Business Context and Reporting Period
cbdMD, Inc. (formerly Level Brands, Inc.) filed this Form 8-K on May 10, 2019. The company officially changed its name effective May 1, 2019, to reflect a strategic focus on the CBD segment and the cbdMD brand. The report provides preliminary unaudited financial estimates for the quarter ended March 31, 2019.
Key Financial Metrics (Preliminary Estimates)
- Net Sales: Expected to range from $5.5 million to $5.8 million for the three months ended March 31, 2019.
- Net Loss: Expected to range from $31.5 million to $32.5 million.
- Non-Cash Contingent Liability: Approximately $31 million of the net loss is attributed to the increase in non-cash contingent liability related to common stock issued as merger consideration for the cbdMD acquisition in December 2018.
- Cash on Hand: Approximately $4.6 million as of March 31, 2019.
- Working Capital: Expected to range from $12.0 million to $12.5 million as of March 31, 2019.
Material Changes and Unusual Items
The significant net loss is primarily driven by a non-cash accounting adjustment rather than operational performance. Following shareholder approval in April 2019, the company issued 15,250,000 shares of common stock. Management expects that during the quarter ending June 30, 2019, the non-cash contingent liability associated with these shares will be reduced by $52 million to $54 million as the liability is reclassified to shareholder equity.
Guidance, Outlook, and Risks
The financial data presented consists of preliminary estimates prepared internally by management and have not been reviewed by the independent registered public accounting firm. The company explicitly states that actual results may differ materially from these estimates. Full unaudited consolidated financial statements will be included in the Form 10-Q for the period ended March 31, 2019. The company has released an updated investor presentation reflecting its new name and strategic focus.
Investor Verification Checklist
- Verify the final audited net loss and sales figures in the upcoming Form 10-Q for the quarter ended March 31, 2019.
- Confirm the reclassification of the $52 million to $54 million contingent liability to shareholder equity in the Q2 2019 financials.
- Review the updated investor presentation (Exhibit 99.1) for details on the strategic pivot to the CBD market.
- Monitor cash burn rates given the reported cash on hand of approximately $4.6 million.