cbdMD(US:YCBD)2021-12-17 21:06Financial Performance - The company reported losses from operations of $19,615,990 and $17,581,856 for fiscal 2021 and fiscal 2020, respectively[73]. - Net sales increased by $2.6 million, or 6%, to $44.5 million in 2021 compared to $41.9 million in 2020, driven by an increase in total orders year over year[74]. Strategic Plans - The company plans to invest in research and development, sales and marketing, and expand operations both domestically and internationally[77]. - International expansion is a key long-term strategy, but it requires significant investment and carries risks such as compliance with foreign laws and increased competition[87]. Market Challenges - The ongoing COVID-19 pandemic has negatively impacted the business, but the shift to online shopping has increased direct-to-consumer sales[79]. - The company faces challenges in attracting new customers cost-effectively, with increased advertising spending on various platforms[85]. - Fluctuations in the cost and availability of raw materials, labor, and transportation could harm gross margins and the ability to meet customer demand[90]. - The potential impact of mandatory COVID-19 vaccination regulations could result in employee attrition, adversely affecting future revenues[80]. - The company’s brand reputation is crucial for success, and negative publicity could materially affect business operations and growth prospects[82]. - The company relies on third-party vendors for critical raw materials and manufacturing, with no long-term contracts in place, which may lead to supply disruptions and impact future revenues[91]. - The company faces risks related to system interruptions that could adversely impact net sales and order fulfillment[95]. - The implementation of a new ERP system in fiscal 2022 may disrupt business operations and financial reporting[98]. - Changes in federal or state laws regarding industrial hemp could materially impact the company's revenues in future periods[100]. - The company is subject to various regulatory compliance costs that could adversely affect financial results and increase litigation risks[101]. - The company has experienced past security incidents that compromised customer data, which could impact future operations[94]. - The company depends on the talents of senior management and key employees, and the loss of these individuals may disrupt business operations[96]. Financial Liabilities and Equity - As of September 30, 2021, the company has a non-cash contingent liability of $9,440,000 associated with the Earnout Shares from the acquisition of Cure Based Development LLC, which may affect future earnings[104]. - The company recorded a decrease in the contingent liability related to the Twenty Two Earnout Shares to $416,000 due to a decrease in the market price of its common stock[106]. - The potential issuance of Earnout Shares could dilute existing shareholders' ownership by approximately 10%[107]. - The company may not be able to pay dividends on the Series A Convertible Preferred Stock due to insufficient cash flow or financial condition[109]. - Holders of the Series A Convertible Preferred Stock may not qualify for the dividends-received deduction or preferential tax rates due to lack of accumulated earnings and profits[110]. - The Series A Convertible Preferred Stock has a liquidation preference of $10.00 per share, which reduces the amount available to common shareholders in the event of liquidation[117]. - The company may redeem the Series A Convertible Preferred Stock at a price of $11.00 per share upon a Change of Control, plus any accrued but unpaid dividends[115]. - The issuance of shares upon the conversion of the Series A Convertible Preferred Stock may result in dilution of existing shareholders, with an additional 8,335,000 shares potentially being issued[118]. - Executive officers and directors own approximately 31% of the outstanding common stock, which may influence shareholder approval matters[120]. - The Series A Convertible Preferred Stock represents perpetual equity interests with limited voting rights for holders[113]. - The Change of Control redemption feature may discourage third parties from making acquisition proposals[112]. - The company may not have sufficient cash flow from operations to make distributions on common and preferred stock[109]. - The company has no current or accumulated earnings and profits, impacting the qualification of distributions as dividends for tax purposes[110].