Business Context and Reporting Period
Company: cbdMD, Inc. (formerly Level Brands, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended December 31, 2024 (First Quarter of Fiscal 2025)
Business Overview: cbdMD operates nationally recognized CBD brands (cbdMD, Paw CBD) and functional mushroom brands (ATRx Labs). The company distributes hemp-derived solutions via e-commerce and wholesale channels. The company is a smaller reporting company and non-accelerated filer.
Key Financial Metrics
| Metric | Q1 2025 (Dec 31, 2024) | Q1 2024 (Dec 31, 2023) |
|---|---|---|
| Net Sales | $5,113,476 | $5,375,405 |
| Gross Profit | $3,400,609 | $3,557,498 |
| Gross Margin | 66.5% | 66.2% |
| Operating Loss | $(86,272) | $(1,065,835) |
| Net Income (Loss) | $15,095 | $(996,501) |
| Net Loss Attributable to Common Shareholders | $(985,406) | $(1,997,002) |
| Cash and Cash Equivalents | $1,970,217 | $1,504,844 |
| Working Capital | $(2,809,100) | Not explicitly stated (Negative) |
| Accrued Preferred Dividends | $5,671,500 | $4,671,000 |
| Convertible Notes (Fair Value) | $362,021 | $1,171,308 |
Non-GAAP Metric: Adjusted EBITDA for Q1 2025 was $214,817, compared to a loss of $(697,988) in the prior year period.
Material Changes vs. Prior Period
- Revenue: Net sales decreased 4.9% year-over-year to $5.1 million, driven by a $0.5 million decline in e-commerce sales. However, wholesale sales increased by $0.2 million. Sequentially, revenue grew 12% compared to the previous quarter.
- Profitability: The company reported a net income of $15,095, a significant improvement from a net loss of $996,501 in the prior year. This was aided by a $90,000 gain from the decrease in the fair value of convertible debt.
- Operating Expenses: Total operating expenses decreased by $1.1 million (26%) year-over-year, primarily due to reductions in marketing spend ($392k decrease), staff-related expenses ($145k decrease), and rent/utilities ($256k decrease).
- Debt Conversion: During the quarter, the company issued 1,421,067 shares of common stock to convert a portion of its convertible notes, reducing the principal value of the notes by approximately $720,000.
Outlook, Risks, and Management Commentary
Management Commentary:
- Management highlights that Q1 2025 was the first quarter in company history with sequential revenue growth and positive Net Income (before preferred dividends).
- New product launches include the "Oasis" line of hemp-derived beverages and reformulated sleep products.
- Strategic focus remains on optimizing the product portfolio, right-sizing costs, and expanding into international markets and traditional retail (e.g., Sprouts, DoorDash).
Risks and Contingencies:
- Going Concern: The filing states substantial doubt about the company's ability to continue as a going concern within the next 12 months due to a working capital deficit and history of losses. Continued operations depend on raising additional capital and improving profitability.
- Listing Compliance: The company received notice from NYSE American regarding non-compliance with stockholders' equity requirements (must be $2M+). The company has a plan to regain compliance by December 5, 2025, potentially by converting accrued preferred dividends into common stock.
- Liquidity: Cash on hand is approximately $2.0 million. The company has suspended cash payments on preferred dividends, accruing them instead, which has increased liabilities to $5.7 million.
Key Facts for Investor Verification
- Preferred Stock Obligation: Verify the status of the $5.7 million in accrued dividends on the 8% Series A Cumulative Convertible Preferred Stock and the feasibility of the proposed conversion to common stock to satisfy NYSE listing requirements.
- Cash Burn Rate: Monitor the net cash used in operating activities ($318k outflow in Q1) against the $2.0 million cash balance to assess runway without new financing.
- Debt Resolution: Confirm the full conversion of the remaining convertible notes (principal and interest) which occurred in January 2025 (subsequent event), and the resulting dilution impact on common shareholders.
- Revenue Mix: Track the shift in revenue mix between e-commerce (77.3%) and wholesale (22.7%) to validate the strategy of expanding into traditional retail channels.