What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-12-18 compared with 2023-12-22 · 84 added, 93 removed, 144 unchanged (55% 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 from November 17, 2017 through May 1, 20219 our common stock 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, 2023, there were approximately 11,419 street owners of our common stock and 1,462 street 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. 

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 from November 17, 2017 through May 1, 2019 our common stock 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 16, 2024, there were approximately 13,308 street owners of our common stock and 995 street holders 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.

Dividend policy

6 unchanged sentences

From November 1, 2019 until August 1, 2023 the Audit Committee of our board of directors 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.

On August 22, 2023 the Board of Directors suspended the monthly cash dividend payment on the Company’s 8.0% Series A Cumulative Convertible Preferred Stock beginning with the month ending August 31, 2023 as the Company conserves cash in order to continue its efforts to increase sales, develop additional products, continue research and development, reduce operating expenses and attempt to achieve profitability.

See “Risk Factors”.

Recent sales of unregistered securities

None, except as previously reported.

In addition to those unregistered securities previously disclosed in reports filed with the SEC during the period covered by this report, we have sold the securities disclosed below without registration under the Securities Act of 1933, as amended, during the period covered by this report, except as provided below.

The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

The securities contain a legend restricting their transferability absent registration or applicable exemption.

In November 2024, the Company issued 175,000 shares of common stock to a consultant for advisory services.

Purchases of equity securities by the issuer and affiliated purchasers

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

The following discussion of our financial condition and results of operations 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.

The following discussion of our financial condition and results of operations should be read in conjunction with the audited 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 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.

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.

We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD and cbdMD Botanicals.

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.

We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD as well as the functional mushroom brand ATRx Labs.

We believe that we are an industry leader in producing and distributing broad spectrum and 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, 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 full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that fall within the limits set in the 2018 Farm Bill.

During 2024 we continued to focus on our path to profitability by lowering our costs and focusing on the customer experience.

We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter. 

Fiscal 2023 proved to be more challenging for the Company and industry as a whole as inflation reached 30 year records. 

While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2023 and we have successfully achieved 8 sequential quarters of Non-GAAP Adjusted Operating Income improvement, although 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, adding to our NSF for Sport as well as our hemp-derived delta 9 line of products. 

Since year end we added the hempMD and ATRX line of products to open up and expand our distribution channels and customer base and refreshed our website to improve the customer experience. 

We believe we are well positioned to take market share during fiscal 2024.

We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter.

While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2024 and we have successfully achieved 3 sequential years of Non-GAAP Adjusted Operating Income (Loss) improvement, although our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends.

During fiscal 2024, we launched 2 important categories to the business (i) our line of ATRx functional mushroom supplements, that launched in GNC and Amazon and (ii) entered into the hemp derived beverage category starting with our Mixer line and followed up in November 2024 by our line of Herbal Oasis Social Tonics.

With our leaner cost structure and some exciting new categories, we believe we are well positioned to start growing revenue during fiscal 2025.

Results of operations

33 unchanged sentences

Total net sales during the fiscal year ended September 30, 2024 decreased by approximately $4.7 million, or 19% as compared to fiscal year ended September 30, 2023.

Wholesale sales decreased by approximately $4.2 million, or 47% year over year while E-commerce sales decreased by $7.0 million or 26%. 

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 27% year over year as a result of industry trends, a reduction of marketing spend and lower wholesale pricing initiatives with our new high-strength products that launched mid-September of 2022.

Of our total net sales as indicated above, during the fiscal years ended September 30, 2023 and 2022 our Paw CBD line accounted for net sales of $2,404,787 and $3,748,779, respectively.

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.

Wholesale sales decreased by approximately $0.9 million, or 19% year over year while E-commerce sales decreased by $3.7 million or 19%.

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 lower marketing spend.

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

A few items that impacted the quarter include:

(i) During the 2024 fiscal fourth quarter, one of our agencies made a recommendation which resulted in a sharp decline in emails delivered.

We have reacted accordingly to address the issue and have seen deliverability and metrics rebound during early fiscal 2025, however we believe this had greater than $200,000 impact to our direct-to-consumer revenue during the quarter.

(ii) We continued to face ongoing down time on various digital marketing platforms tied to our regulated category.

To help offset this ongoing challenge, we made a change to our marketing resources during the summer of 2024.

As a result, we have seen our SEO rankings jump significantly and we are now ranking atop a number of key high-traffic, strategic terms resulting in strong gains on high-intent traffic during the first quarter of fiscal 2025.

(iii) A number of our larger international wholesale clients faced a new regulatory registration requirement which ultimately impacted sales for approximately 100 days, most of which overlapped the fourth quarter.

The wholesale demand rebounded in late October and continues to strengthen.

Un-audited revenues for October and November have rebounded, trending ahead of the fourth fiscal quarter of 2024 and management currently anticipates being able to recapture most of the revenue lost in the September 2024 quarter during the first quarter of fiscal 2025.

Of our total net sales as indicated above, during the fiscal years ended September 30, 2024 and 2023 our Paw CBD line accounted for net sales of $1,445,644 and $2,404,787, respectively.

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

Cost of sales

2 unchanged sentences

While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2024, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies and functional products.

For the fourth quarter of fiscal 2023 our cost of sales as a percentage of net sales was 37.9% as compared to 36.2% in the prior year comparative period. 

The change reflects the product mix change to our higher strength and additional inventory write downs during the fourth quarter.

For the fourth quarter of fiscal 2024 our cost of sales as a percentage of net sales was 46.1% as compared to 37.9% in the prior year comparative period.

The change reflects approximately $588,000 one-time non-cash inventory write down related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory, with most all of this inventory older than 2 years.

Excluding this one-time write down, our non-GAAP adjusted cost of sales would have been 33% for the fourth quarter of fiscal 2024.

Operating expenses

1 unchanged sentence

Our operating expenses on a consolidated basis decreased approximately $8.9 million, excluding impairment charges, or 36.4% for the fiscal year ended September 30, 2024 versus the fiscal year ended September 30, 2023.

The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $5.3 million reduction in payroll, $8.3 million reduction of marketing expenses and $1.0 million of sponsorships.

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

The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $1.9 million reduction in payroll and a $2.8 million reduction of marketing expenses in fiscal 2024.

All other expenses includes a $0.7 million gain related to the settlement of our former executive office (“HQ”) lease in 2024 while all other expenses in 2023 includes $0.7 million of impairment of the Steady State Holdings investment.

Consolidated Operating Expenses

1 unchanged sentence

Staff related expense

Accounting/Legal expense

Preofessional outside services

Advertising/marketing/social media/events/tradeshows

Affiliate commissions

Accounting/Legal/Professional outside expense

Merchant Fees

2 unchanged sentences

Intangibles amortization

Rent and Utilities

All other expenses

10 unchanged sentences

Professional outside services

Travel expense

Business insurance

Non-cash stock compensation

The 44.6% decrease in corporate related expenses for the fiscal year ended September 30, 2023 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 decrease was partially offset by $98,000 in professional outside services and increased business insurance rates.

The 23% decrease in corporate related expenses for the fiscal year ended September 30, 2024 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 legal, accounting and insurance 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 staff related expenses and R&D and regulatory expenses.

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

Year over year’s decline is primarily driven by the finishing of our clinical studies.

The following tables provide information on our approximate corporate overhead for the fiscal years ended September 30, 2023. 

Therapeutics was formed March 15, 2021.

Staff related expense

Accounting and legal

R&D and Regulatory

Other income and other non-operating expenses

3 unchanged sentences

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.

For the three months ended September 30, 2023, the remaining contingent liabilities associated with the business combination, after the issuance of the second quarter fourth marking period Earnout Shares, were decreased by $0.03 million to reflect their reassessed fair values as of September 30, 2023.

This decrease in the contingent liability is mostly due to the change in our common stock share price between June 30, 2023 to September 30, 2023 from $1.40 per share to $1.03 per share.

For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million decrease primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share.

The earnout ended November 2023 and we will record a final change in the non-cash contingent liability in the first quarter of fiscal 2024.

In addition, as of September 30, 2023 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.

The earnout ended November 2023 and we recorded a final change in the non-cash contingent liability in the first quarter of fiscal 2024.

For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million, primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $1.8 million and working capital of $3.4 million at September 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 49% at September 30, 2023 from September 30, 2022, which is primarily attributable to cash used by operations.

Our current liabilities decreased approximately 13% at September 30, 2023 from September 30, 2022.

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

During the three and twelve months ended September 30, 2023 we used cash primarily to fund our operations and pay the preferred dividend.

We had cash and cash equivalents on hand of $2.4 million and working capital of negative $1.1 million at September 30, 2024.

Our working capital is reduced by approximately $4.7 million of accrued Series A Preferred dividend payments.

On September 30, 2023 we had cash and cash equivalents on hand of $1.8 million and working capital of $3.4 million, which was reduced by approximately $0.7 million for accrued Series A Preferred dividend payments.

Our current assets decreased approximately 20% at September 30, 2024 from September 30, 2023, which is primarily attributable to reduction of inventory.

Our current liabilities increase approximately 55% at September 30, 2024 from September 30, 2023.

This increase is primarily attributable to a $4 million increase in dividend payable, partially offset by a $1.1 reduction in the current portion of rent as a result of the elimination the lease liability associated with the HQ lease.

We entered into a securities Purchase Agreement dated January 30, 2024 with five accredited Investors whereby the Investors advanced the Company an aggregate of $1,250,000 gross proceeds and the Company issued each Investor an 8% Senior Secured Original Issue 20% Discount Convertible Promissory Note (each a “Note” and collectively, the “Notes”), in the aggregate principal amount of $1,541,666.

The Company has used the proceeds from the issuance of the Notes for working capital and general corporate purposes, including, but not limited to inventory investment to assist with orders and administrative and corporate governance costs.

As of the filing date of this report, the principal balance of the Notes has been reduced to approximately $364,000 and $5,000 of accrued interest.

During the three and twelve months ended September 30, 2024 we used cash primarily to fund our operations.

We do not have any commitments for capital expenditures.

We have a commitment for cumulative dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders.

As of September 2023, we have stopped paying this in cash monthly and are accruing this dividend instead. 

As of September 2023, we have stopped paying the dividends in cash monthly and are accruing this dividend instead.

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 substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that our annual financial statements are issued.

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 substantial doubt 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 $1.0 and $2.8 million for the three months ended September 30, 2023 and 2022, respectively $4.3 and $15.0 million for the twelve months ended September 30, 2023 and 2022, respectively.

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 generation of $0.2 million and use of $1.0 for the three months ended September 30, 2024 and 2023, respectively and a use of $0.6 (net of $1.25 million of proceeds from the Notes) and $4.3 million for the twelve months ended September 30, 2024 and 2023, respectively.

Non-GAAP Adjusted Operating Income

The non-GAAP Adjusted Income for the three and twelve months ended September 30, 2023 and September 30, 2022 is as follows:

The non-GAAP Adjusted Income (loss) for the three and twelve months ended September 30, 2024 and September 30, 2023 is as follows:

September 30,

8 unchanged sentences

Incremental bad debt

Accrual for severance (4)

Non-cash expense incurred as a credit (4)

Non-cash accelerated amortization of expense related to terminated IT contracts

Termination of HQ lease

Mergers and acquisitions expense

a360 non-cash trade credit

Accrual / expenses for discretionary bonus

Non-GAAP adjusted (loss) from operations

1 unchanged sentence

(2) Represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory.

(3) Represents non-cash impairment of the cbdMD, DCO and Technology Relief from Royalty trademarks of $13.21 million during the fourth quarter of fiscal 2023, non-cash impairment of the cbdMD trademark of $4.28 million during the first quarter of fiscal year 2022 and $56.67 million of goodwill impairment during the fiscal year ended 2022.

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

(3) Represents non-cash impairment of the cbdMD, DCO and Technology Relief from Royalty trademarks of $13.21 million during the fourth quarter of fiscal 2023, non-cash impairment of the cbdMD trademark of $4.28 million during the first quarter of fiscal year 2022 and $56.67 million of goodwill impairment during the fiscal year ended 2022.

(4) Represents non-cash expense incurred as a credit provided to GNC to replace expired product.

Earnout Shares

As described in Note 6 in notes to our consolidated financial statements appearing elsewhere in this report, on March 31, 2021 we entered into Addendum No.

1 to the Merger Agreement 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 the initial 18 month period.

The fourth and final marking period runs through November 2023.

As described in Note 6 in notes to our consolidated financial statements appearing elsewhere in this report, the Earnout Right ran through November 2023.

The Earnout period has expired.

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.

4 unchanged sentences

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.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer (“ASC 606”).

The Company performs the following five steps:

15 unchanged sentences

There was $0 and $13,219,000 of impairment losses recognized related to long-lived assets for the year ended September 30, 2024 and September 30, 2023, respectively.

Fair Value of Convertible Notes

The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes.

The Notes were initially recognized at a fair value of $2,702,000 on the balance sheet as of March 31,2024.

All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income.

The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

The overall change in fair value of the Notes during the year ended September 30, 2024 was a decrease of $1,357,096.

The overall change in principal value related to the conversion of Notes to commons stock during the year ended September 30,2024 was a decrease of $508,757.

As of September 30, 2024, total fair value of the Notes is $1,021,935, of which $1,032,909 represents the total principal outstanding.

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

4 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

Please see our Financial Statements beginning on page 32 of this annual report.

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

1 unchanged sentence

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