Business Context and Reporting Period
This Form 8-K Current Report was filed by cbdMD, Inc. on October 10, 2019, with the report date reflecting the earliest event reported on that same date. The filing details the entry into a material definitive agreement for a firm commitment underwritten public offering of preferred stock. The offering closed on October 16, 2019.
Key Financial Metrics and Transaction Details
- Offering Size: 500,000 shares of 8.0% Series A Cumulative Convertible Preferred Stock.
- Offering Price: $10.00 per share.
- Gross Proceeds: $5.0 million.
- Net Proceeds: Approximately $4.27 million after underwriting discounts, commissions, and estimated offering expenses.
- Underwriting Fees: 7.5% of gross cash proceeds.
- Other Expenses: Approximately $347,000 in estimated expenses payable by the Company (excluding underwriting fees).
- Use of Proceeds: General working capital.
- Over-Allotment Option: Underwriters granted a 45-day option to purchase up to an additional 75,000 shares.
Material Changes and Securities Structure
The Company filed a Certificate of Designations establishing the rights of the new Series A Convertible Preferred Stock. Key terms include:
- Dividends: 8.0% per annum ($0.80 per share), cumulative, payable monthly in arrears when declared.
- Conversion: Convertible at the holder's option into common stock at a price of $6.00 per share (1.667 shares of common per preferred share).
- Automatic Conversion: The Company may force conversion if the common stock closing price exceeds $8.25 for 20 out of 30 consecutive trading days.
- Redemption: Not redeemable before October 16, 2023, except in a Change of Control. After that date, the Company may redeem at $10.00 per share plus accrued dividends.
- Change of Control: Mandatory redemption at $11.00 per share plus accrued dividends.
- Warrant Issuance: The underwriter received a warrant to purchase 47,923 shares of common stock at $3.9125 per share.
- Lock-Up: Executive officers, directors, and 5% shareholders entered into 90-day lock-up agreements.
Guidance, Outlook, and Risks
The filing contains forward-looking statements regarding the expected net proceeds from the offering. The Company notes that actual results may differ due to risks and uncertainties detailed in its other SEC filings. The filing explicitly states that the Underwriting Agreement's representations and warranties were made solely for the benefit of the contracting parties and may not reflect facts applicable to investors.
Investor Verification Checklist
- Verify the final closing date and actual net proceeds received (reported as October 16, 2019, with ~$4.27 million net).
- Review the Certificate of Designations (Exhibit 3.1(f)) for full details on dividend declaration policies and conversion adjustments.
- Confirm whether the underwriters exercised the 75,000 share over-allotment option.
- Monitor the Company's common stock price relative to the $8.25 automatic conversion trigger.
- Check subsequent filings for the utilization of the $4.27 million in net proceeds for working capital.