What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-12-15 compared with 2021-12-17 · 106 added, 66 removed, 137 unchanged (56% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Since May 1, 2019, commensurate with our name change, our common stock has been listed on the NYSE American under the symbol “YCBD” and prior to that, since November 17, 2017 was listed on the NYSE American under the symbol "LEVB."

Our Series A Convertible Preferred Stock has been listed on the NYSE American since October 21, 2019 under the symbol “YCBDpA.”

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Since May 1, 2019, commensurate with our name change, our common stock has been listed on the NYSE American under the symbol “YCBD”

and prior to that, since November 17, 2017 was listed on the NYSE American under the symbol “LEVB.”

Our Series A Convertible Preferred Stock has been listed on the NYSE American since October 21, 2019 under the symbol “YCBDpA.”

As of December 9, 2022, there were approximately 104 record owners of our common stock and one record holder of our Series A Convertible Preferred Stock.

These amounts do not reflect persons or entities that hold our securities in nominee or “street” name through various brokerage firms.

These amounts do not reflect persons or entities that hold our securities in nominee or “street”

name through various brokerage firms.

Dividend policy

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The designations, rights and preferences of our Series A Convertible Preferred Stock provide that we will pay, when, as and if declared by our board of directors, monthly cumulative cash dividends at an annual rate of 8.0%, which is equivalent to $0.80 per annum per share, based on the $10.00 liquidation preference.

Dividends on the Series A Convertible Preferred Stock will accrue daily and be cumulative from, and including, the first day of the calendar month in which the shares are issued and will be payable monthly in arrears on the 15th day of each calendar month.

Every month since November 1, 2019 the Audit Committee of our board of directors has declared a cash dividend of $0.0667 per share of Series A Convertible Preferred Stock payable on the 15th of each month to holders of record on the first of each month.

Every month since November 1, 2019 the Audit Committee of our board of directors has declared a cash dividend of $0.0667 per share of Series A Convertible Preferred Stock payable on or around the 15th of each month to holders of record on the first of each month.

We expect that our board of directors will continue to declare and pay monthly cash dividends on our Series A Convertible Preferred Stock, subject to the limitations to do so under North Carolina law.

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Purchases of equity securities by the issuer and affiliated purchasers

SELECTED FINANCIAL DATA.

Not applicable to a smaller reporting company.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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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 2020 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.

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 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.

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We believe that we are an industry leader in 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.

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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

We saw significant growth during fiscal 2020 as we benefited from strong online growth and customer acquisition, while COVID-19 put pressure on our wholesale business.

During 2021 we continued to grow cbdMD, our core brand as well as Paw CBD.

Additionally during 2021 we began our international expansion efforts, launched our cbdMD Botanicals line, added a line of full spectrum products , and began investing in Therapeutics.

Our E-commerce business remained steady despite the volatility of COVID-19 and its variants.

During 2021, we rationalized some of our sponsorships but continued to invest heavily in brand building in other channels.

Operationally we continued to build out our product portfolio and invested in ongoing quality certification, adding the US Hemp Authority certification as well as the NASC Quality Seal of approval.

During 2022 we continued to focus on our core cbdMD brand, expanding our full spectrum products, as well as our Paw CBD and cbdMD Botanicals lines. 

Fiscal 2022 proved to be more challenging for the Company and industry as a whole as inflation reached 30 year records. 

Management worked hard to rationalize its SKUs and cost structure during fiscal 2022 and while we have successfully achieved 6 sequential quarters of Non-GAAP Adjusted Operating Income improvement, our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends. 

Operationally we continued to optimize our product portfolio and invested in ongoing quality certification, adding the NSF certification to certain products and became the first CBD company to commercialize NSF for Sport product in our category. 

Additionally, we launched 

a line of hemp-derived delta 9 products as well as new line of high strength CBD products supported by our human clinical at the end of the year and we believe are well positioned to take market share during fiscal 2023.

Results of operations

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Operating expenses

Impairment of goodwill and other intangible assets

Operating loss from operations

(19,615,990 )

(17,581,855 )

(Increase) decrease on contingent liability

(36,467,439 )

Net (loss) income before taxes

(24,289,889 )

(35,595,845 )

Net (loss) income attributable to cbdMD Inc.

Net loss before taxes

Net loss attributable to cbdMD Inc.

common shareholders

$ (25,949,498 )

$ (38,184,921 )

The following tables provide certain selected unaudited consolidated financial information for the three months ended September 30, 2022 and 2021:

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Total net sales

$ (1,906,590 )

Cost of sales

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Operating expenses

Operating loss from operations

Impairment of goodwill and other intangible assets

Operating income from operations

(Increase) decrease on contingent liability

Net (loss) income before taxes

Net (loss) income attributable to cbdMD Inc.

Net loss before taxes

Net loss attributable to cbdMD Inc.

common shareholders

$ (4,360,080 )

$ (6,358,612 )

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 for the fiscal years ended September 30, 2022 and 2021.

Wholesale sales

E-commerce sales

Wholesale sales

Total Net Sales

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September 30,

Wholesale sales

E-commerce sales

Wholesale sales

Total Net Sales

Total net sales during the fiscal year ended September 30, 2021 increased by $2,597,029, or 6% as compared to fiscal year ended September 30,2020.

Wholesale sales remained nominally the same year over year while E-commerce sales increased by $2,451,461 or 8.0%, partially driven by ongoing brand and market efforts, the addition of multiple products during the year and the acquisition of the assets of Twenty Two during the fourth quarter.

Net sales for the fourth quarter declined 16% year over year and were impacted due to changing consumer purchasing habits tied to the dynamic COVID-19 environment as well as supply chain challenges which created some out of stocking and delayed a number of new product launches, impacted marketing plans during the second half of Fiscal 2021.

Total net sales during the fiscal year ended September 30, 2022 decreased by approximately $9 million, or 20% as compared to fiscal year ended September 30, 2021.

Wholesale sales decreased by approximately $2.6 million, or 22.5% year over year while E-commerce sales decreased by $6.4 million or 19.7%. 

The change in revenue was driven by a combination of broader CBD category softness which we believe is partially attributed to the macro inflationary environment in addition to management reducing unprofitable marketing expenses that resulted in an increase in net contribution, in addition to some stock outages later in the year. 

Net sales for the fourth quarter declined 20% year over year.

During the quarter management worked to sell through a number of SKUs prior to the launch of our high strength products which resulted in lower average price and some out of stocking of key wholesale products. 

Of our total net sales as indicated above, during the fiscal years ended September 30, 2022 and 2021 our Paw CBD line accounted for net sales of $3,748,779 and $5,659,796, respectively.

The year over year growth in our Paw CBD brand is due to the expansion of products and increase in marketing efforts specific to the brand.

The year over year decline in our Paw CBD brand is due to increasing competition and a rationalization in marketing efforts specific to the brand.

Cost of sales

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Our cost of sales as a percentage of net sales was 36.1% and 32.6% for fiscal years ended September 30, 2022 and 2021, respectively.

The change reflects the increasing revenue percentage of E-commerce sales, driving purchasing and manufacturing efficiencies, tighter inventory management, changes in the cost of raw materials, evaluating key vendors, negotiating volume pricing, as well as additional product offerings which continue to impact our cost of production.

While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2022, gross margins for the year were impacted by (i) a large inventory NRV adjustment during the December 2021 quarter as we rationalized SKUs, (ii) lower overhead absorption based on lower revenue and (iii) additional discounting during the fourth fiscal quarter as we worked to sell out of certain SKUs prior to a reset of our products.

For the fourth quarter of fiscal 2022 our cost of sales as a percentage of net sales was 36% as compared to 41% in the prior year comparative period. 

The change reflects the increasing revenue percentage of E-commerce sales, driving purchasing and manufacturing efficiencies, tighter inventory management, changes in the cost of raw materials, evaluating key vendors, negotiating pricing, as well as additional product offerings which continue to impact our cost of production.

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.

Our operating expenses on a consolidated basis increased approximately 12.4% for the fiscal year ended September 30,2021 versus the fiscal year ended September 30, 2020.

The increase can be attributed to an increase in advertising and marketing expenses, and increase in payroll, increase in R&D and regulatory expenses (mostly due to cbdMD Therapeutics, LLC) as well as an increase in non-cash stock compensation.

Our operating expenses on a consolidated basis decreased approximately $10 million or 20% for the fiscal year ended September 30, 2022 versus the fiscal year ended September 30, 2021.

The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business. 

This was partially offset by a $0.8 million non-cash expense as we began amortizing intangibles.

Consolidated Operating Expenses

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Non-cash stock compensation

Intangibles amortization

All other expenses

For the twelve months ended September 30, 2021, the overall operating expenses increased by $5,650,829 or 12.9% year over year, primarily driven by an increase in marketing spend of $5,840,154 million to drive increases in brand awareness, an increase in staff related expense of $1,355,791, an increase of non-cash stock compensation expense of $1,163,885 and an increase of R&D and regulatory expense related to Therapeutics of $998,341, partially offset by a decrease of $3,068,775 in sponsorships and affiliate expenses and a reduction in processing costs of $580,668.

Corporate overhead and allocation of management fees to our segments

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Non-cash stock compensation

The increase in corporate related expenses for the fiscal year ended September 30, 2021 over prior year is primarily due to the increase in non-cash stock compensation to employees and directors and increases in staffing related expenses as well as insurance costs.

The 41% decrease in corporate related expenses for the fiscal year ended September 30, 2022 over prior year is primarily due to the decreases in non-cash stock compensation to employees and directors tied to fewer shares issued under our equity incentive plans and at lower prices per share and, decreases in staffing related expenses as well as legal and accounting costs.

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 which are not allocated to the operating business unit, including (i) staff related expenses and R&D and regulatory expenses.

The following tables provide information on our approximate corporate overhead for the fiscal year ended September 30, 2021.

We did not incur expenses related to Therapeutics in 2020 as this subsidiary was not formed until March 15, 2021.

Included in our consolidated operating expenses are expenses associated with Therapeutics which are not allocated to the operating business unit, 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 fiscal years ended September 30, 2022. 

Therapeutics was formed March 15, 2021.

Staff related expense

Accounting and legal

R&D and Regulatory

The Therapeutic operating expenses include research and development activities for therapeutic applications.

Other income and other non-operating expenses

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The material components of those are set forth below.

Increase in contingent liability

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.

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In aggregate, we recorded income of $3,740,000 for the three months ended September 30, 2022 between the decrease in the value of the fourth marking period Earnout Shares and the decrease in value of the remaining contingent liabilities.

In May 2020, and subsequently in June 2021, we updated the forecasts for performance of the post-acquisition entity based on current trends and performance that would impact the estimated likelihood that the revenue targets disclosed in Note 6 would be met.

The primary catalyst for the $4,660,000 decrease in contingent liabilities is the change in our common share price between June 30, 2021 to September 30, 2021 from $2.90 per share to $2.08 per share.

The primary catalyst for the $4,660,000 decrease in contingent liabilities is the change in our common stock share price between June 30, 2022 to September 30, 2022 from $0.44 per share to $0.223 per share.

We expect to continue to record changes in the non-cash contingent liability through the balance of the earnout period.

In addition, our contingent liability increased by $416,000 at September 30, 2021 for the Twenty Two Earnout Shares that are part of the July 2021 acquisition of www.DirectCBDonline.com.

In addition, as of September 30, 2022 the measuring period for the Twenty Two Earnout Shares is over, the threshold was not met and there is no longer any value ascribed to this on our balance sheet.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $26,411,424 and working capital of $29,595,214 at September 30, 2021 as compared to cash and cash equivalents on hand of $14,824,644 and working capital of $16,023,174 at September 30, 2020.

Our current assets increased approximately 53.9% at September 30, 2021 from September 30, 2020, which is primarily attributable to an increase in cash received under the public offering of our shares of our 8.0% Series A Convertible Preferred Stock in December 2020 and in July 2021.

We had cash and cash equivalents on hand of $6.7 million and working capital of $10.7 million at September 30, 2022 as compared to cash and cash equivalents on hand of $26.4 million and working capital of $29.6 million at September 30, 2021.

Our current assets decreased approximately 56% at September 30, 2022 from September 30, 2021, which is primarily attributable to an cash used by operations.

Our current liabilities decreased approximately 24% at September 30, 2022 from September 30, 2021.

This decrease is primarily attributable to a decrease in accrued expenses as well as the forgiveness of our Paycheck Protect Program Loan.

On July 1, 2021 we closed a follow-on firm commitment underwritten public offering of shares of our 8.0% Series A Convertible Preferred Stock resulting in total net proceeds to us of approximately $15.3 million.

During the fiscal year ended September 30, 2021 we used cash primarily to fund our operations.

This decrease is primarily attributable to a decrease in accounts payable and accrued expenses.

During the three and twelve months ended September 30, 2022 we used cash primarily to fund our operations and pay the preferred dividend.

We do not have any commitments for capital expenditures.

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We have multiple endorsement or sponsorship agreements for varying time periods up through December 2024 and provide for financial commitments from the Company based on performance/participation (see Note 11 Commitments and Contingencies).

We have sufficient working capital to fund our operations.

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 $12,627,320 (excluding the extinguishment of the PPP loan totaling $1,466,113) and $10,664,336 for the fiscal years ended September 30, 2021 and 2020, respectively.

While the Company is taking strong action and believes that it can execute its strategy and path to profitability within its balance sheet, and in its ability to raise additional funds, there can be no assurances to that effect.

The Company’s working capital position may not be sufficient to support the Company’s daily operations for the twelve months subsequent to the issuance this report.

The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and cash flow and the ability to acquire additional funding.

These and other factors raise potential concern about the Company’s ability to continue as a going concern within twelve months after the date that our annual financial statements are issued.

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going concern

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 $2.8 

and $3.7 million for the three months ended September 30, 2022 and 2021, respectively $19.6 and $16.8 million for the twelve months ended September 30, 2022 and 2021, respectively.

Non-GAAP Adjusted Operating Income

The non-GAAP Adjusted Income for the three and twelve months ended September 30, 2022 and September 30, 2021 is as follows:

September 30,

GAAP (loss) from operations

Depreciation & Amortization

Employee and director stock compensation (1)

Other non-cash stock compensation for services (2)

Inventory adjustment(3)

Impairment of Goodwill and other intangible assets (4)

Accrual for severance (5)

Accrual / expenses for discretionary bonus

Non-GAAP adjusted (loss) from operations

(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 impairment of the cbdMD trademark of $4,285,000 during the first quarter of fiscal 2022 and $56,670,970 of goodwill impairment during the fiscal year ended 2022.

(5) Represents one-time severance costs incurred as Company made rationalized a number of positions.

Earnout Shares

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While this change in the measurement date has no effect on the number of remaining Earnout Shares issuable under the Earnout Rights, nor the revenue targets, it will result in the issuance of the Earnout Shares associated with the third marketing period (assuming the revenue targets are met under the terms of the Merger Agreement) on a quarterly basis instead of at the end of the 18 month period.

Because the Earnout Shares are earned based on the Company’s earned revenue and by issuing these shares quarterly, as compared to at the end of the eight quarters, we expect that this change has the potential to reduce the volatile impact of the contingent liability on our Net Income results and consequentially its non-cash impact to our financial statements with each subsequent quarter.

The Company is currently in the fourth marking period which runs through November 2023.

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.

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.

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Additionally, as the fixed shares are issued, the value of the shares at that time are reclassified from contingent liability to additional paid in capital on the balance sheet.

Effective October 1, 2019, we have adopted ASU No.

Effective October 1, 2019, we have adopted Accounting Standards Update ("ASU") No.

2016-02, Leases (Topic 842) ("ASU 2016-02") which provides guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases.

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Our leases do not contain any residual value guarantees.

Our current lease activities are recorded in operating lease right-of-use (“ROU”) assets, operating lease short term liabilities and operating lease long term liabilities in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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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.

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.

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

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please see our Financial Statements beginning on page F-1 of this annual report.

Please see our Financial Statements beginning on page 31 of this annual report.

The Auditor Firm ID for our external auditors, Cherry Bekaert LLP , is 677 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity