online sales are tracking at 80%, up from 62% of overall sales in fiscal 2019. This of course has helped us maintain a very healthy overall gross profit margin, which we believe we can maintain at 65% or higher going forward. Third and most dramatic, our overall operating expenses have been reduced approximately 40% in April from our monthly average in the prior quarter. Some of this operational cost reduction is the direct result of cancellation of certain spends, but others such as travel and trade shows, are a direct effect from the changing environment brought on by the Covid-19 pandemic. The net result of all these changes is that in April, we are showing an approximate 85% decrease in our loss from operations from just a few months ago. And we are also seeing as carry through as we cross the midway point in May. While the uncertainty caused by the pandemic requires us to withdraw our fiscal 2020 financial guidance based on what we are experiencing, we remain confident that we will achieve our target of positive cash flow by the end of 2020 and perhaps sooner. In addition, with approximately $14.8 million in cash on hand at March 31st, 2020 and the dramatic improvement in our overall operating results, we believe we have more than enough financial cushion to get us to profitability absent of any unforeseen impact from Covid-19. Despite these truly horrific times, we are thankful that earlier this year we made bold, strategic decisions such as becoming fully capitalized in January of 2020, paying for infrastructure so we have almost no debt, maintaining and strengthening our online direct-to-consumer business model, which had allowed us to pivot when needed and choosing to operate our business with a view towards variable cost initiatives instead of like many of our competitors who are locked into long-term arrangements and are now drowning in debt and have no way to generate sales because they embarked on a bad all-big-box-retailer strategy. I am on the record last year saying I believe 2020 was a year that the CBD industry would see an industry-wide shakeout. I said that hundreds of smaller brands who jumped into the space would simply not be able to survive competition and regulation. Now the Covid-19 pandemic is upon us, this shakeout in the CBD industry is now magnified in its intensity. When we entered the public market as a pure-play CBD company in December of 2018, our sales were a fraction of the leaders. Now in less than 18 months, we are not only one of the biggest CBD companies in America, but we also have two of the most recognizable CBD brands in America. With that said, I'm pleased to announce that cbdMD reported $9.4 million in quarterly net sales for the second quarter of fiscal 2020. This is a 67% increase over the same quarter last year. And our gross profit margins remain strong at 67% year-to-date.

Our overall direct-to-consumer e-commerce sales for the March fiscal quarter was $6.8 million or 72% of our total net sales, an increase of $2.5 million or 58% from the prior year's quarter. Our B2B brick-and-mortar sales were $2.6 million or 28% of our total net sales, an increase of $1.2 million or 85% from the prior year's quarters. Direct-to-consumer e-commerce sales for the six months ending March were $13.6 million or 70% of our total net sales, an increase of $8.9 million or 189% from the prior year period. Our B2B brick-and-mortar sales were $5.9 million or 30% of total net sales, an increase of $4.5 million or 321% from the prior year period. As previously discussed, we completed an $18.9 million equity offering in January and a few weeks ago we received a $1.5 million loan from the Paycheck Protection Program which could be forgiven based on future criteria being met. Coupled together and with a significant reduction in operating burn, we are confident we are fully financed to operate the profitability again with a significant cash cushion. We will continue to drive online sales through the use of various digital marketing programs. Currently, we have over 250,000 active e-commerce subscribers, a number that continues to grow every month. On the B2B brick-and-mortar side of our business, we continue to grow the number of retail stores that currently carry our brands. We are pleased to announce that our retail reach is now over 6,300 retail doors, an increase of over 1,000 doors since last quarter and we continue to see an increase in our international sales as we are now currently selling to wholesale customers in 16 international markets.

While the Covid-19 pandemic has affected our overall B2B brick-and-mortar distribution channels, we are hopeful that during the next 12 to 18 months, a vaccine will be discovered at which point we believe that B2B brick-and-mortar will quickly return to pre-Covid levels. During calendar 2019, we invested heavily in brand development, acquiring brand building assets as well as our physical infrastructure with the build-out of our 40,000 square foot full-scale manufacturing facility, our 80,000 square foot logistics warehouse and distribution center, and our 50,000 square foot headquarters. We continue to invest in R&D and testing to ensure the highest safety and quality for all of our products. Our commitment to quality was recently rewarded as we were honored in February with two of the best selling products, our CBD PM Sleep Aid and our cbdMD Free Topical voted the winners of the prestigious 2020 Product of the Year award in the Sleep Aid and CBD topical categories respectively. This is America's largest consumer-voted award for product innovation as 40,000 voters participated in an online study organized by an independent research firm. We are also pleased to announce in March that we added to NSF International Dietary Supplements good manufacturing process GMP registration. We entered 2020 with a significant tailwind in product and brand development where our accolades saw the prestigious industry-leading predictive analytics and market research firm for the CBD industry, the Brightfield Group named cbdMD a Top 10 domestic brand in two booming categories, topical and skincare and beauty. And in November 2018, cbdMD was ranked the highest in terms of overall consumer satisfaction, as well as the highest in unaided consumer awareness of any of the Top 10 CBD brands in a survey conducted by Brightfield Group of more than 3,500 cbdMD users. Paw CBD, our dynamic pet product offering which consists of a comprehensive line of CBD pet products for dogs, cats and horses was also ranked by Brightfield as one of the Top 5 brands in the animal CBD market. These achievements solidify that our cbdMD and Paw CBD brands now sit atop the CBD industry as two of the most trusted CBD brands in the market today. This brand building success has also presented us with new exciting opportunities such as our recently announced plan to start a joint venture with holistic pet foods leader Halo, a premium natural pet food brand with a rich 30-year operating history for the long-standing distribution channels in many large big-box retailers such as Petsmart and Petco. Paw CBD is currently sold by independent pet store channels and online at pawscbd.com. Our goal is for Paw CBD to be in over 1,000 retail stores, grooming salons, and veterinary clinics this year. Our sponsorship and influencer partnerships are first in class in the CBD industry and include such multibillion dollar partners as Lifetime Fitness and Bellator MMA, a wholly owned subsidiary of Viacom. We are pleased to announce that our agreement with Lifetime where cbdMD is the exclusive CBD partner of Lifetime is expanding to include the sales of CBD products throughout both Lifetime e-commerce and retail in club channels, with approximately 2 million active members. Lifetime provides an incredible opportunity to directly offer a robust line of THC-free CBD products to this targeted base of consumers who are laser-focused on the importance of health and well-being each and every day. We feel confident that if our products are introduced online through their shop Lifetime website and in their 145 plus fitness facilities nationwide, sales will be significant. One indication of the potential demand among their membership is that research provided to us by Lifetime indicated that cbdMD was the number one search term on the Lifetime e-commerce website since our partnership began in October 2019. We are excited to get our products in Lifetime spas and cafes as well as in the hands of all their nutritionists and fitness coaches serving their 2 million members. CbdMD's commitment to health and wellness represents a perfect fit with Lifetime since our roster of team cbdMD athletes includes some of the biggest and most notable individuals in their respective sports. Our products are THC-free and, like Lifetime, cbdMD is a leading trusted brand which is supported by consumer purchase data regarding CBD suggesting is a dominant factor in decision making. Finally, with respect to the regulatory climate for CBD, prior to Covid-19, it was our expectation that the FDA would announce regulatory guidance for CBD in the first half of 2021. Now that the government is fast-tracking businesses in America in an effort to restart our economy, we would hope that the FDA would release its CBD guidance sooner, hopefully by the end of 2020 possibly by enacting legislation like HR5587 which is currently working its way through the House of Representatives. Now let me turn the call over to Mark to review our most recent financial results.

Thank you, Marty. I'm going to start with a brief summary of our GAAP based results. On a GAAP basis, our total net sales for the second quarter of fiscal 2020 which ended March 31st were approximately $9.4 million. As Marty said, this was a 67% increase for the period year-over-year. For the six months ended March 31st, our net sales were approximately $19.5 million. Again, this is a 220% increase over the same period year-over-year and a 111% increase based upon the pre-acquisition and post-acquisition net sales of the brand which we acquired in late December 2018. Gross profit as a percentage of net sales came in at 70.9% for the second quarter of fiscal 2020. This is compared to 66% for the comparative prior year period. And for the six months ended March, it was 67% compared to 65.9% for the comparative prior year period. We did have an inventory adjustment in March 2020 and with that our gross profit for the three and six months ended would have been 67% and 65%, still in line with our projections. During the balance of fiscal 2020, we expect to maintain our gross profit as a percentage of net sales between 63% and 68% very healthy margin. Our operating expenses for the March quarter were $12.2 million, of which approximately $665,000 was a non-cash expense. The result was a cash use of approximately $4.2 million for the quarter. Our year-to-date operating expenses were $24.8 million, of which approximately $1.6 million is a non-cash expense. This results in a cash use for approximately $9.1 million year-to-date. As discussed earlier, our operating costs were reduced by approximately 40% in April from our monthly average in the prior quarter, which has resulted in a dramatic reduction in our loss from operations as Marty indicated. Our major operating expenses for the period ending March 31st were as follows: Wages of approximately $3.9 million for the quarter and $7.9 million fiscal year-to-date. Expenses for direct marketing, advertising, social media, and events of $3.4 million for the quarter and $5.8 million fiscal year-to-date, all of which are key parts of the strategy in building the brand and creating visibility. Our sponsorships were approximately $1.4 million for the quarter and $3.6 million fiscal year-to-date. As Marty mentioned previously, with our brand foundation established in 2019, we are now transitioning to activating and leveraging our marketing, advertising, and sponsorships, and we are managing future expense and ongoing commitments in this area. Affiliate commissions of $385,000 for the quarter and $929,000 fiscal year-to-date. We had merchant fees which were $674,000 for the quarter and $1.4 million fiscal year-to-date as we process our sales transactions predominantly online. But we are also now getting reduced processing fees as the industry has matured and this will be effective for us in April. Our professional services of approximately $329,000 for the quarter and $842,000 fiscal year-to-date as we use third-party providers for specialty items including information technology, investor relations, media, and third-party lab and warehouse certification processes. Our accounting, legal services, and business insurance of approximately $503,000 for the quarter and $991,000 fiscal year-to-date. This includes legal and accounting fees related to all our acquired SEC filings and business insurance coverages to adjust risk exposure in the CBD industry and as a public company. We had rents of approximately $394,000 for the quarter and $744,000 fiscal year-to-date for our corporate office, warehouse, and laboratory facilities. And finally, we had non-cash stock compensation expense related to stock and options of approximately $435,000 for the quarter and $1.1 million fiscal year-to-date. Our other income and expense includes a large non-cash contingent liability change. This is related to the December 2019 acquisition of Care Residence Under Development. The contingent liability is revalued at the end of each quarter and during the second quarter of fiscal 2020; we had a decline in value by approximately $21 million to $7.8 million. This created another non-cash income for this change in value. The changes in the valuation of the contingent liability was primarily a result of the change in the market price of our common stock from period to period and the issuance of the first turn out shares for the merger. In addition, our shareholder equity increased from $55 million at December 31st to $92 million at the end of March. This change of more than $36 million in shareholder equity was primarily driven by net income for the period and two issuances. One, the issuance of shares related to the January underwritten offering and two, the issuance of earn-out shares for the first measurement period related to the Care Residence Under Development merger. As the revenue target for calendar 2019 for this measurement period was exceeded by 69%. We had cash and cash equivalents of approximately $14.8 million in working capital of approximately $19.1 million at March 31st, 2020. This is compared to cash on hand of $4.7 million and working capital of $12 million as of September 30th, 2019. Our current assets as of March 31st, 2020 increased 58% from September 30th, 2019 to $24.8 million. The primary driver of the increase in current assets was the increase in cash and our increase in inventory. As of March 31st, 2020, the company total current liabilities were $5.8 million, of which approximately $3.5 million is accounts payable. The company has a $205,000 of long-term debt which is made up of a financing note on equipment for our manufacturing facility. As Marty had indicated with Covid-19, we've implemented several measures that we believe will allow us to adjust to the changing environment, ensure sufficient liquidity and support the business for the next several months. Specific measures among other things include the following: We negotiated with our landlords to receive temporary rent deferrals on our facilities by use of our security deposits. We have worked with our vendors to defer payments as needed. We have suspended sponsorship and affiliate agreements until we see stability in events and facilities. And we shifted our sales focus efforts to our direct-to-consumer online sales. And finally, as Marty indicated, we bulked up inventory levels to ensure our ability to fulfill in the event supply chains were impacted. As we continue to navigate with uncertainty, we have taken and continue to take all prudent steps to analyze expenditures and reduce those we believe we can without having a negative impact on the business. And because of these reductions, we anticipate that our operating expenses will be reduced significantly during the balance of fiscal 2020. In addition to further bolster our working capital on April 27, 2020, we received a loan in the principal amount of $1,456,100 under the Paycheck Protection Program or the PPP which was established under the recently enacted CARES ACT administered by the SBA. The intent and purpose of the PPP is to support companies during the Covid-19 pandemic by providing funds for certain specified business expenses with a focus on payroll. As a qualifying business is defined by the SBA. We are using the proceeds from this loan to primarily help maintain our payroll as we navigate our business for the focus on returning to fully normal operations. With that I'd like to now turn the call back over to Marty.

Thanks Mark. Before we open the line for Q&A, I'd like to make a few final observations. As we are all aware, consumer health and overall well-being are more important now than ever. The Covid-19 pandemic has filled us all with so much uncertainty and with the economic downturn comes a heightened sense of stress across the country and the entire world. We've been fortunate as a brand to maintain course and we've even experienced growth during these challenging times. With one of the industry's most dominant digital footprints, we've been able to capitalize on an increased online audience as many are still confined to the constraints of their homes and looking for alternative ways to enhance their everyday wellness. Armed with this powerful set of resources acquired over the past two years, we've been able to push forward while others are limited with subpar saturation and minimal brand recognition. Although no one could anticipate anything of this magnitude prioritizing DTC e-commerce and online sales over mass B2B wholesale distribution has proven vital and the right decision. While many of our competitors have extended terms and offered consignment deals, we've been able to conserve cash flow and collect on sales for all DTC online orders and the majority of B2B wholesale deals. Given the foundation we've built, we're confident that we will weather the storm and come out the other side even stronger than before. With that I'd like to open up the line for Q&A.

We'll take our first question from Scott Fortune with Roth Capital Partners. Please go ahead.

Good afternoon. Congratulations guys and thank you for the questions. Yes, real quick can you expand a little bit on the pet, the paw penetration? I know you're looking for national pet channel, from that standpoint where are you in those discussions and kind of where is that business going and trending from a percentage of overall revenues currently?

Well, right now Paw is trending at about 5% to 6% of overall sales. We actually had a great month in April; one of our best months online in Paw. We see it continuing to increase. We're really attacking the online marketplace as we are overall with the company. We're looking to get a few certifications on the pet side and then we think we will be able to penetrate some of the bigger box stores. But right now the online is really doing tremendous and we're pushing very heavily into that space.

Okay. Thanks for that comment. And just to switch to the online side. Can you provide a little more color on KPIs on your online CBD business? I know you acquired a new user so kind of what's that growth and acquisition cost? And do you see if you're slowing down the marketing and advertising spin kind of looking out here that repeatable business continuing from an online side of things? So how are you looking at that?

Yes. I mean look, it's interesting. We did cut back on some of the marketing spend we have, but it was really more of a question of figuring out what was working for us, what was a sort of maximize of the dollars we spent in some of the partnerships and the relationships that we've had. Two of the big sponsorships we're going ahead with is Lifetime and Bellator and with each one of these they're multibillion-dollar companies. We've taken that and instead of being just a strictly a PR relationship, we've talked to them about going out and selling the product as part of the relationship. And that's really powerful when you talk about Lifetime with 2 million active members. Now many of their facilities are just getting back up and running but the opportunity to Lifetime is enormous and both on their e-commerce platform and in stores. We think as I said earlier, the number one search term in the Lifetime e-commerce site is cbdMD, and so when you walk into a Lifetime facility and you see all of the digital ads and everything people want the product and now we're going to start loading the product in there. So we see the opportunity with Lifetime is enormous. Same thing with Bellator; I mean look, Bellator is owned by Viacom which is CBS. We think the opportunity is through potential TV advertising and we're talking to them about that. We've always been the first and we believe we could be one of the first out of the gates on mainstream TV and we're working with our relationships to do that. Our podcasts have been incredibly successful and even more so now as people are listening to more podcasts recently. Our return has been exceptional. We're investing more in our podcasts. We have great partners like Joe Rogan and, of course, Barstool, and we're really excited about the return on investment through those different podcasts.

Okay, sounds great. And then real last quick, are you able to sell your full portfolio of products to Lifetime or is that kind of just a few SKUs?

Well, we're going to start with topical and we're going to be pushing into the different SKUs, but they're very excited about the opportunity, the brands are very cohesive and there’s just a tremendous partner to work with and we couldn't be luckier than to have the leadership that they have at Lifetime. It's really a wonderful opportunity for us.

Our next question comes from Paul Cooney with Joseph Gunnar. Please go ahead.

Hey, everyone. Congratulations once again on all your achievements. The Lifetime initiative, in particular, appears to have strong potential. You mentioned the Bellator partnership, and I would like to gain a better understanding of how that could create revenue for your team.

Thanks Paul. First of all, Bellator and Scott Coker, the President of Bellator has been a tremendous supporter of ours; early on they were our partner when CBD was something that was a little touchy. Their parent company is Viacom which is CBS and they went to bat for us and we became their exclusive CBD partner and that is really blossomed. We think now that the potential over the next year or two is to work directly through Bellator into Viacom into CBS. And really make some headway into the mass media. Traditionally that's been a little difficult with CBD but now we think there's a real potential in there. And we're really very happy that Scott and his team over at Bellator are helping us in that regard. We think the opportunity is pretty enormous to be one of the first companies out in the space of mass TV advertising. So we look forward to that and we look forward to Bellator fights coming in. I know Paul you're a big fan and we're excited to see the next fight and get American sports back into action. We're excited about this weekend. We're excited to see Bubba playing again in June in PAG and so we're ready to go.

Next we'll move to Michael Lavery with Piper Sandler. Please go ahead.

Good afternoon and thank you. Could you provide some insights on the consumer and marketing aspects? I would like to understand what you find to be most effective in driving traffic to the website and what marketing strategies are currently yielding positive results. Additionally, do you have an idea of how much of the growth on your own site is coming from new customers in the category versus capturing market share?

We've been concentrating on attracting repeat customers, but the market is expanding, allowing us to explore different areas. It's been quite intriguing to identify various segments to market to, and we're consistently broadening our reach. Our repeat customer business has been steady and consistent. While we're focusing on that, we're also looking into various athletic venues and different platforms, such as podcasts, to enhance our marketing efforts. We believe the CBD industry is still in its early stages, and there remains a large untapped audience. We're continually testing new marketing strategies every day and every month, investing in those that yield strong returns. We aim to avoid overextending ourselves but are very mindful of our return on investment with our expenditures. We are skilled in capitalizing on opportunities that demonstrate a high return.

Our next question comes from Pablo Zuanic with Cantor Fitzgerald. Please go ahead.

Good afternoon, everyone, and hello Marty. I'd like to ask a question about the category as a whole. During Covid, grocery stores experienced a surge in sales, and e-commerce numbers increased as well. I'm trying to understand how the CBD category is performing. From my perspective, it seems to be acting more like an indulgence category, which surprises me. This is because your e-commerce sales remained steady from one quarter to the next, which is good, especially when compared to Charlotte's Web and CVS, which both saw declines. On the B2B side, is the 20% drop mainly due to decreased store traffic, or is it a result of the ongoing competition we've discussed previously? Additionally, were vape shops again closed, considering grocery sales in that sector have increased significantly during Covid? I'm looking for your insights on the category and, given the excellent brand investments and metrics you've shared, why we aren't seeing consistent sequential growth in e-commerce. Thank you.

Yes. I'll address the brick-and-mortar sales first. We opted for many small stores instead of large retailers, which I believe has benefited us. However, when Covid hit, many of the smaller stores had to shut down, leading to a significant drop in sales for these locations. We did see some growth in certain areas, like compound pharmacies and other places that remained operational. Unfortunately, many smaller retailers struggled to stay open, resulting in decreased sales overall. Conversely, our online sales saw a substantial increase. To respond to your initial question, I don’t believe this increase is merely a luxury; CBD is something that people need to use consistently. It's not a one-time purchase; rather, it builds up in your system over time. So, when stores were closed, consumers turned to online shopping. Additionally, consumers are becoming more selective about brands in the CBD market. Many retailers have told us that smaller brands, which lack a substantial presence and are simply "CBD in a bottle," are no longer being stocked. Retailers are now leaning towards national brands because that’s what customers are seeking. I've mentioned before that many fleeting CBD brands that emerged during the previous year, when business was booming, will likely disappear in 2020, and this trend has been expedited by Covid. I believe the shift in consumer perception of CBD as a legitimate health and wellness product is crucial, and customers want to buy from recognized and trustworthy brands. We are among the top and most trusted brands in the country, and retailers are eager to have us on their shelves while consumers actively look for our products in stores. This trend is playing in our favor, and I believe it’s only a matter of time until more stores reopen. We anticipate brick-and-mortar sales will recover, although it may take a while for many of these stores to resume operations. In the meantime, our online business is thriving, and the data supports our optimism. As I mentioned, brand identity is important, and we possess that, which I believe will drive sales for cbdMD in the future.

Okay. Can I just ask, thank you for that. Just two quick follow-ups. So the guidance, I know there's no guidance for the full year but the idea that you get to positive cash flow or positive EBITDA by the end of the year. Is that possible flat, if sales remain flat? And related to that, and I don't want to put words in your mouth, but you've talked about April being flattish versus March which is good. I guess you're guiding for flat sales for the second quarter but you talked about e-commerce being 80% of sales compared to 72% right. So the way I interpret that is e-commerce in the June quarter is accelerating after apparent based on the numbers you gave us flat growth sequentially March versus December. Obviously, e-commerce must have accelerated, but on the other hand need to be continues to worsen. If you can just give some color or cadence and characterize a second quarter on what I said. And then also if you can deliver on that positive cash flow guidance if sales remain flat from here to the end of a year. Thanks.

Yes, we're aiming to be cautious and assume our sales in the first quarter maintained very modest growth. We've managed to reduce operating expenses significantly due to ongoing positive trends in online sales. We believe that only a small increase in sales is necessary to reach cash flow positive. In the first quarter, we burned approximately $18 million per month, but we've cut that down by 85%, bringing it to around $250,000. If we maintain our spending and make even slight improvements in sales by the end of the year, we should reach cash flow breakeven, especially considering margins above 65%. It's a straightforward situation, and while we're being conservative in projecting neutral sales, I am hopeful about a potential increase as we observe some positive movement this quarter. As retail performance improves, we anticipate better sales as well. The main focus is on managing costs, which we've been doing and will continue to prioritize.

Next we'll move to David Shale, Private Investor.

Hi, guys. Congratulations on an amazing quarter. It's exciting especially for those of us who have been sticking around for the last year or so. So looking forward to even better days ahead. Absolutely, if I heard you correctly you mentioned that you suspended most of your sponsorships and I'm curious to what extent you think that affected sales. And if it didn't, why you think it didn't? And in general what kind of lessons are to be learned from cutting off a major source of previous branding.

Yes, that's a great question. When Covid hit in mid-March, we paused everything with our athletes due to the uncertainty in sports. For April, we decided to hold all compensations, pushing it into May as well. We didn't have a clear idea of how sports would resume, especially with events like the PAG starting up without fans. We assessed our partnerships, particularly with Lifetime and Bellator, where we saw potential ROI. Re-engaging athletes remains a challenge as performing without fans differs significantly from doing so in front of large crowds. We've been transparent with our athletes, acknowledging the unpredictability of the situation while making it clear that this is beyond anyone's control. Our athletes understand the circumstances, and we've worked together to navigate this uncertainty. Currently, we're focusing on holding off until we have a clearer strategy to proceed, particularly one that emphasizes ROI. Last year was all about establishing our brand, which we've successfully done. Now, our priority is to drive sales and ensure returns on our investments. We're proud of our progress from being behind in the market to emerging as one of the leading brands, especially with cbdMD and Paw, both showing significant revenue and financial strength. Our goal now is to strive for profitability by optimizing our partnerships to increase bottom-line dollars. I hope that answers your question.

Next we'll move to Bill Sutherland with Benchmark. Please go ahead.

Thanks Marty. Mark, hi. What happened with international and what's that looking like?

Well, it's interesting; obviously, the Covid thing has impacted international as you would expect. With that being said, we have because the brand is so strong. We have some large distributors in Europe and in Asia that want to rep the brand something that six months ago we didn't really even have on the agenda. And so we're in the process of working that we've just kind of picked up 16, 13 or 16 different countries right now that we're that we're selling to, but we think internationals got some legs and so we're looking at it instead of being looking at it from a very cost-expensive point of view of setting up operations and things like that. I think it's a better thing for us to do is finding partners and distributing the brand through those partners. And we're pretty confident, despite the Covid thing aside, that there's a tremendous demand for cbdMD internationally. And we expect this year to get back on track on that so stay tuned.

Okay. So did you guys actually break out how the revenues went in March and April relative to the first part of the quarter?

Well, I think we did talk about our first quarter. We did say April trended very heavily towards online. And I can send you this, Mark can send you this when we get offline, Bill, it was very dramatic as far as, I mean look we entered Covid and in our first month post-Covid or in the middle of it, our sales didn't go down, which is shocking and you would think that would be the other way. Margins stayed strong and even inched up because of the big shift to the online. You couple that with such a huge dramatic reduction in operating expenses, April was bottom line the best month we've ever had and pretty got in close to getting to breakeven. And so we are continuing to push that. The trend looks good in May and our goal is to get to profitability as soon as possible and keep in marching up, keeping costs down and having the right blend of business and also increasing that over the next quarter or two is going to get us there.

Right. I was just curious what the run rate kind of is at this point that you've got that you've moved to.

Well, we don't think we're going to be below what we did in the first quarter. Let's put it that way. We feel pretty confident we'll meet that or exceed it.

That's impressive because I know you have bigger months in January and February, I presume.

Yes, we achieved $9.4 million in March and we're aiming for that target as it's mid-May and circumstances can change. However, I remain optimistic.

What is the current status of Lifetime regarding their centers? Are they opening now?

Yes. They furloughed 35,000 people and closed all 145 of their facilities. I feel for them; that must be very challenging. They have an incredible team, and the management is exceptional. Their entire team is focused on reopening and returning to normal, and we are supporting that. I know they are starting to reopen in some states based on the various reopening laws. They are making progress, and I am confident they will emerge from this situation; they are a valuable partner.

Yes. I was just curious how many spenders they were getting open. I assume they're going to be moving quickly. Last one for me is on inventory. I know you stocked up, is it going to be kind of back to a normal level of and turns going forward or how do you feel about the supply chain at this point?

Yes, Bill, it's Mark. Yes, no, obviously, I think that the preparation was to see what was going to happen with supply chain. And we feel really good about that right now as we've worked with the various aspects of that. I do believe we're going to continue to watch our inventory and see what the turn is that's there. And we see no reason to keep that level of that we ramped up with to prepare for what might happen. So I think we're in a good position there. I expect us to continue in a normal manufacturing process at this time unless again there's something that changes as we continue to move forward. But there's nothing that indicates that right now.

The balance right now as far as their ability of raw extract and other materials that you guys work with. What's that life rate now? What's the pricing like?

Well, I mean when you say what's the pricing right obviously, I mean you're probably talking about our isolate which is obviously the largest ingredient most expensive, but certainly, there is supply out there that price has come down significantly over the last six to nine months. We have maintained a nice supply as that has come down, we have continued to purchase. So we have it. So that we can fulfill and again we'll continue to do that and we'll continue to watch what's happening with the price point on it.

Next we move to Paul Bornstein with Black Diamond. Please go ahead.

Yes. Hi, it's nice that the company has a good management team that cut expenses and nice and start focusing on ramping up margins, low margin improvement from online. But my question is trying to understand the competitiveness of the marketplace. There are a lot of products out there. You're building a good brand but can you get price increases out any of them or are you kind of just staying in the current price levels that you had sales on that? And I'm trying to understand the consumer sensitivity to pricing for some of your products.

Well, it's a great question. Look, I think that last year what we saw particularly in the second half of the year is a lot of these smaller brands came on the market, and started struggling with their ability to stay relevant and sell. A lot of them went into the brick-and-mortar channel and did a lot of price dumping as they really didn't have an online strategy. And so there was a lot of competition, a lot of price dumping going into the second half of the year. And you saw that and then what's happened is as we got into the beginning of the year that started to wane and then Covid hit and a lot of these smaller brands simply are unable to compete. A lot of them, I mean we see it all the time, a lot of them going out of business and the retailers who are carrying them don't want them and are returning them because they're fearful of a brand that isn't around anymore. So as far as we're concerned, we're not seeing really any price compression. What we're seeing is really on the online a very robust business in the brick-and-mortar side really a shrinking competition and which bodes well if you have a national brand which is what we built.

Yes. Paul, and I would just add that from that perspective as we're going out there to continue to keep the product visible, it's the, as we said earlier, it's leveraging what we did prior so the brand that's been built or that visibility now we're doing things that make it easier to one acquire the product, so things like we rolled out auto-ship capabilities on our online site. The other things that we've done would be really content focused campaigns because there's still a big aspect of education that the consumer wants. They want to understand about the product. What's in them? Obviously, the quality aspects that we take that we continue to promote on those things that we believe definitely sets us apart. And then just helping them understand what they should be looking at when they're looking at various competitors and products. So I think those are big things that we're doing that are really targeted towards the consumers and are helping drive the direct-to-consumer online sales that we're having.

Yes, it seems that having a well-known brand gives you an advantage since you've developed it over time. There are many products available for consumers, so you’ve managed to gain access to a competitive market. This should allow for increased sales, which is why you expect to become cash flow positive by the end of the year or possibly sooner, depending on sales performance. Additionally, you have already addressed major expenses. Thank you.

And next we'll move to Greg Graves, A Private Investor.

Thank you. Gentlemen as Lifetime comes on stream, I would assume that when you ship something to them directly that's a retail sale. How about if they sell something through their e-commerce site. Is your facility used as a fulfillment center for their e-commerce site?

Yes.

And next we'll move to Daby Carreras with Spartan Capital.

Hello. How're you guys? Hi, John. Hi guys, how is everything? Hope, can you hear me? Good. I'm loving it. It's amazing. I'm very, very pumped. To me, it's about 7,000% an increase in sales is the real big story. I know it was just looking at the net income of $35 million of loss and $33 million of trailing 12-months but that huge growth is very impressive that 7,000% is what I'm looking at. Keeps it going, one has to understand.

And our last question comes from Steve Emerson with Emerson Investments. Please go ahead.

Congratulations on surviving the virus and bringing strength to strength. How much of your monthly internet sales are repeat customers? And perhaps how long does the average customer stay a customer? And if you could, how much does it cost you to market or to bring on a new customer?

Steve, well, thanks. As you know, the situation with us and our repeat customers is that sometimes people log in as guests in our website as opposed to having an account. So it's a little bit difficult sometimes to figure out the accurate repeat customer account, but what we are seeing and what we can track, I think is very healthy and of course we're certainly working on improving that. As far as our marketing spends, that again is getting changed as we sort of enter this new area. We were obviously spending a lot more last year to acquire new customers now that we've built the brand; now that we've found channels that we can market and advertise to that we're seeing proven returns. Some of these podcasts for instance are doing just tremendous for us. We continue to push on those channels that are proven success strategies for us. So I don't want to give you a hard number right now because we're in the middle of making that turn. But I will tell you that the overall marketing budget that we are working with while it still remains very healthy has been, we've managed to cut that back and realign that sort of with the goal towards where the revenue is and how we have to get to cash flow breakeven. And I think we've done that in just six weeks and as one of the earlier callers says, crisis brings clarity. So we've really taken a look at it and we're happy to say that even though we've had significant reductions in a lot of the operating cost and as I said some of those operating cost reductions are directly Covid impacted like we're not traveling. We're not doing trade shows. Those kinds of things. Some of them are choices that we are making in the marketing sponsorship fields, but we're happy to look and see that our revenue continues to maintain. I mean I was sitting here in the middle of March and you would have to ask me, if I thought we would be flat the next month, I would probably tell you I didn't think. So I'm very happy that April was a consistent month as we look from the first quarter. I think that in itself was an incredible achievement. I mean now we are looking at May and May looks a little bit stronger and we are hopeful that June will continue to show strength. So that's where we are at and I feel really good about the decisions we've made and feel really positive that we have enough capital. We have over $14 million and then we got $1.5 million from PPP. So we are really in a good spot and with no debt and a variable cost structure for the most part on the marketing side we are able to be flexible to get the profitability, I think in the short term.

And with no further questions in the queue, that does conclude our conference call for today. Thank you so much for your participation. Have a wonderful day. And you may now disconnect.