cbdMD, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended December 31, 2023, cbdMD’s fiscal first quarter of 2024. It compares results with the three months ended December 31, 2022. The company sells CBD and other wellness products under brands including cbdMD, Paw CBD, hempMD and ATRx.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $5.38 million | $6.09 million | Down 12% |
| Gross profit | $3.56 million | $3.57 million | Nearly flat |
| Gross margin | 66.2% | 58.6% | Up 7.6 percentage points |
| Operating expenses | $4.62 million | $7.61 million | Down 39% |
| Operating loss | $1.07 million | $4.05 million | Loss narrowed |
| Net loss | $997,000 | $3.96 million | Loss narrowed |
| Net loss attributable to common shareholders | $2.00 million | $4.96 million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | Loss of $698,000 | Loss of $2.65 million | Loss narrowed |
| Cash used in operating activities | $106,000 | $2.06 million | Use declined |
Cash and cash equivalents were $1.50 million at December 31, 2023, down from $1.80 million at September 30, 2023. Current assets were $7.37 million and current liabilities were $5.97 million, leaving working capital of approximately $1.39 million. Total liabilities were $8.06 million, including $3.37 million of operating lease liabilities; the balance sheet reported no material outstanding note payable at quarter-end. Preferred dividends of approximately $1.00 million were accrued but unpaid in the quarter.
Changes and management commentary
- E-commerce sales fell 10% to $4.42 million; wholesale sales fell 19% to $951,000. E-commerce represented 82.3% of net sales.
- Management attributed lower sales partly to reduced marketing spend and wholesale weakness, including state-level restrictions affecting some accounts. It cited cost reductions and a less expensive freight provider as contributors to higher gross margin.
- Operating expenses decreased by approximately $2.99 million, reflecting lower staffing and marketing costs, reduced amortization, and the absence of a prior-year $885,000 non-cash stock-compensation charge tied to a terminated contractual obligation. The company reported no impairment charge in the current quarter.
- Management described ongoing work to reduce costs, improve website conversion and subscriptions, and expand sales channels and product lines. Recent initiatives included launches of hempMD and ATRx products and a retail launch at Sprouts. No specific revenue or earnings guidance was provided.
- The company states that the regulatory uncertainty surrounding CBD constrains the category and that federal clarity may take longer. Other cited risks include customer acquisition economics, reliance on digital channels and third parties, liquidity, and potential dilution.
Outlook, financing and contingencies
The filing says the company’s working capital may not support daily operations for the next 12 months and concludes that substantial doubt exists about its ability to continue as a going concern. Management says continued operations depend on improving profitability and cash flow and obtaining additional funding; it offers no assurance these efforts will succeed.
After quarter-end, five investors advanced $1.25 million in gross proceeds under 8% senior secured convertible notes with aggregate principal of approximately $1.54 million, reflecting a 20% original issue discount. The notes mature July 30, 2025, are convertible at an initial $0.684 per share subject to adjustments and a $0.30 floor, and are secured by a first-priority security interest. The company also agreed to seek shareholder approval for certain share issuances. Separately, on January 11, 2024, it issued 64,218 shares under its equity line for $50,000.
Potential dilution is significant: the filing estimates the new notes could convert into approximately 2.25 million shares, with issuance initially limited under NYSE American rules pending shareholder approval. The company also disclosed potential dilution from preferred stock, options and warrants, and a proposed 1-for-6 conversion of all Series A preferred shares that, if approved, could result in 30 million common shares. The final 19,818 merger earnout shares were issued in January 2024, ending that earnout obligation.
The filing reports no legal proceedings and says disclosure controls were effective at quarter-end. It also contains a cash-flow comparison inconsistency: the cash-flow statement reports prior-year operating cash use of $2.06 million, while MD&A states $12.1 million.
Important facts for investors to verify
- Whether operating cash use continues to decline and available cash is sufficient, given the explicit going-concern warning.
- The terms, security, conversion-price adjustments and actual dilution associated with the $1.25 million convertible-note financing, including shareholder approval and listing-rule limits.
- The status and implications of the proposed preferred-stock conversion, unpaid cumulative dividends and possible share dilution.
- Whether sales stabilize and new products, retail placements and subscription growth offset lower e-commerce marketing and wholesale demand.
- The cash-flow comparison discrepancy between the financial statements and MD&A, and the unusually large preferred-dividend charge reflected in common-shareholder losses.