cbdMD, Inc 10-Q for FY2023 Q3
cbdMD, Inc. (YCBD)
About this 10-Q
cbdMD, Inc filed this 10-Q on August 10, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.12M
- down 28.8% from $8.59M a year earlier
- Net loss
- $1.77M
- compared with a net loss of $31.63M a year earlier
- Diluted EPS
- -$1.16
- compared with -$24.81 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| |
| For the quarterly period ended |
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| |
| For the transition period from __________________ to _______________ |
Commission file number
| cbdMD, INC. |
| (Exact Name of Registrant as Specified in its Charter) |
| | | |
| State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. | |
| | | |
| Address of Principal Executive Offices | Zip Code |
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Page No |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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| Unregistered Sales of Equity Securities and Use of Proceeds. |
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OTHER PERTINENT INFORMATION
Unless the context otherwise indicates, when used in this report, the terms the “Company,” “cbdMD, “we,” “us, “our” and similar terms refer to cbdMD, Inc., a North Carolina corporation formerly known as Level Brands, Inc., and our subsidiaries CBD Industries LLC, a North Carolina limited liability company formerly known as cbdMD LLC, which we refer to as “CBDI”, Paw CBD, Inc., a North Carolina corporation which we refer to as “Paw CBD” and cbdMD Therapeutics LLC, a North Carolina limited liability company which we refer to as “Therapeutics”. In addition, “fiscal 2022” refers to the year ended September 30, 2022, “fiscal 2023” refers to the fiscal year ending September 30, 2023, “first quarter of 2022” refers to the three months ended December 31, 2021, “first quarter of 2023” refers to the three months ended December 31, 2022, “second quarter of 2022” refers to the three months ended March 31, 2022, “second quarter of 2023” refers to the three months ended March 31, 2023, “third quarter of 2022” refers to the three months ended June 30, 2022, and “third quarter of 2023” refers to the three months ended June 30, 2023.
On February 16, 2023, we held an annual meeting of stockholders. At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one-for-twenty to one-for-fifty, inclusive, with the exact ratio to be set at the discretion of our board of directors, at any time after approval of the amendment and prior to February 16, 2024. On April 12, 2023, the board effected a reverse stock split at a ratio of one-for-forty-five, effective as of April 24, 2023 (the "Reverse Stock Split"). Unless otherwise indicated, all share numbers in this report, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the Reverse Stock Split.
We maintain a corporate website at www.cbdmd.com. The information contained on our corporate website and our various social media platforms are not part of this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
| ● |
material risks associated with our overall business, including: |
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our history of losses, potential liquidity concerns, and our ability to continue as a going concern; |
| ● |
our reliance to market to key digital channels; |
| ● |
our ability to acquire new customers at a profitable rate; |
| ● |
our reliance on third party raw material suppliers and manufacturers and compounders; |
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our reliance on third party compliance with our supplier verification program and testing protocols; and |
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material risks associated with regulatory environment for CBD, including: |
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federal laws as well as FDA or DEA interpretation of existing regulation; |
| ● |
state laws pertaining to industrial hemp and their derivatives; |
| ● |
costs to us for compliance with laws and the risks of increased litigation; and |
| ● |
possible changes in the use of CBD. |
| ● |
material risks associated with the ownership of our securities, including; |
| ● | potential suspension of payment of preferred dividends under North Carolina state business laws; | |
| ● |
the risks for failing to comply with the continued listing standards of the NYSE American; |
| ● |
availability of sufficient liquidity; |
| ● |
the designations, rights and preferences of our 8% Series A Cumulative Convertible Preferred Stock; |
| ● |
dilution upon the issuance of shares of common stock underlying outstanding warrants, options and the Series A Convertible Preferred Stock. |
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward- looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing later in this report, Part I, Item 1A. - Risk Factors appearing in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 as filed with the Securities and Exchange Commission (the “SEC”) on December 15, 2022 and as amended on December 20, 2022 and May 2, 2023 (the “2022 10-K”), as well as our other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
cbdMD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2023 AND September 30, 2022
| (Unaudited) | ||||||||
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable – discontinued operations | ||||||||
| Investment other securities | ||||||||
| Inventory | ||||||||
| Prepaid sponsorship | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease assets | ||||||||
| Deposits for facilities | ||||||||
| Intangible assets | ||||||||
| Investment in other securities, noncurrent | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| See Notes to Condensed Consolidated Financial Statements |
cbdMD, INC.
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| June 30, 2023 AND September 30, 2022 |
| (continued) |
| (Unaudited) | ||||||||
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating leases – current portion | ||||||||
| Note payable | ||||||||
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| Long term liabilities: | ||||||||
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| Contingent liability | ||||||||
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| Total liabilities | ||||||||
| Commitments and Contingencies (Note 11) | ||||||||
| cbdMD, Inc. shareholders' equity: | ||||||||
| Preferred stock, authorized shares, $ | ||||||||
| par value, and shares issued and outstanding, respectively | ||||||||
| Common stock, authorized shares, $ | ||||||||
| par value, and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total cbdMD, Inc. shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements
| cbdMD, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| FOR THE three and nine months ended June 30, 2023 and 2022 |
| (Unaudited) |
| Three months |
Three months |
Nine Months |
Nine Months |
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| Ended |
Ended |
Ended |
Ended |
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| June 30, |
June 30, |
June 30, |
June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Gross Sales |
$ | $ | $ | $ | ||||||||||||
| Allowances |
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| Total Net Sales |
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| Cost of sales |
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| Gross Profit |
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| Operating expenses |
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| Impairment of goodwill and other intangible assets |
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| Loss from operations |
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| Realized and Unrealized loss on marketable and other securities, including impairments |
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| Decrease of contingent liability |
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| Gain on sale of assets |
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| Restructuring expense |
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| Other income |
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| Interest expense |
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| Loss before provision for income taxes |
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| Benefit for income taxes |
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| Net Loss |
( |
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| Preferred dividends |
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| Net Loss attributable to cbdMD, Inc. common shareholders |
$ | ( |
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| Net Loss per share: |
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| Basic earnings per share |
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| Diluted earnings per share |
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| Weighted average number of shares Basic: |
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| Weighted average number of shares Diluted: |
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See Notes to Condensed Consolidated Financial Statements
| cbdMD, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
| FOR THE three and nine months ended June 30, 2023 and 2022 |
| (Unaudited) |
| Three months |
Three months |
Nine Months |
Nine Months |
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| Ended |
Ended |
Ended |
Ended |
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| June 30, |
June 30, |
June 30, |
June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net (Loss) Income |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Comprehensive (Loss) Income |
( |
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| Preferred dividends |
( |
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| Comprehensive (Loss) Income attributable to cbdMD, Inc. common shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See Notes to Condensed Consolidated Financial Statements
| cbdMD, INC. |
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
| FOR THE nine months ended June 30, 2023 and 2022 |
| (Unaudited) |
| Nine Months |
Nine Months |
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| Ended |
Ended |
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| June 30, |
June 30, |
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| 2023 |
2022 |
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| Cash flows from operating activities: |
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| Net Loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: |
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| Stock based compensation |
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| Restricted stock expense |
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| Write off of prepaid assets due to termination of contractual obligation |
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| Issuance of stock for services |
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| Marketing stock amortization |
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| Inventory and materials impairment |
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| Intangibles amortization |
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| Depreciation |
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| Impairment of goodwill and other intangible assets |
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| Decrease in contingent liability |
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| Realized and unrealized loss on of marketable and other securities |
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| Amortization of operating lease asset |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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| Deposits |
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| Inventory |
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| Prepaid inventory |
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| Prepaid expenses and other current assets |
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| Accounts payable and accrued expenses |
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| Operating lease liability |
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| Deferred revenue / customer deposits |
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| Collection on discontinued operations accounts receivable |
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| Cash used by operating activities |
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) | ( |
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| Cash flows from investing activities: |
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| Purchase of property and equipment |
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| Proceeds from sale of assets |
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| Other Securities |
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| Cash flows from investing activities |
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| Cash flows from financing activities: |
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| Proceeds from issuance of common stock |
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| Note payable |
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| Preferred dividend distribution |
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| Cash flows from financing activities |
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| Net increase (decrease) in cash |
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
$ | $ | ||||||
Supplemental Disclosures of Cash Flow Information:
| 2023 | 2022 | |||||||
| Cash Payments for: | ||||||||
| Interest expense | $ | $ | ||||||
| Non-cash financial/investing activities: | ||||||||
| Issuance of shares in exchange for a360 credit | ||||||||
| Issuance of Contingent earnout shares: | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements
| cbdMD, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY |
| FOR THE nine months ended June 30, 2023 |
| (Unaudited) |
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of Common stock | ( | ) | ||||||||||||||||||||||||||
| Issuance of options for share based compensation | - | - | ||||||||||||||||||||||||||
| Issuance of restricted stock for share based compensation | - | - | ||||||||||||||||||||||||||
| Preferred dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of Common stock | ( | ) | ||||||||||||||||||||||||||
| Issuance of options for share based compensation | - | - | ||||||||||||||||||||||||||
| Issuance of restricted stock for share based compensation | - | - | ||||||||||||||||||||||||||
| Issuance of Common stock - A360 | ||||||||||||||||||||||||||||
| Issuance of Common stock - DCO | ||||||||||||||||||||||||||||
| Issuance of Common stock - Keystone | ||||||||||||||||||||||||||||
| True up of fraction shares resuting from reverse split | - | - | ||||||||||||||||||||||||||
| Preferred dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of Common stock | ||||||||||||||||||||||||||||
| Issuance of Preferred Stock | - | - | - | - | - | - | - | |||||||||||||||||||||
| Issuance of options for share based compensation | - | - | ||||||||||||||||||||||||||
| Issuance of restricted stock for share based compensation | - | - | ||||||||||||||||||||||||||
| Issuance of Common stock - A360 | ||||||||||||||||||||||||||||
| Issuance of Common stock - Maxim | ||||||||||||||||||||||||||||
| Fraction share true-up | ( | ) | ||||||||||||||||||||||||||
| Preferred dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
| cbdMD, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY |
| FOR THE nine months ended June 30, 2022 |
| (Unaudited) |
| Additional |
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| Common Stock |
Preferred Stock |
Paid in |
Accumulated |
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| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Total |
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| Balance, September 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Issuance of Common Stock |
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| Issuance of options for share based compensation |
- | - | ||||||||||||||||||||||||||
| Issuance of restricted stock for share based compensation |
- | - | ||||||||||||||||||||||||||
| Preferred dividend |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Net Loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Issuance of Common Stock |
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| Exercise of options for share based compensation |
- | - | ||||||||||||||||||||||||||
| Issuance of restricted stock for share based compensation |
- | - | ||||||||||||||||||||||||||
| Preferred dividend |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Net Loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, March 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Issuance of Common stock |
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| Exercise of options for share based compensation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of restricted stock for share based compensation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Preferred dividend |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Net Income |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
cbdMD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE three and nine months ended June 30, 2023 and 2022 (unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
cbdMD, Inc. (“cbdMD”, “we”, “us”, “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to cbdMD, Inc. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30.
On December 20, 2018 (the “Closing Date”), the Company, and its newly organized wholly owned subsidiaries AcqCo, LLC and cbdMD LLC (“CBDI”), completed a two-step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). Upon completion of the Mergers, CBDI survived and operates the prior business of Cure Based Development. As consideration for the Mergers in April of 2019, the Company issued
The Company owns and operates the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD and cbdMD Botanicals. The Company sources cannabinoids, including CBD, which are extracted from non-GMO hemp grown on farms in the United States. CBD is a natural substance produced from the hemp plant. The products manufactured by and for the Company comply with the 2018 Farm Bill - our full spectrum products contain trace amounts of tetrahydrocannabinol ("THC") under the 0.3% by dry weight limit in the 2018 Farm Act while our broad spectrum products are non-psychoactive as they do not contain detectable levels of THC.
In the third quarter of fiscal 2019 cbdMD launched its new CBD pet brand, Paw CBD. Following the initial positive response to the brand from retailers and consumers, cbdMD, Inc. organized Paw CBD, Inc. (“Paw CBD”) as a separate wholly owned subsidiary on October 22, 2019, to take advantage of its early mover status in the CBD animal health industry. On March 15, 2021 cbdMD formed a new wholly owned subsidiary, cbdMD Therapeutics, LLC (“Therapeutics”) for the purposes of isolating and quantifying the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications. In July 2021, the Company acquired the assets of Twenty Two Capital, LLC (“Twenty Two”) d/b/a directcbdonline.com (“DCO”). This business operates a CBD marketplace through directcbdonline.com.
The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the 2022 10-K/A. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2022 as reported in the 2022 10-K have been omitted.
Reverse Stock Split
On April 12, 2023, the board effected a reverse stock split at a ratio of one-for--five, effective as of April 24, 2023. Unless otherwise indicated, all share numbers in this filing, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the reverse stock split.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI, Paw CBD and Therapeutics. All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP and requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the valuation of investments other securities, acquired intangibles and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, contingent liability and, hence consideration for the Mergers is a material estimate. Actual results could differ from these estimates.
The Company continues to monitor macroeconomic conditions to remain flexible and to optimize and evolve its business as appropriate.
Cash and Cash Equivalents
For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. As of June 30, 2023 and September 30, 2022, we had an allowance for doubtful accounts of $
Merchant Receivable and Reserve
The Company primarily sells its products through the internet and has an arrangement to process customer payments with third-party payment processors and negotiate the fee based on the market. The arrangement with the payment processors requires that the Company pay a fee between
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end.
Property and Equipment
Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are years for manufacturing equipment and automobiles and years for software, computer, and furniture and equipment. The useful life for leasehold improvements are over the term of the lease, or the remaining economic life of the asset, whichever is shorter. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable.
Fair Value Accounting
The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
When the Company records an investment in marketable securities the carrying value is assigned at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For investment other securities without a readily determinable fair value, the Company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes.
Intangible Assets
The Company’s intangible assets consist of definite-lived trademarks and other intellectual property. The Company accounts for its trademarks in accordance with Accounting Standards Codification (ASC) Topic 360, Property, Plant and Equipment. The Company began amortizing its trademarks over 20 years beginning January 1, 2022 and will perform impairment tests as prescribed by ASC 360, which states that impairment testing should be completed whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If there are indications that the asset’s carrying value may not be recoverable, there are two further steps involved in long-lived asset impairment testing. Step I of the impairment test, as per ASC 360, involves estimating the Recoverable Amount of the Asset Group and determining the potential for impairment. Step II of the impairment test, as per ASC 360, if necessary, involves quantifying the fair value of the asset group.
Contingent Liability
A significant component of the purchase price consideration for the Company’s acquisition of Cure Based Development includes a fixed number of future shares to be issued as well as a variable number of future shares to be issued based upon the post-acquisition entity reaching certain specified future revenue targets, as further described in Note 6. The Company made a determination of the fair value of the contingent liabilities as part of the valuation of the assets acquired and liabilities assumed in the business combination.
Revenue Recognition
Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company meets that obligation when it has shipped products which have been ordered to the customer. The Company has reviewed its various revenue streams for its other contracts under the five-step approach. At June 30, 2023, the Company has unfulfilled performance obligations.
Allocation of Transaction Price
In the Company’s current business model, it does not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order-based product sales.
Revenue Recognition
The Company records revenue from the sale of its products when its customer obtains control, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 60-day, money back guarantee, a loyalty program as well as a subscription program.
Disaggregated Revenue
The Company’s product revenue is generated primarily through two sales channels, E-commerce sales (formerly referred to as consumer sales) and wholesale sales. The Company believes that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.
A description of the Company’s principal revenue generating activities are as follows:
| - | E-commerce sales - consumer products sold through the Company’s online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment; and | |
|
| ||
| - | Wholesale sales - products sold to the Company’s wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer. |
Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the condensed consolidated balance sheets.
Other than account receivable, Company has material contract assets nor contract liabilities at June 30, 2023.
The following tables represent a disaggregation of revenue by sales channel:
| Three Months | Three Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | % of total | 2022 | % of total | |||||||||||||
| E-commerce sales | $ | % | $ | % | ||||||||||||
| Wholesale sales | % | % | ||||||||||||||
| Total Net Sales | $ | % | $ | % | ||||||||||||
| Nine Months | Nine Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | % of total | 2022 | % of total | |||||||||||||
| E-commerce sales | $ | % | $ | % | ||||||||||||
| Wholesale sales | % | % | ||||||||||||||
| Total Net Sales | $ | % | $ | % | ||||||||||||
Cost of Sales
The Company’s cost of sales includes costs associated with distribution, fill and labor expense, components, third-party providers, and outbound freight for the Company’s products sales, and includes labor for its service sales. For the Company’s product sales, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale, if any, and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value.
Income Taxes
The Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. As of October 1, 2019, CBDI and Paw CBD were wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Company and as of March 15, 2021, Therapeutics is also a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Company.
The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
Concentrations
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities.
The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $
Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did have any customers that represented a significant amount of our sales for the three and nine months ended June 30, 2023.
Stock-Based Compensation
The Company accounts for its stock compensation under the ASC 718-10-30, Compensation - Stock Compensation using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. The Company recognizes forfeitures when they occur.
Earnings (Loss) Per Share
The Company uses ASC 260-10, Earnings Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders, after deducting preferred stock dividends, by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.
On February 16, 2023, we held an annual meeting of stockholders. At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one-for-
Liquidity and Going Concern Considerations
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company experienced a loss of $ and $
Management has concluded that substantial doubt exists about our ability to continue as a going concern for the next twelve months from the date hereof. We believe that our cash and cash equivalents on hand should be sufficient to fund operations through the end of the fiscal year if not longer. However, depending upon our operating results and cash burn, we may be required to raise additional capital to fund operations or scale back our operations or dividends. We expect to continue to incur losses for the foreseeable future as we continue our efforts to increase sales, develop additional products, seek acquisitions and mergers, continue research and development, reduce operating expenses and attempt to achieve profitability. Furthermore, in the event we identify an acquisition candidate, such acquisition may require immediate capital to close such acquisition. These factors, individually and collectively, raise substantial doubt about our ability to continue as a going concern, and therefore, could materially limit our ability to raise additional funds through an issuance of debt or equity securities or otherwise.
New Accounting Standards
None.
NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES
The Company has, from time to time, entered into contracts where a portion of the consideration provided by the counterparty in exchange for the Company’s services was common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company recorded the receivable as accounts receivable other, and used the value of the stock or other instrument upon invoicing to determine the value. In determining fair value of marketable securities and investment other securities, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. The Company determines the fair value of marketable securities and investment other securities based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the fair value hierarchy distinguishes between observable and unobservable inputs.
For the nine months ended June 30, 2023 and 2022 the Company recorded $
In September 2020, the Company purchased a membership interest in Adara Sponsor LLC for $
On April 7, 2022, CBD Industries, LLC entered into an asset sale agreement to sell substantially all its manufacturing assets to a subsidiary of Steady State, LLC ("Steady State"). The equipment sale is initially valued at approximately $
In valuing both investments, the Company used the value paid, which was the price offered to all third-party investors.
NOTE 3 - INVENTORY
Inventory at June 30, 2023 and September 30, 2022 consists of the following:
| June 30, |
September 30, |
|||||||
| 2023 |
2022 |
|||||||
| Finished Goods |
$ | $ | ||||||
| Inventory Components |
||||||||
| Inventory Reserve |
( |
) | ( |
) | ||||
| Inventory prepaid |
||||||||
| Total Inventory |
$ | $ | ||||||
Abnormal amounts of idle facility expense, freight, handling costs, scrap and wasted material (spoilage) are expensed in the period they are in incurred and no material expenses related to these items occurred in the three or nine months ended June 30, 2023.
NOTE 4 – PROPERTY AND EQUIPMENT
Major classes of property and equipment at June 30, 2023 and September 30, 2022 consist of the following:
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Computers, furniture and equipment | $ | $ | ||||||
| Manufacturing equipment | ||||||||
| Leasehold improvements | ||||||||
| Automobiles | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense related to property and equipment was $
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company had goodwill at March 31, 2022 of $
Intangible Assets
On December 20, 2018, the Company completed the Mergers with Cure Based Development and acquired certain assets, including the trademark “cbdMD” and its variants and certain other intellectual property. The trademark is the cornerstone of this subsidiary and is key as the Company creates and distributes products and continue to build this brand. The Company believed the trademark did not have limits on the time it would contribute to the generation of cash flows and therefore identified these as indefinite lived intangible assets.
In July 2021, the Company completed the acquisition of DCO and acquired certain assets, including the trade name, domains and certain other intellectual property. The tradename will be used in marketing and branding of the website. The Company believes the trade name has a
As of December 31, 2021, the Company re-assessed the “cbdMD” and “HempMD” trademarks and determined that the trademarks should be classified as definite lived intangible assets with useful lives of
Intangible assets as of June 30, 2023 and September 30, 2022 consisted of the following:
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Trademark related to cbdMD | $ | $ | ||||||
| Trademark for HempMD | ||||||||
| Technology Relief from Royalty related to DirectCBDOnline.com | ||||||||
| Tradename related to DirectCBDOnline.com | ||||||||
| Impairment of cbdMD trademark | ( | ) | ||||||
| Amortization of definite lived intangible assets | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization expense related to definite lived intangible assets was $
NOTE 6 – CONTINGENT CONSIDERATION
As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue
The contractual obligations and earn out provision are accounted for as a contingent liability and fair value is determined using Level 3 inputs, as estimating the fair value of these contingent liabilities require the use of significant and subjective inputs that may and are likely to change over the duration of the liabilities with related changes in internal and external market factors.
The initial two tranches totaling
The Merger Agreement also provides that an additional
| Aggregate Net Revenues | Shares Issued/ Each $ of Aggregate Net Revenue Ratio | ||
| $ - $ | |||
| $ - $ | |||
| $ - $ | |||
| $ - $ |
For clarification purposes, the Aggregate Net Revenues during a Marking Period shall be multiplied by the applicable Shares Issued/Each $ of Aggregate Net Revenue Ratio, minus, the number of shares issued as a result of Aggregate Net Revenues during the prior marking periods.
The third marking period was originally an 18 month period commencing on January 1, 2021 and ending on June 30, 2022 (the “Third Marking Period End Date”), after which time the determination of the issuance of any remaining Earnout Shares would be made pursuant to the terms of the Merger Agreement. On March 31, 2021 the Company entered into Addendum No. 1 to the Merger Agreement (“Addendum No. 1”) with the holders of the remaining Earnout Rights which amended the measurement periods within the third marking period to change the determination of the aggregate net revenues within the third marking period to a quarterly basis for each of the six fiscal quarters within the third marking period, beginning with the quarter ended March 31, 2021, instead of following Third Marking Period End Date. This change in the measurement date, however, has no effect on the number of remaining Earnout Shares issuable under the Earnout Rights and no effect on the earnout targets; Addendum No. 1 simply changes the physical issuance date(s) of the remaining Earnout Shares, if in fact, such shares are earned pursuant to the terms of the Merger Agreement. Addendum No. 1 did not change any of the terms of the fourth marking period (as that term is defined in the Merger Agreement). This change did not impact the fair value of the contingent liability. The value of the contingent liability was $
The fourth marketing period began on July 1, 2022 and ends in November 2023. At June 30, 2023, up to
As part of the Twenty Two acquisition in July 2021, the Company had a contractual obligation to issue up to an additional
In December 2022, the Company entered into a contractual obligation to issue up to
NOTE 7 – RELATED PARTY TRANSACTIONS
As mentioned in Note 6, a counterparty in the earnout arrangement is a related party.
NOTE 8 – SHAREHOLDERS’ EQUITY
Preferred Stock – The Company is authorized to issue
The total amount of preferred dividends declared and paid were $
Common Stock – The Company is authorized to issue
On February 16, 2023, we held an annual meeting of stockholders. At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one-for-
Preferred stock transactions:
The Company had no preferred stock transactions in the three and nine months ended June 30, 2023 and 2022.
Common stock transactions:
In the nine months ended June 30, 2023:
On May 3, 2023, the Company completed an underwritten public offering of
On April 24, 2023 the Company issued a total of
In March 2, 2023, the Company entered into a Purchase Agreement (the "Purchase Agreement") with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone has committed to purchase up to
In April 2023, the Company issued
On February 1, 2023, the Company entered into an Agreement for Advertising Placement with a360 Media, LLC (“a360”) in which a360 will provide professional media support and advertising placement in exchange for up to
In January of 2023, the Company issued
In the nine months ended June 30, 2022:
In May 2022, the Company issued
In March 2022 the Company issued
On December 28, 2021 the Company issued
In October 2021, the Company issued
Stock option transactions:
In the nine months ended June 30, 2023:
In February of 2023, the Company granted its board of directors an aggregate of
In January 2023, the Company issued
In December 2022, the Company issued
In the nine months ended June 30, 2022:
In May 2022, the Company granted a new executive an aggregate of
In April 2022, the Company issued
In April 2022, the Company issued
In March of 2022, the Company granted its board of directors an aggregate of
In January of 2022, the Company granted an aggregate of
In October 2021, the Company granted an aggregate of
The expected volatility rate for the Company's stock options was estimated based on a weighted average mix of the volatilities of the Company and a peer group of companies in similar industries. The expected term used was the full term of the contract for the issuances. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.
The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the nine months ended June 30, 2023 and 2022:
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Exercise price | | |||||||
| Risk free interest rate | ||||||||
| Volatility | | - | ||||||
| Expected term (in years) | | - | ||||||
| Dividend yield | None | None | ||||||
Warrant Transactions:
As part of the public underwritten offer discussed in Note 8, the Company issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $2.52 per share.
NOTE 9 – STOCK BASED COMPENSATION
Equity Compensation Plan – On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan (“2015 Plan”). The 2015 Plan initially made
On January 8, 2021, the Company’s Board of Directors approved the 2021 Equity Compensation Plan (the “2021 Plan”) and it was subsequently approved by its shareholders at its annual meeting held on March 12, 2021. The purpose of the 2021 Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to it and upon whose efforts and judgment the success of the Company is largely dependent. The 2021 Plan made
The Company accounts for stock-based compensation using the provisions of ASC 718. ASC 718 codification requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. All options are approved by the Compensation, Corporate Governance and Nominating Committee of the Board of Directors. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of the Company’s stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model.
Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. Options granted generally have a -to--year term and have vesting terms that cover to years from the date of grant. Certain stock options granted under the plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms.
Stock Options:
The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period.
The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year.
The following table summarizes stock option activity under both plans for the nine months ended June 30, 2023:
| Weighted-average | ||||||||||||||||
| remaining | Aggregate | |||||||||||||||
| Weighted-average | contractual term | intrinsic value | ||||||||||||||
| Number of shares | exercise price | (in years) | (in thousands) | |||||||||||||
| Outstanding at September 30, 2022 | $ | $ | - | |||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| Outstanding at June 30, 2023 | - | |||||||||||||||
| Exercisable at June 30, 2023 | $ | $ | - | |||||||||||||
As of June 30, 2023, there was approximately $
Restricted Stock Award transactions:
In the nine months ended June 30, 2023:
In February of 2023, the Company issued
In January 2023, the Company issued
In December 2022, the Company issued
In the nine months ended June 30, 2022:
In June 2022, the Company issued
In May 2022, the Company issued
In May 2022, the Company issued
In March of 2022, the Company issued
In January 2022, the Company issued
In January of 2022, the Company issued
In November 2021, the Company issued
In October 2021 the Company issued
In October 2021 the Company issued
NOTE 10 - WARRANTS
Transactions involving the Company equity-classified warrants for the nine months ended June 30, 2023 and 2022 are summarized as follows:
| Weighted-average | ||||||||||||||||
| remaining | Aggregate | |||||||||||||||
| Weighted-average | contractual term | intrinsic value | ||||||||||||||
| Number of shares | exercise price | (in years) | (in thousands) | |||||||||||||
| Outstanding at September 30, 2022 | $ | $ | - | |||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| Outstanding at June 30, 2023 | - | |||||||||||||||
| Exercisable at June 30, 2023 | $ | - | $ | - | ||||||||||||
During the three month period ended December 31, 2022,
As part of the public underwritten offer discussed in Note 8, the Company issued the Underwriter a warrant to purchase up to
The following table summarizes outstanding common stock purchase warrants as of June 30, 2023:
| Weighted-average | |||||||||
| Number of shares | exercise price | Expiration | |||||||
| Exercisable at $196.88 per share | | September 2023 | |||||||
| Exercisable at $337.5 per share | May 2024 | ||||||||
| Exercisable at $176.06 per share | October 2024 | ||||||||
| Exercisable at $56.25 per share | | January 2025 | |||||||
| Exercisable at $2.52 per share | April 2028 | ||||||||
| Exercisable at $168.30 per share | December 2025 | ||||||||
| Exercisable at $168.75 per share | June 2026 | ||||||||
| $ | |||||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
In May 2019, the Company entered into an endorsement agreement with a professional athlete. On November 4, 2022, the Company entered into a separation agreement with the athlete that required a final payment truing up the Company’s cash obligation through November 2022. No further obligations exist between the parties. The Company recorded a one-time non-cash expense of approximately $
In April 2022, effective February 2022, the Company entered into an endorsement agreement with a professional athlete. The term of the agreement was through February 2025 and tied to performance of the athlete in so many professional events annually, and also includes promotion of the Company via social media, wearing of logo during competition, requirement to provide production days for advertising creation and attendance at meet and greets. The potential base payments, if all services are provided is $
As previously disclosed, during June of 2022, the Company's CEO resigned from the board of directors and his role as an executive for the Company in June of 2022 under the terms of a separation agreement with the Company.
NOTE 12 – NOTE PAYABLE
In July 2019, the Company entered into a loan arrangement in the amount of $
NOTE 13 – LEASES
The Company has lease agreements for its corporate offices and warehouse with lease periods expiring between 2024 and 2026. ASC 842 requires the recognition of leasing arrangements on the consolidated balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets. The Company determines whether an arrangement is a lease at inception and classify it as finance or operating. All of the Company’s leases are classified as operating leases. The Company’s leases do not contain any residual value guarantees. During the June 2022 quarter, the Company exited its laboratory facility as all R&D is conducted in its corporate offices. This lease expired in December 2022, and as a result we incurred an exit fee of $
Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, the Company determined an incremental borrowing rate for each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date to determine the present value of future lease payments. The Company’s lease terms may include options to extend or terminate the lease.
In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes, insurance and common area maintenance expenses during the lease terms.
Lease costs on operating leases are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the condensed consolidated statements of operations.
Components of operating lease costs are summarized as follows:
| Three Months | Nine Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Total Operating Lease Costs | $ | $ | ||||||
Supplemental cash flow information related to operating leases is summarized as follows:
| Three Months | Nine Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | ||||||
As of June 30, 2023, our operating leases had a weighted average remaining lease term of
Future minimum aggregate lease payments under operating leases as of June 30, 2023 are summarized as follows:
| For the year ended September 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total future lease payments | ||||
| Less interest | ( | ) | ||
| Total lease liabilities | $ |
NOTE 14 – LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the following periods:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic and diluted: | ||||||||||||||||
| Net loss continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ) | |||||
| Preferred dividends paid | ||||||||||||||||
| Net loss adjusted for preferred dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to cbdMD Inc. common shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Shares used in computing basic earnings per share | ||||||||||||||||
| Shares used in computing diluted earnings per share | ||||||||||||||||
| Earnings per share Basic: | ||||||||||||||||
| Basic earnings per share | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Earnings per share Diluted: | ||||||||||||||||
| Diluted earnings per share | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
At June 30, 2023,
NOTE 15 – INCOME TAXES
On November 17, 2017, the Company completed an IPO of its common stock. The Company conducted a Section 382 analysis and determined an ownership change occurred upon the IPO. On October 2, 2018, the Company completed a follow-on firm commitment underwritten public offering of its common stock. On May 16, 2019, the Company completed an additional follow-on firm commitment underwritten public offering of its common stock. On October 16, 2019, the Company completed a follow-on firm commitment underwritten public offering of its
On December 20, 2018, the Company completed a two-step merger with Cure Based Development (see Note 1). As a result of the Mergers the Company established as part of the purchase price allocation a net deferred tax liability related to the book-tax basis of certain assets and liabilities of approximately $
The Company has a valuation allowance against the net deferred tax assets, with the exception of the deferred tax liabilities that result from indefinite-life intangibles (“naked credits”). The Company has determined that using the general methodology for calculating income taxes during an interim period for the quarters ending December 31, 2019, March 31, 2020, and June 30, 2020, provided for a wide range of potential annual effective rates. At September 30, 2022 the Company recorded a net deferred tax asset of
NOTE 16 – SUBSEQUENT EVENTS
In July 2023, the Company issued
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations for the three and nine months ended June 30, 2023 and the three and nine months ended June 30, 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors, including those set forth under the Part I, Item 1A, Risk Factors and Business sections in our 2022 10-K, this report, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.
Our Company
General
We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD and cbdMD Botanicals. We believe that we are an industry leader producing and distributing broad spectrum CBD products and now full spectrum CBD products. Our mission is to enhance our customer’s overall quality of life while bringing CBD education, awareness and accessibility of high quality and effective products to all. We source cannabinoids, including CBD, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods. Our full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that falls within the limits set in the 2018 Farm Bill. In addition to our core brands, we also operate cbdMD Therapeutics, LLC to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications
Our cbdMD brand of products includes high-grade, premium CBD products, including CBD tinctures, CBD gummies, CBD topicals, CBD capsules, CBD bath bombs, and CBD sleep aids.
Our Paw CBD brand of products includes veterinarian-formulated products including tinctures, chews, topicals products in varying strengths and formulas. Paw CBD products have undergone the National Animal Safety Council’s rigorous audit and meet their Quality Seal standard.
Our cbdMD Botanicals brand of beauty and skincare products features facial oil and serum, toners, moisturizers, clear skin, facial masks, exfoliants and body care. cbdMD Botanicals is dedicated to creating clean CBD skin care products combining the best of Mother Nature with the precision of scientific innovation. All of our products are 100% cruelty-free and have no parabens, sulfates, or gluten – just pure botanical ingredients carefully crafted into gentle beauty products for all skin types.
cbdMD, Paw CBD and cbdMD Botanicals products are distributed through our e-commerce websites, third party e-commerce sites, select distributors and marketing partners as well as a variety of brick-and-mortar retailers. In addition, we operate a CBD marketplace through directcbdonline.com, our own e-commerce website.
cbdMD Therapeutics
We formed our wholly owned subsidiary, cbdMD Therapeutics, for the purposes of isolating and quantifying our ongoing investments in science related to our existing and future products, including research and development activities for therapeutic applications and to explore potential cannabinoid-based medicines.
In August of 2022 the Company concluded a randomized, double blind, placebo controlled clinical study in dogs performed in conjunction with Colorado’s State University’s veterinary program. Preliminary results indicate that our proprietary broad spectrum hemp extract improved mobility, gait, and quality of life in dogs with osteoarthritis. These results are expected to provide claims related to our proprietary broad spectrum blend’s efficacy and drive new product development to address the needs of the nearly $2 Billion canine arthritis treatment market according to Expert Market Research.
In September of 2022 the Company concluded a multi-year randomized, double blind, placebo controlled clinical study in healthy adults utilizing its proprietary hemp extract blend which demonstrated significant benefits in many areas, including reduction of pain, reduced inflammation, improvements to several immunity markets, and improved mood, and these results are further driving the refinement of current products and the development of new products which utilize the same proprietary blend of hemp extracted cannabinoids.
We believe the results from both of the clinical studies provide us a unique and differentiated competitive marketing advantage for certain of our products and has already started creating additional B2B wholesale opportunities for our organization. In addition, these results will inform near term product development efforts, and serve as preliminary data for future clinical studies.
The formation of Therapeutics has also led to the identification of a novel cannabinoid that will be patented and utilized in future formulations for cbdMD. We believe the Company’s investments into therapeutics R&D will continue to benefit current products and dietary supplement development.
Recent Developments
The Company continues to work on revenue growth and focus on our operating costs in an effort to generate profitable earnings and cash flow. During the third fiscal quarter, the Company migrated it's ecommerce platform, as it found it could drive traffic to it's website, but that the conversion rate lagged and the legacy platform was somewhat cumbersome to make changes to. Migrating to the leading direct to consumer ecommerce platform lowers the Company's ongoing IT and infrastructure costs to support our website, allows the Company to be more nimble and as well as plug into best-in-class tools for ecommerce business.
Additionally, the Company continues to engage in industry advocacy and is working with multiple industry groups and legislatures on potential regulatory patents for the category.
During the second quarter, the Company launched its first products on Amazon in the UK. cbdMD is one of only a handful of companies approved to sell CBD products in the Amazon UK CBD pilot program due to its validated Novel Foods application. Brands approved to sell CBD through Amazon UK are required to pass compliance checks by Amazon and now must have a credible application for Novel Foods Authorization which has been validated by the United Kingdom's Food Standards Agency. Starting in the fourth quarter, the Company is beginning to see growth coming from this channel.
During the third fiscal quarter we continued to make headway to improve the overall operation of our business. We continue to be disciplined on our costs, working with multiple brokers to shed our corporate office, as well as working with our marketing vendors to drive growth back into the business for the fourth quarter.
Growth Strategies
We continued to pursue many strategies to grow our revenues and expand the scope of our business in fiscal 2023 and beyond:
| ● |
Grow Core Revenue Channels |
Direct to Consumer: The last several quarters we pulled back on sponsorships, expensive influencers and high acquisition cost marketing spend that resulted in low lifetime value customers. As a result, overall revenues have declined, but we believe we are in a better position to improve profitability and are now investing carefully in efforts with strong measurable return on spend to drive traffic and conversion rates.
Wholesale: We continue to focus on the right product at the right price for the right channel and adding channel specific distributors and brokers to help us scale in the food drug and mass channel (“FDM”). Our products are available throughout GNC and Wegmans' retail footprints. We continue to build relationships with key retailers and moved to a new boutique sales agency with deep natural and grocery channel-specific experience, focused on developing a pipeline of opportunities we believe are strategic to the category and our brand, though we can make no guarantee on how long specific retailers will maintain a presence within the cbd sales channel.
| ● |
Product Innovation: We believe innovation is key to the long-term success of any consumer brand. We invest in new product development and brand extension that we believe will (i) give us a competitive advantage in the marketplace; (ii) attract new customers; and (iii) open up additional revenue opportunities. During fiscal 2022 we launched an industry first NSF for Sport product line with World Anti-Doping Association (WADA) level assurance, a line of Delta 9 gummies and microdose products, along with a number of functional gummies and capsules. Based on customer feedback and preliminary clinicals we launched a new line of high-strength CBD products at the end of September 2022 and further launched cbdMD Max for Pain at the end of calendar 2022. During August 2023, we expanded our lineup of hemp-derived Delta 9 gummies, Uplift, Elevate and Relax that provide a daily routine for energy and focus, stress relief, and calming effects. We have a robust pipeline of products to launch during the second half of calendar 2023 that we believe will open up additional distribution channels as well as grow our addressable market. |
| ● |
International Expansion: We continue to explore sales into markets outside of the United States. Our products are currently available in 31 countries. We generally partner with local wholesalers and local legal counsel who can help navigate the laws and regulatory requirements within their jurisdiction. We continue to pursue key wholesale accounts in several international markets and are gaining market share in Central America through our sanitary registration approvals. We are also expanding our E-commerce business to consumers in the United Kingdom (U.K.) and in March 2022, we received notice that the products we submitted have been validated in the UK as well as in the EU. We continue to work on strategies to continue to expand in the EU, Israel and other major markets which is primarily driven by the regulatory environment. In late fiscal year 2022, we registered and began selling products in Japan. |
| ● |
Acquisitions: We evaluate acquisitions where we believe (i) there is an accretive customer base that can lower our cost of customer acquisitions through either a complementary direct to consumer base or wholesale channels, or (ii) the target has a profitable business or easily attainable cost synergies that can quickly help contribute and accelerate profitability of our Company. The rights and preferences of our outstanding shares of our Series A Preferred continues to create challenges with M&A opportunities. |
Results of operations
The following tables provide certain selected consolidated financial information for the periods presented:
| Three Months Ended June 30, |
||||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Total net sales |
$ | 6,119,380 | $ | 8,592,893 | $ | (2,473,513 | ) | |||||
| Cost of sales |
2,273,839 | 2,660,185 | (386,346 | ) | ||||||||
| Gross profit as a percentage of net sales |
62.8 | % | 69.0 | % | (6.2 | )% | ||||||
| Operating expenses |
5,669,194 | 8,282,931 | (2,613,737 | ) | ||||||||
| Impairment of goodwill and other intangible assets |
- | 30,776,436 | - | |||||||||
| Operating loss from operations |
(1,823,653 | ) | (33,126,659 | ) | 526,570 | |||||||
| Decrease on contingent liability |
44,771 | 1,943,000 | (1,898,229 | ) | ||||||||
| Net loss before taxes |
(1,770,403 | ) | (31,634,143 | ) | 29,863,740 | |||||||
| Net loss attributable to cbdMD Inc. common shareholders |
$ | (2,770,904 | ) | $ | (32,634,644 | ) | $ | 29,863,740 | ||||
| Nine Months Ended June 30, |
||||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Total net sales |
$ | 18,444,617 | $ | 27,543,601 | $ | (9,098,984 | ) | |||||
| Cost of sales |
7,015,803 | 10,176,085 | (3,160,282 | ) | ||||||||
| Gross profit as a percentage of net sales |
62.0 | % | 63.1 | % | (1.1 | )% | ||||||
| Operating expenses |
18,699,293 | 31,690,915 | (12,991,622 | ) | ||||||||
| Impairment of goodwill and other intangible assets |
- | 48,959,721 | (48,959,721 | ) | ||||||||
| Operating loss from operations |
(7,270,479 | ) | (63,283,120 | ) | 7,052,920 | |||||||
| Decrease on contingent liability |
153,771 | 8,246,000 | (8,092,229 | ) | ||||||||
| Net loss before taxes |
(7,063,270 | ) | (55,453,289 | ) | 48,390,019 | |||||||
| Net loss attributable to cbdMD Inc. common shareholders |
$ | (10,064,773 | ) | $ | (58,454,792 | ) | $ | 48,390,019 | ||||
We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team. The following table provides information on the contribution of net sales by type of sale to our total net sales.
| Three Months |
Three Months |
|||||||||||||||
| Ended |
Ended |
|||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| 2023 |
% of total |
2022 |
% of total |
|||||||||||||
| E-commerce sales |
$ | 5,000,261 | 81.7 | % | $ | 6,513,301 | 75.8 | % | ||||||||
| Wholesale sales |
1,119,119 | 18.3 | % | 2,079,592 | 24.2 | % | ||||||||||
| Total Net Sales |
$ | 6,119,380 | $ | 8,592,893 | ||||||||||||
| Nine Months |
Nine Months |
|||||||||||||||
| Ended |
Ended |
|||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| 2023 |
% of total |
2022 |
% of total |
|||||||||||||
| E-commerce sales |
$ | 14,796,326 | 80.2 | % | $ | 20,160,721 | 73.2 | % | ||||||||
| Wholesale sales |
3,648,291 | 19.8 | % | 7,382,880 | 26.8 | % | ||||||||||
| Total Net Sales |
$ | 18,444,617 | $ | 27,543,601 | ||||||||||||
Net Sales
We had total net sales of $6.1 million and $8.6 million for the three months ended June 30, 2023 and 2022, respectively, resulting in a decrease in net sales of $2.5 million or 28.8% year over year. This decrease is attributable to a decrease of $1.5 million in e-commerce sales as we continue to reduce marketing spend as part of our continued efforts to improve profitability. Wholesale sales decrease of $960,473 in mainly attributed to our lower price structure over the prior year period. During the quarter two events impeded our growth. We were gaining strong momentum on Meta, however in early June they changed category marketing rules and with 'cbd' in our name, it took up much of June and July to regain access to Meta marketing. Additionally, in June we migrated our ecommerce platform, creating some temporary disruptions during the month. We are now working to optimize the platform to its fullest. As a result, our sequential overall revenue remained flat. Our E-commerce business increased by approximately 2.3% for the three months ended June 30, 2023 versus the three months ended March 31, 2023, primarily attributable to the changes to our market team and infrastructure while wholesale sales decreased approximately 17% for the three months ended June 30, 2023 from the three months ended March 31, 2023. We believe the current macro inflationary environment continues to impact discretionary spending with consumers as well as wholesale customers. We remain cautiously optimistic on a pipeline of opportunities both domestically and internationally and believe we will see revenue growth in the coming quarters.
Cost of sales
Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 38.5% and 33.1% for three months ended June 30, 2023 and 2022, respectively. This overall decrease in our cost of sales quarter over quarter is primarily attributable to decreased overhead allocation related to the closure of our lab and manufacturing facility in the second quarter of 2022, which increased margins for that quarter, offset by a new product mix with higher costs in late 2022.
Operating expenses
Our principal operating expenses include staff related expenses, advertising (which includes expenses related to industry distribution and trade shows), sponsorships, affiliate commissions, merchant fees, technology, travel, rent, professional service fees, and business insurance expenses.
Consolidated Operating Expenses
The following tables provide information on our operating expenses for the three and nine months ended June 30, 2023 and 2022:
| Three Months |
Three Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 1,714,416 | $ | 2,874,938 | $ | (1,160,522 | ) | |||||
| Accounting/legal expense |
221,777 | 262,307 | (40,530 | ) | ||||||||
| Professional outside services |
253,960 | 237,877 | 16,083 | |||||||||
| Advertising/marketing/social media/events/tradeshows/sponsorships/affiliate commissions |
1,879,134 | 3,929,685 | (2,050,551 |
) | ||||||||
| Merchant fees |
196,354 | 255,956 | (59,602 | ) | ||||||||
| R&D and regulatory |
24,566 | 113,751 | (89,185 | ) | ||||||||
| Non-cash stock compensation |
61,017 | (938,285 | ) | 999,302 | ||||||||
| Intangibles Amortization |
277,354 | 277,354 | - | |||||||||
| Depreciation |
98,225 | 158,556 | (60,331 | ) | ||||||||
| All other expenses |
942,391 | 1,110,792 | (168,401 | ) | ||||||||
| Totals |
$ | 5,669,194 | $ | 8,282,931 | $ | (2,613,737 | ) | |||||
| Nine Months |
Nine Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 6,004,252 | $ | 10,119,111 | $ | (4,114,859 | ) | |||||
| Accounting/legal expense |
790,556 | 828,016 | (37,460 | ) | ||||||||
| Professional outside services |
684,148 | 648,764 | 35,384 | |||||||||
| Advertising/marketing/social media/events/tradeshows/sponsorships/affiliate commissions |
5,128,803 | 13,705,909 | (8,577,106 | ) | ||||||||
| Merchant fees |
603,405 | 751,328 | (147,923 | ) | ||||||||
| R&D and regulatory |
156,999 | 550,268 | (393,269 | ) | ||||||||
| Non-cash stock compensation |
315,982 | 851,517 | (535,535 | ) | ||||||||
| Intangibles Amortization |
832,063 | 607,025 | 225,038 | |||||||||
| Depreciation |
300,726 | 770,336 | (469,610 | ) | ||||||||
| Non-cash stock compensation related to terminated contractual obligation |
884,892 | - | 884,892 | |||||||||
| All other expenses |
2,997,467 | 2,858,641 | 138,826 | |||||||||
| Totals |
$ | 18,699,293 | $ | 31,690,915 | $ | (12,991,622 | ) | |||||
Our overall operating expenses decreased by $2.6 million or 31.6% for the three months ended June 30, 2023 over the three months ended June 30, 2022. The year over year decrease was primarily driven by management's continued ongoing efforts to reduce our cost structure including decreases in staff related expenses ($1.2 million), advertising, marketing, sponsorships and affiliate commission expenses ($2.0 million), reduction in depreciation expense ($0.06 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.09 million), partially offset by an increase in non-cash stock compensation ($1.0 million) as a result of a $1.5 million contra-expense for stock compensation in the prior year quarter related to forfeited RSUs and options.
Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses, and non-cash a360 marketing expense we reduced our cash adjusted operating expenses from $8.8 million to $4.5 million for the three months ended June 30, 2022 and June 30, 2023 respectively.
Our overall operating expenses, excluding goodwill and intangibles impairment, decreased by $13.0 million or 41.0% for the nine months ended June 30, 2023 over the nine months ended June 30, 2022. The year over year decrease was primarily driven by management's ongoing efforts to reduce our cost structure including decreases in staff related expenses ($4.1 million), advertising, marketing, sponsorships and affiliate commission expenses ($8.6 million), reduction in stock expense ($0.5 million), reduction in depreciation expense ($0.5 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.4 million), partially offset by an increase in all other expenses ($0.1 million) and an increase of ($0.9 million) non-cash expense related to accelerated stock compensation amortization tied the termination of a contractual obligation, and an increase in intangible amortization expense.
Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses and non-cash a360 marketing expense, and we reduced our cash adjusted operating expenses, excluding goodwill and intangibles impairment, from $29.5 million to $15.5 million for the nine months ended June 30, 2022 and June 30, 2023 respectively.
We continue to show strong year over year improvements operating a more disciplined SG&A cost structure. We have remained very focused on our sequential performance and trends as we are fixated on delivering a profitable quarter. We continued to make significant headway on our cost structure during the third fiscal quarter and were able to maintain our revenue base while stabilizing our SG&A costs. As part of our strategic plan to grow revenue, we began ramping up marketing spend in the third quarter, resulting in a slight increase in SG&A resulting in a sequential increase of operating losses; from a $1.5 million operating loss in the second fiscal quarter to $1.8 million for the third fiscal quarter. This increase in sequential SG&A is primarily a result of an increase in our non-cash marketing expenses related to our February 2023 contract with a360. Excluding this non-cash expense, our cash SG&A dropped $0.3 million sequentially and we improved our non-GAAP adjusted EBITDA by $200,000 for the quarter. We continue to focus on optimizing our marketing spend and working with our agencies to remain nimble and find new channels of growth, especially considering of the temporary disruption with Meta. We believe migrating to one of the fastest growing platforms not only allows the brand to be nimbler and plug into a robust ecosystem built for brands to scale, but also lowers our ongoing operating costs compared to the prior platform.
Corporate overhead
Included in our consolidated operating expenses are expenses associated with our corporate overhead which are not allocated to the operating business unit, including (i) staff related expenses; (ii) accounting and legal expenses; (iii) professional outside services; (iv) travel and entertainment expenses; (v) rent; (vi) business insurance; and (vii) non-cash stock compensation expense.
The following tables provide information on our corporate overhead for the three and nine months ended June 30, 2023 and 2022:
| Three Months |
Three Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 81,199 | $ | 288,570 | $ | (207,371 | ) | |||||
| Accounting/Legal expense |
149,313 | 195,056 | (45,743 | ) | ||||||||
| Professional outside services |
152,571 | 119,330 | 33,241 | |||||||||
| Travel expense |
- | 2,526 | (2,526 | ) | ||||||||
| Business insurance |
194,220 | 167,387 | 26,833 | |||||||||
| Non-cash stock compensation |
61,017 | (938,285 | ) | 999,302 | ||||||||
| Totals |
$ | 638,320 | $ | (165,416 | ) | $ | 803,736 | |||||
| Nine Months |
Nine Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 287,989 | $ | 917,144 | $ | (629,155 | ) | |||||
| Accounting/legal expense |
567,419 | 578,356 | (10,937 | ) | ||||||||
| Professional outside services |
332,605 | 282,030 | 50,575 | |||||||||
| Travel expense |
- | 3,933 | (3,933 | ) | ||||||||
| Business insurance |
572,850 | 530,742 | 42,108 | |||||||||
| Non-cash stock compensation |
315,982 | 851,517 | (535,535 | ) | ||||||||
| Totals |
$ | 2,076,845 | $ | 3,163,721 | $ | (1,086,876 | ) | |||||
Our corporate operating expenses are down quarter over quarter (excluding a one time reversal of forfeiture of unvested stock options) and year to date for the nine months ended June 30, 2023 versus 2022 as a result of our ongoing efforts to reduce our cost structure across the board as well as a significant reduction in the amount of non-cash stock compensation expense that has been issued year over year.
The corporate operating expenses are primarily related to the ongoing public company related activities.
Therapeutics Overhead
Included in our consolidated operating expenses are expenses associated with Therapeutics including staff related expenses and R&D and regulatory expenses. The Therapeutic operating expenses include research and development activities for therapeutic applications.
The following tables provide information on our approximate corporate overhead for the three and nine months ended June 30, 2023 and 2022:
| Three Months |
Three Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 92,253 | $ | 80,346 | $ | 11,907 | ||||||
| Accounting/legal expense |
- | 3,119 | (3,119 | ) | ||||||||
| R&D and Regulatory |
19,617 | 112,364 | (92,747 | ) | ||||||||
| Totals |
$ | 111,870 | $ | 195,829 | $ | (83,959 | ) | |||||
| Nine Months |
Nine Months |
|||||||||||
| Ended |
Ended |
|||||||||||
| June 30, |
June 30, |
|||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Staff related expense |
$ | 266,621 | $ | 251,787 | $ | 14,834 | ||||||
| Accounting/legal expense |
- | 3,119 | (3,119 | ) | ||||||||
| R&D and Regulatory |
144,972 | 482,579 | (337,607 | ) | ||||||||
| Totals |
$ | 411,593 | $ | 737,485 | $ | (325,892 | ) | |||||
The Therapeutic operating expenses include research and development activities for therapeutic applications. This division was formed during the third quarter of fiscal 2021. Our human and pet clinical studies have concluded, and we are waiting for our independent peer reviewed results to be published.
Goodwill Impairment
The Company had goodwill at March 31, 2022 of $42,772,685. The Company impaired goodwill in subsequent reporting periods of fiscal 2022 and goodwill was fully impaired by September 30, 2022.
Other income and other non-operating expenses
We also record income and expenses associated with non-operating items. The material components of those are set forth below.
Decrease in contingent liability
As described in Note 6 to the notes to the consolidated financial statements appearing elsewhere in this report, the earn-out provision for the Earnout Shares is accounted for and recorded as a contingent liability with increases in the liability recorded as non-cash other expense and decreases in the liability recorded as non- cash other income. The value of the non-cash contingent liability was $122,230 at June 30, 2023, as compared to $276,000 at September 30, 2022, respectively. We expect to continue to record changes in the non-cash contingent liability through the balance of the earnout period.
As described in Note 6 to the notes to the consolidated financial statements appearing elsewhere in the report, the requirement for the earn-out provision for the Twenty Two Earnout Shares was never met and at September 30, 2022 the balance of this obligation was zero.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $2.8 million and working capital of $5.7 million at June 30, 2023 as compared to cash and cash equivalents on hand of $6.7 million and working capital of $10.7 million at September 30, 2022. Our current assets decreased approximately 37.8% at June 30, 2023 from September 30, 2022, which is primarily attributable to a decrease in cash used to fund operations as well as a one-time non-cash expenses of approximately $885,000 related to previously un-expensed stock amortization related to an terminated contractual obligation, in addition to receiving our $1.0 million investment in Adara back in full. Our current liabilities decreased by 17.1% at June 30, 2023 from September 30, 2022, and is primarily attributable to decreases in accrued expenses and accounts payable.
On March 2, 2023, we entered into a purchase agreement with Keystone Capital Partners, LLC, which provides that subject to the terms and conditions set forth therein, we may sell to Keystone up to 281,934 shares of our common stock, from time to time during the term of the purchase agreement. Under the terms and subject to the satisfaction of the conditions set forth in the purchase agreement for a period of 12 months, subject to a blackout period from April 30, 2023 through July 14, 2023 under the terms of our recent underwritten public offering. the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to 281,934 shares of common stock. Upon entering into the Purchase Agreement the Company agreed to issue to Keystone 392,282 shares of common stock of the Company as the Commitment Shares as consideration for Keystone’s commitment to purchase shares of common stock upon the Company’s direction under the purchase agreement.
As of August 10, 2023, the Company also has up to 273,044 shares available to be sold under its agreement with Keystone, which it may drawdown on such agreement, subject to trading volume requirements of our common stock and further subject to the blackout period referenced above.
In May of 2023, we closed an underwritten public offering of shares of out common stock at a public offering price of $2.10 per share. Net proceeds from the offering after deducting underwriting discounts and commissions and offering expenses were approximately $2.5 million.
Management has concluded that substantial doubt exists about our ability to continue as a going concern for the next twelve months from the date hereof. Our current capital resources, including our equity line of credit with Keystone may not be sufficient to support our planned operations for the next twelve months from the date hereof. We believe that our cash and cash equivalents on hand should be sufficient to fund operations, however, depending upon our operating results and cash burn over the next five months, we may be required to raise additional capital to fund operations or scale back our operations or accrue Series A Preferred dividends. We expect to continue to incur losses for the foreseeable future as we continue our efforts to increase sales, develop additional products, seek acquisitions and mergers, continue research and development, reduce operating expenses and attempt to achieve profitability. The rights and preferences of our outstanding shares of our Series A Preferred continues to create challenges with M&A opportunities. Furthermore, in the event we identify an acquisition candidate, such acquisition may require immediate capital to close such acquisition. These factors, individually and collectively, raise substantial doubt about our ability to continue as a going concern, and therefore, could materially limit our ability to raise additional funds through an issuance of debt or equity securities or otherwise.
During the three and nine months ended June 30, 2023 we used cash primarily to fund our operations.
We do not have any commitments for capital expenditures. We have a commitment for cumulative cash dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders. Unless the Company’s balance sheet significantly improves soon, the Company will be prohibited under the North Carolina Business Corporation Act from paying dividends and ultimately not pay (and accrue) monthly dividends. Under North Carolina law, no distribution may be made if, after giving it effect: (1) the corporation would not be able to pay its debts as they become due in the usual course of business; or (2) the corporation's total assets would be less that the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Further, notwithstanding these factors, we may not have sufficient cash in the future to pay dividends on the Series A Preferred Stock. The Company’s board of directors has recently adopted resolutions declaring it advisable to amend the Certificate of Designation for the Series A Preferred Stock to provide that each share of Series A Preferred will be automatically converted into three shares of common stock and directing that the proposed amendment be submitted for consideration by the Company’s shareholders at a Special Meeting on September 22, 2023. The amendment requires the approval of both our Series A Preferred and common stock holders, voting as separate classes.
Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $4.0 million and $13.0 million for the nine months ended June 30, 2023 and 2022, respectively. Management believes the quarterly cash consumption should continue to improve in subsequent quarters.
Adjusted EBITDA
To supplement the Company's unaudited interim consolidated financial statements presented in accordance with U.S. GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not prepared in accordance with, or as an alternative to U.S. GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts, or is subject to adjustment that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with U.S. GAAP. Adjusted EBITDA as presented below is a non-GAAP measure.
cbdMD defines Adjusted EBITDA as Earnings Before Interest, Taxes, Depreciation and Amortization excluding (1) stock based compensation; (2) one time inventory adjustments; (3) impairment of goodwill and other intangible items; (4) one-time severance accruals; (5) non-cash trade credits; and (6) accruals/expenses for discretionary bonuses.
Our management uses and relies on Adjusted EBITDA, which is a non-GAAP financial measure. We believe that management, analysts and shareholders benefit from referring to the following non-GAAP financial measure to evaluate and assess our core operating results from period-to-period after removing the impact of items that affect comparability. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the excluded items described below.
We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between cbdMD and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable rules of the Securities and Exchange Commission.
The following table presents a reconciliation of GAAP loss form operations to Adjusted EBITDA.
Adjusted EBITDA for the three and nine months ended June 30, 2023 and June 30, 2022 is as follows:
| Three months |
Three months |
Nine Months |
Nine Months |
|||||||||||||
| Ended |
Ended |
Ended |
Ended |
|||||||||||||
| June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| (Unaudited) |
||||||||||||||||
| GAAP (loss) from operations |
$ | (1,823,653 | ) | $ | (33,126,659 | ) | $ | (7,270,479 | ) | $ | (63,283,120 | ) | ||||
| Adjustments: |
||||||||||||||||
| Depreciation & Amortization |
375,579 | 435,910 | 1,132,789 | 1,377,361 | ||||||||||||
| Employee and director stock compensation (1) |
61,017 | (938,285 | ) | 315,982 | 851,517 | |||||||||||
| Other non-cash stock compensation for services (2) |
- | 884,892 | - | |||||||||||||
| Inventory adjustment(3) |
- | - | - | 878,142 | ||||||||||||
| Impairment of Goodwill and other intangible assets (4) |
- | 30,776,436 | - | 48,805,436 | ||||||||||||
| Accrual for severance |
- | 107,261 | 129,761 | 129,761 | ||||||||||||
| a360 non-cash trade credit |
778,703 | - | 887,039 | - | ||||||||||||
| Accrual / expenses for discretionary bonus |
- | - | - | 150,000 | ||||||||||||
| Non-GAAP adjusted EBITDA |
$ | (608,354 | ) | $ | (2,745,337 | ) | $ | (3,920,016 | ) | $ | (11,090,903 | ) | ||||
| (1) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period. |
| (2) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period. |
| (3) Represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory. |
| (4) Represents non-cash goodwill impairment of $30,776,436 during the June 2022 quarter in addition to 13,898,285 of non-cash goodwill and impairment of the cbdMD trademark of $4,285,000 during the balance of the nine months ended June 2022. |
Critical accounting policies
The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to our consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
Please see Part II, Item 7 – Critical Accounting Policies appearing in our 2022 10-K for the critical accounting policies we believe involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results. Management considers these policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
Recent accounting pronouncements
Please see Note 1 – Organization and Summary of Significant Accounting Policies appearing in the consolidated financial statements included in this report for information on accounting pronouncements.
Off balance sheet arrangements
As of the date of this report, we have no undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, our interim principal executive officer and Chief Financial Officer has concluded that our disclosure controls and procedures were effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our interim principal executive officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, we incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2022 10-K. See also "Liquidity and Capital Resources" above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Except for those unregistered securities previously disclosed in reports filed with the SEC, we have not sold any securities without registration under the Securities Act during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable to our Company’s operations.
The Auditor Firm ID for our external auditors, Cherry Bekaert LLP, is 677.
| Incorporated by Reference |
Filed or Furnished |
|||||||||
| No. |
Exhibit Description |
Form |
Date Filed |
Number |
Herewith |
|||||
| 1.1 | Underwriting Agreement dated as of April 30, 2023 between cbdMD, Inc. and Maxim Group LLC | 8-K | 5/3/23 | 1.1 | ||||||
| 8-K |
12/3/18 |
2.1 |
||||||||
| 10-Q |
2/14/19 |
2.2 |
||||||||
| 10-Q |
2/14/19 |
2.3 |
||||||||
| 10-Q |
2/14/19 |
2.4 |
||||||||
| 10-Q |
2/14/19 |
2.5 |
||||||||
| Addendum No. 1 to Agreement and Plan of Merger dated March 31, 2021 |
8-K |
4/1/21 |
10.1 |
|||||||
| 1-A |
9/18/17 |
2.1 |
||||||||
| Articles of Amendment to the Articles of Incorporation – filed April 22, 2015 |
1-A |
9/18/17 |
2.2 |
|||||||
| Articles of Amendment to the Articles of Incorporation – filed June 22, 2015 |
1-A |
9/18/17 |
2.3 |
|||||||
| Articles of Amendment to the Articles of Incorporation – filed November 17, 2016 |
1-A |
9/18/17 |
2.4 |
|||||||
| Articles of Amendment to the Articles of Incorporation – filed December 5, 2016 |
1-A |
9/18/17 |
2.5 |
|||||||
| 8-K |
4/29/19 |
3.7 |
||||||||
| 8-A |
10/11/19 |
3.1(f) |
||||||||
| 3.8 | Articles of Amendment of Articles of Incorporation, as amended, of cbdMD, Inc. effective April 24, 2023 - reverse stock split | 8-K | 4/27/23 | 3.1 | ||||||
| 1-A |
9/18/17 |
2.6 |
||||||||
| 4.1 | Form of Representative's Warrant | 8-K | 5/3/23 | 4.1 | ||||||
| 10.1 | Agreement for Advertising Placement dated February 1, 2023 + | S-1 | 3/13/23 | 10.17 | ||||||
| 10.2 | Side Letter - Keystone Capital Partners, LLC | S-1 | 3/13/23 | 10.20 | ||||||
| 10.3 | Common Stock Purchase Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC | 8-K | 3/2/2023 | 10.1 | ||||||
| 10.4 | Registration Rights Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC | 8-K | 3/2/2023 | 10.2 | ||||||
| 31.1 | Certification of Principal Executive Officer (Section 302) | Filed | ||||||||
|
|
|
Furnished* | ||||||||
| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
Filed | ||||||||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
Filed | ||||||||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
Filed | ||||||||
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
Filed | ||||||||
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
Filed | ||||||||
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
Filed | ||||||||
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
Filed | ||||||||
+ Exhibits and/or schedules have been omitted. The Company hereby agrees to furnish to the staff of the Securities and Exchange Commission upon request any omitted information.
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at cbdMD, Inc. 8845 Red Oak Boulevard, Charlotte, NC 28217.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| cbdMD, INC. |
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| August 10, 2023 | By: |
/s/ T. Ronan Kennedy | |
| T. Ronan Kennedy, Interim CEO, | |||
| principal executive officer | |||
| August 10, 2023 | By: |
/s/ T. Ronan Kennedy |
|
| T. Ronan Kennedy, Chief Financial Officer, |
|||
| principal financial and accounting officer |
|||
EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, T. Ronan Kennedy, certify that:
|
1. |
I have reviewed this report on Form 10-Q for the period ended June 30, 2023 of cbdMD, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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||
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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|
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||
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Dated: August 10, 2023 |
/s/ T. Ronan Kennedy |
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|
T. Ronan Kennedy, |
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Interim CEO, Chief Financial Officer, |
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|
principal financial and accounting officer |
EXHIBIT 32.1
Section 1350 Certification
In connection with the Quarterly Report of cbdMD, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, T. Ronan Kennedy, principal executive officer and Chief Financial Officer, of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes- Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and |
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|
2. |
The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company. |
|
August 10, 2023 |
/s/ T. Ronan Kennedy | ||
| T. Ronan Kennedy, | |||
| Interim CEO, principal executive officer | |||
|
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|||
| August 10, 2023 |
|
/s/ T. Ronan Kennedy |
|
|
|
|
T. Ronan Kennedy, |
|
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|
|
Chief Financial Officer, |
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| principal financial and accounting officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.