Business context and reporting period
cbdMD, Inc. sells CBD products under cbdMD and Paw CBD brands and functional-mushroom products under ATRx, through e-commerce, wholesale and retail channels. The filing covers the quarter ended March 31, 2024, and the six months then ended. Although the request metadata says 2023 Q2, the filing itself is for fiscal 2024 Q2; comparisons below are to the corresponding 2023 periods.
Financial performance and position
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Net sales, 2024 / 2023 | $4.38m / $6.24m | $9.75m / $12.33m |
| Gross margin, 2024 / 2023 | 59.0% / 64.4% | 62.9% / 61.5% |
| Operating expenses, 2024 / 2023 | $4.13m / $5.42m | $8.76m / $13.03m |
| Operating loss, 2024 / 2023 | $1.55m / $1.40m | $2.62m / $5.45m |
| Net loss, 2024 / 2023 | $3.01m / $1.34m | $4.01m / $5.29m |
| Net loss attributable to common shareholders, 2024 / 2023 | $4.01m / $2.34m | $6.01m / $7.29m |
| Adjusted EBITDA (non-GAAP), 2024 / 2023 | $(0.68)m / $(0.80)m | $(1.38)m / $(3.31)m |
Second-quarter net sales fell 29% year over year. E-commerce sales declined to $3.63m from $4.89m, and wholesale sales to $0.75m from $1.35m. The $0.44m GNC credit for replacement of expiring product was a significant drag on quarterly gross margin and was excluded from the company’s adjusted EBITDA measure.
For the six months, operating expenses declined $4.28m, and operating and net losses improved year over year. However, second-quarter net loss worsened, including a $1.446m noncash expense from the change in fair value of convertible debt. Preferred dividends were $1.001m for the quarter and $2.001m for the half year; they are cumulative and were accrued rather than paid.
Six-month cash used by operating activities was $0.81m, versus $3.80m in the prior-year period. Cash and equivalents were $2.11m at March 31, 2024, versus $1.80m at September 30, 2023. Management reported working capital of $3.2m excluding $2.7m in accrued dividends; current liabilities were $6.94m. Total liabilities were $11.46m, including $3.05m of lease liabilities and $2.70m carrying value for convertible notes. The notes had $1.54m principal outstanding at March 31; after subsequent conversions, the filing says approximately $1.0m principal remained as of filing.
Material changes, outlook and risks
- Management cited lower staffing, marketing and other costs as drivers of reduced operating expenses. It targeted about $200,000 in monthly G&A savings, including payroll and facility changes, and said current initiatives could bring the company close to a positive non-GAAP adjusted EBITDA run rate at current revenue levels. These are targets, not formal earnings guidance.
- The company launched products at Sprouts, added DoorDash, and launched ATRx Platinum products at GNC in April 2024. Management cited wholesale and international opportunities, but provided no quantified revenue guidance.
- The company disclosed substantial doubt about its ability to continue as a going concern within 12 months, citing losses, cash-flow needs and dependence on improving profitability or obtaining additional funding. It cautioned that working capital may not support operations for the next 12 months.
- In February 2024, the company received $1.25m gross proceeds through 8% senior secured convertible notes with 20% original issue discount, a July 2025 maturity, adjustable conversion price subject to a $0.30 floor, and potential dilution. Notes are secured by a first-priority interest; default terms include interest up to 22% and other default remedies. Subsequent conversions had already reduced principal by the filing date.
- The company suspended cash payment of its 8% cumulative preferred dividends in September 2023; accrued dividends increased to $2.67m by March 31. A March 2024 shareholder vote to convert Series A preferred stock to common stock did not receive the required approval.
- A landlord had filed an eviction complaint over the Red Oak facility. A forbearance and license arrangement provides for scheduled payments and landlord forbearance through July 31, 2024; breach could end forbearance and expose the company to remedies. Management expects the legacy lease to terminate if conditions are met.
- Key business risks include persistent sales declines, dependence on digital channels and third-party suppliers, CBD regulatory uncertainty, ability to acquire customers profitably, liquidity and NYSE American listing compliance, and potential dilution. The filing reports a $1.3m uninsured cash balance.
Most important facts for investors to verify
- Whether cost reductions, new distribution and customer-acquisition initiatives stabilize sales and achieve the targeted savings.
- Available liquidity, operating cash burn, financing access and progress toward resolving the going-concern uncertainty.
- Current convertible-note principal, fair-value liability, conversion activity and resulting share dilution; confirm the terms and status of subsequent conversions.
- Accrued preferred dividends, any future cash payments, and the implications of the unsuccessful preferred-stock conversion vote.
- Compliance with the Red Oak forbearance payment conditions and the actual timing and savings from lease termination.
- Share-count reconciliation: the filing reports 3,045,204 shares outstanding at March 31, but 3,869,082 as of May 15, 2024. The filing text does not clearly reconcile this difference.