Business Context and Reporting Period
Company: cbdMD, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 31, 2021
Reporting Period: Event date March 31, 2021
cbdMD, Inc. is an emerging growth company incorporated in North Carolina. The filing addresses an amendment to a 2018 Merger Agreement regarding the acquisition of Cure Based Development, LLC, specifically concerning the issuance of contingent "Earnout Shares."
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the period. It focuses on the accounting treatment of a non-cash contingent liability.
- Remaining Earnout Rights: 6,773,953 shares remain issuable based on revenue targets for the third and fourth marking periods.
- Accounting Impact: Earnout Shares are recorded as a non-cash contingent liability under U.S. GAAP. Changes in the fair value of this liability (driven by stock price fluctuations) are adjusted against earnings, materially impacting reported net loss or profit.
Material Changes Versus Prior Period
On March 31, 2021, cbdMD entered into Addendum No. 1 to the Merger Agreement with holders of remaining Earnout Rights. The material change involves the measurement frequency for the Third Marking Period:
- Previous Terms: Determination of aggregate net revenues and share issuance was based on an 18-month period ending June 30, 2022.
- New Terms: Determination is now on a quarterly basis for each of the six fiscal quarters within the Third Marking Period, starting with the quarter ended March 31, 2021.
- Impact: The total number of potential Earnout Shares and the revenue targets remain unchanged. The amendment alters only the physical issuance dates and the timing of the accounting recognition.
Guidance, Outlook, and Management Commentary
Management Rationale: The amendment was executed to mitigate the U.S. GAAP impact of the non-cash contingent liability on quarterly financial statements. By calculating the liability quarterly rather than over the full 18-month period, the company aims to reduce the volatility of the quarterly earnings impact caused by changes in the fair value of the remaining shares.
Risks and Contingencies:
- The ultimate number of shares to be issued remains unknown and is contingent upon achieving specific revenue targets.
- Fluctuations in the company's common stock price continue to influence the fair value of the contingent liability, affecting net income/loss.
Investor Verification Checklist
- Verify the specific revenue targets required to trigger the issuance of the remaining 6,773,953 Earnout Shares.
- Review the company's quarterly financial statements to assess the magnitude of the non-cash adjustment to earnings related to the contingent liability.
- Confirm the current trading price of cbdMD common stock (YCBD) as it directly impacts the fair value calculation of the liability.
- Examine Exhibit 10.1 (Addendum No. 1) for detailed terms regarding the quarterly measurement mechanics.