cbdMD(YCBD) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides unaudited condensed consolidated financial statements and management's discussion for cbdMD, Inc ITEM 1. Financial Statements This section presents cbdMD, Inc.'s unaudited condensed consolidated financial statements and detailed notes for specified periods Condensed Consolidated Balance Sheets This section presents the company's financial position, highlighting changes in assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (March 31, 2020 vs. September 30, 2019) | Metric | March 31, 2020 | September 30, 2019 | Change (%) | | :-------------------------- | :------------- | :----------------- | :--------- | | Cash and cash equivalents | $14,835,699 | $4,689,966 | +216.3% | | Total current assets | $24,885,267 | $15,743,035 | +58.1% | | Total assets | $112,583,349 | $94,518,122 | +19.1% | | Total current liabilities | $5,792,420 | $3,709,878 | +56.1% | | Contingent liability | $7,820,000 | $50,600,000 | -84.5% | | Total liabilities | $20,425,705 | $56,914,138 | -64.1% | | Total shareholders' equity | $92,157,644 | $37,603,984 | +145.1% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss for the reporting periods Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (YoY) | | :------------------------------------------ | :----------- | :------------- | :----------- | | Total Net Sales | $9,399,036 | $5,636,578 | +66.7% | | Gross Profit | $6,666,960 | $3,721,862 | +79.1% | | Income (Loss) from operations | $(5,600,677) | $(2,027,601) | -176.2% | | (Increase) decrease on contingent liability | $21,261,994 | $(30,914,074) | +168.8% | | Net Income (Loss) | $14,883,772 | $(31,850,274) | +146.7% | | Net Income (Loss) attributable to common shareholders | $14,783,756 | $(31,791,738) | +146.5% | | Basic earnings per share | $0.41 | $(3.13) | +113.1% | | Diluted earnings per share | $0.40 | $- | N/A | Condensed Consolidated Statements of Operations Highlights (Six Months Ended March 31) | Metric | 2020 | 2019 | Change (YoY) | | :------------------------------------------ | :----------- | :------------- | :----------- | | Total Net Sales | $19,547,272 | $6,102,265 | +220.3% | | Gross Profit | $13,114,659 | $4,022,238 | +226.1% | | Income (Loss) from operations | $(11,713,275) | $(3,119,036) | -275.6% | | (Increase) decrease on contingent liability | $38,160,000 | $(30,914,074) | +223.4% | | Net Income (Loss) | $27,813,536 | $(34,039,136) | +181.7% | | Net Income (Loss) attributable to common shareholders | $27,646,786 | $(33,901,451) | +181.5% | | Basic earnings per share | $0.76 | $(3.35) | +122.7% | | Diluted earnings per share | $0.74 | $- | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) This section reports the company's net income or loss and other comprehensive income or loss components Comprehensive Income (Loss) Highlights (Three & Six Months Ended March 31) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Six Months Ended March 31, 2020 | Six Months Ended March 31, 2019 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Income (Loss) | $14,883,772 | $(31,850,274) | $27,813,536 | $(34,039,136) | | Comprehensive Income (Loss) attributable to common shareholders | $14,783,756 | $(31,791,738) | $27,646,786 | $(33,901,451) | Condensed Consolidated Statement of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Highlights (Six Months Ended March 31) | Metric | 2020 | 2019 | | :-------------------------------- | :----------- | :------------- | | Net income (loss) | $27,813,536 | $(34,039,136) | | Cash used by operating activities | $(9,147,052) | $(4,462,372) | | Cash used by investing activities | $(1,796,346) | $(1,360,070) | | Cash provided by financing activities | $21,089,131 | $6,179,476 | | Net increase (decrease) in cash | $10,145,733 | $357,034 | | Cash and cash equivalents, end of period | $14,835,699 | $4,639,587 | Consolidated Statement of Shareholders' (Deficit) Equity This section details changes in the company's shareholders' equity over the reporting period Shareholders' Equity Changes (September 30, 2019 to March 31, 2020) | Metric | September 30, 2019 | March 31, 2020 | Change | | :-------------------------- | :----------------- | :------------- | :----- | | Common Stock Shares | 27,720,356 | 51,335,648 | +23,615,292 | | Common Stock Amount | $27,720 | $51,336 | +$23,616 | | Preferred Stock Shares | - | 500,000 | +500,000 | | Preferred Stock Amount | $- | $500 | +$500 | | Additional Paid in Capital | $97,186,524 | $124,082,811 | +$26,896,287 | | Accumulated Deficit | $(59,610,260) | $(31,977,003) | +$27,633,257 | | Total Shareholders' Equity | $37,603,984 | $92,157,644 | +$54,553,660 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 – Organization and Summary of Significant Accounting Policies This note describes cbdMD, Inc.'s business, subsidiaries, and key accounting policies - cbdMD, Inc. (formerly Level Brands, Inc.) operates primarily through its wholly-owned subsidiaries CBDI (CBD products) and Paw CBD (CBD pet products), following a strategic shift to the CBD business after the merger with Cure Based Development in December 2018[37][38][39] - The company discontinued four non-CBD business subsidiaries (Encore Endeavor 1, I'M1, Beauty and Pin Ups, and Level H&W) effective September 30, 2019[40] - The company adopted ASU No. 2016-02, Leases, on October 1, 2019, recognizing operating lease assets of $7,704,109 and operating lease liabilities of $7,950,803, with a $13,528 reduction in retained earnings, without restating prior periods[88] - The company incurred approximately $3,398,777 and $5,809,498 in advertising and related marketing costs for the three and six months ended March 31, 2020, respectively, a significant increase from the prior year[77] Disaggregated Revenue by Sales Channel (Three Months Ended March 31) | Sales Channel | 2020 Net Sales | % of Total 2020 | 2019 Net Sales | % of Total 2019 | | :-------------------- | :------------- | :-------------- | :------------- | :-------------- | | Wholesale product sales | $2,617,860 | 27.9% | $1,375,045 | 24.4% | | Consumer product sales | $6,781,176 | 72.1% | $4,261,533 | 75.6% | | Service related sales | $- | 0% | $- | 0% | | Total Net Sales | $9,399,036 | 100% | $5,636,578 | 100% | Disaggregated Revenue by Sales Channel (Six Months Ended March 31) | Sales Channel | 2020 Net Sales | % of Total 2020 | 2019 Net Sales | % of Total 2019 | | :-------------------- | :------------- | :-------------- | :------------- | :-------------- | | Wholesale product sales | $5,885,981 | 30.1% | $1,375,045 | 22.5% | | Consumer product sales | $13,661,291 | 69.9% | $4,727,220 | 77.5% | | Service related sales | $- | 0% | $- | 0% | | Total Net Sales | $19,547,272 | 100% | $6,102,265 | 100% | NOTE 2 – Acquisitions This note details the acquisition of Cure Based Development, LLC, including purchase price allocation and earn-out terms - On December 20, 2018, cbdMD, Inc. completed a two-step merger with Cure Based Development, LLC, acquiring its CBD business, with consideration including 15,250,000 common shares and an additional 15,250,000 earn-out shares contingent on revenue targets[91] - The final purchase price allocation included $54,669,997 in goodwill, attributed to expected growth strategies, and a deferred tax liability of approximately $4,644,000 related to acquired indefinite-lived intangible assets[93][94] NOTE 3 – Marketable Securities and Investment Other Securities This note provides information on the company's marketable and other investment securities, including impairment details - The company recorded a full impairment of $600,000 on an investment in other securities and a full impairment of $160,000 against other accounts receivable related to Kure Corp stock due to unlikelihood of realizing a return and difficulties in the vaping industry[97][98] Fair Value of Marketable and Other Securities (March 31, 2020 vs. September 30, 2019) | Metric | March 31, 2020 | September 30, 2019 | | :-------------------------- | :------------- | :----------------- | | Marketable securities | $83,375 | $198,538 | | Investment other securities | $- | $600,000 | | Total Fair Value | $83,375 | $798,538 | NOTE 4 – Inventory This note details the breakdown of the company's inventory, including finished goods and components Inventory Breakdown (March 31, 2020 vs. September 30, 2019) | Category | March 31, 2020 | September 30, 2019 | | :---------------- | :------------- | :----------------- | | Finished goods | $2,518,633 | $3,050,120 | | Inventory components | $4,053,063 | $1,251,466 | | Inventory prepaid | $517,309 | $903,458 | | Total Inventory | $7,089,005 | $5,205,044 | NOTE 5 – Property and Equipment This note presents the company's property and equipment, net of accumulated depreciation Property and Equipment, Net (March 31, 2020 vs. September 30, 2019) | Category | March 31, 2020 | September 30, 2019 | | :-------------------------- | :------------- | :----------------- | | Computers, furniture and equipment | $280,925 | $131,077 | | Manufacturing equipment | $2,591,440 | $1,375,986 | | Leasehold improvements | $806,998 | $375,954 | | Automobiles | $24,892 | $24,892 | | Less accumulated depreciation | $(479,809) | $(192,352) | | Net property and equipment | $3,224,446 | $1,715,557 | - Depreciation expense for continuing operations increased significantly, from $49,936 to $174,206 for the three months ended March 31, 2020, and from $54,039 to $287,457 for the six months ended March 31, 2020, reflecting an increased asset base[102] NOTE 6 – Intangible Assets This note describes the company's intangible assets, primarily trademarks, and their valuation Intangible Assets (March 31, 2020 vs. September 30, 2019) | Category | March 31, 2020 | September 30, 2019 | | :-------------------- | :------------- | :----------------- | | Trademark related to cbdMD | $21,585,000 | $21,585,000 | | Trademark for HempMD | $50,000 | $50,000 | | Total | $21,635,000 | $21,635,000 | - The company's intangible assets primarily consist of the 'cbdMD' trademark (acquired in the Cure Based Development merger) and the 'HempMD' trademark (purchased in September 2019), both identified as indefinite-lived assets due to their expected long-term contribution to cash flows[105][106] NOTE 7 – Pro Forma Financial Information (Unaudited) This note provides unaudited pro-forma financial information assuming the Cure Based Development merger occurred earlier - Pro-forma financial information is presented for informational purposes, assuming the merger with Cure Based Development was completed on October 1, 2017[108] - For the six months ended March 31, 2019, pro-forma net revenues were $9,185,693 and net loss was $(35,298,514), with a basic and diluted net loss per share of $(1.39)[109] NOTE 8 – Contingent Liability This note explains the contingent liability related to earn-out shares and its valuation changes - The contingent liability, primarily related to 15,250,000 Earnout Shares from the Cure Based Development merger, decreased by $21,261,994 for the three months ended March 31, 2020[117] - This decrease was mainly driven by a decline in the company's common stock price (from $2.26 on December 31, 2019, to $0.93 on March 31, 2020) and the issuance of 5,127,792 Earnout Shares on February 27, 2020[117] - The Earnout Shares are valued using a Monte Carlo Simulation, incorporating inputs such as stock price, volatility, interest rates, and revenue projections[116] - The remaining contingent liability for future Earnout Shares was valued at $7,820,000 as of March 31, 2020[117] NOTE 9 – Related Party Transactions This note details transactions and arrangements with related parties, including customer deposits and leases - Related party transactions include a customer deposit from Verdure Holdings LLC, which decreased from $7,339 at September 30, 2019, to $0 at March 31, 2020[118][119] - Cure Based Development leased office and manufacturing facilities from affiliates, with the manufacturing lease extending to December 2021[120] NOTE 10 – Shareholders' Equity This note outlines changes in shareholders' equity, including stock issuances and preferred dividends - The company issued 500,000 shares of 8.0% Series A Cumulative Convertible Preferred Stock in October 2019, generating approximately $4.5 million in net proceeds[121][122] - Total preferred dividends declared and paid were $100,016 for the three months and $166,750 for the six months ended March 31, 2020[123] - Common stock outstanding increased from 27,720,356 shares at September 30, 2019, to 51,335,648 shares at March 31, 2020[122] - This includes 18,400,000 shares issued in a January 2020 public offering, yielding $16.9 million in net proceeds, and 25,000 shares issued for investor relations services[125][126] NOTE 11 – Stock-Based Compensation This note describes the company's stock option and restricted stock award programs and related expenses - The company granted 310,000 common stock options during the six months ended March 31, 2020, with exercise prices of $3.15 per share and terms of five years[130] - Total unrecognized compensation cost related to non-vested stock options was approximately $1,171,704 as of March 31, 2020, vesting over approximately 2.0 years[142] - Restricted stock awards issued in May 2019, valued at $368,000, vested on January 1, 2020, resulting in $138,000 of stock-based compensation expense for the six months ended March 31, 2020[143] NOTE 12 – Warrants This note provides information on the company's outstanding warrants, including issuances related to offerings - The number of outstanding warrants increased from 423,605 at September 30, 2019, to 951,528 at March 31, 2020[135] - This includes 47,923 warrants issued in October 2019 (related to preferred stock offering) and 480,000 warrants issued in January 2020 (related to common stock offering) to underwriters[136][144] NOTE 13 – Commitments and Contingencies This note details the company's endorsement agreements and the impact of COVID-19 on these commitments - The company has endorsement and sponsorship agreements with professional athletes, Life Time, Inc., and Feld Motor Sports, with aggregate potential payments totaling $11.55 million through 2022[146] - Due to COVID-19, payments for these agreements have been suspended or agreements terminated, with contract amendments being evaluated[147][148] - Expenses recorded for these agreements were $1,173,000 for the six months ended March 31, 2020, including $528,625 for the Feld Motor Sports agreement which was terminated[147][148] NOTE 14 – Note Payable This note describes the company's equipment loan arrangements and their outstanding balances - The company entered into two loan arrangements for equipment in July 2019 ($249,100 at 7.01% interest) and January 2020 ($35,660 at 6.2% interest), with long-term note payables of $172,051 and $25,448, respectively, as of March 31, 2020[149] NOTE 15 – Discontinued Operations This note reports the operating results and assets of subsidiaries whose operations were discontinued - Effective September 30, 2019, the company ceased operations of four subsidiaries (EE1, IM1, BPU, and Level H&W) that previously accounted for licensing, entertainment, and products segments, reclassifying their results as discontinued operations[150] Summary Operating Results of Discontinued Operations (Six Months Ended March 31) | Metric | 2020 | 2019 | | :------------------------------------------ | :--- | :------------- | | Total Net Sales | $- | $820,115 | | Gross Profit | $- | $274,473 | | Income (Loss) from operations | $(41,202) | $(68,526) | | Net Income (Loss) | $(41,202) | $(1,193,345) | - As of March 31, 2020, discontinued operations had accounts receivable of $791,998, down from $1,080,000 at September 30, 2019[153] - A lawsuit was filed in April 2020 to collect a $750,000 balance from Sandbox Properties LLC, which breached its payment agreement[153] NOTE 16 – Leases This note details the company's lease accounting under ASC 842, including lease assets and liabilities - The company adopted ASC 842, recognizing operating lease assets and liabilities[155] - As of March 31, 2020, operating lease costs were $408,224 for the three months and $813,757 for the six months, with a weighted average remaining lease term of 6.13 years and a discount rate of 4.66%[158] Future Minimum Aggregate Lease Payments (as of March 31, 2020) | Year Ended September 30, | Amount | | :----------------------- | :------------- | | 2020 (remaining six months) | $718,122 | | 2021 | $1,452,434 | | 2022 | $1,392,837 | | 2023 | $1,380,204 | | 2024 | $1,421,610 | | Thereafter | $2,532,811 | | Total future lease payments | $8,898,018 | | Less interest | $(1,213,558) | | Total lease liabilities | $7,684,460 | NOTE 17 – Earnings Per Share This note presents the basic and diluted earnings per share calculations for the reporting periods Earnings Per Share (Three & Six Months Ended March 31) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Six Months Ended March 31, 2020 | Six Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Basic earnings per share | $0.41 | $(3.13) | $0.76 | $(3.35) | | Diluted earnings per share | $0.40 | $- | $0.74 | $- | | Weighted average shares Basic | 36,503,005 | 10,160,947 | 36,503,005 | 10,107,144 | | Weighted average shares Diluted | 37,336,505 | 10,160,947 | 37,336,505 | 10,107,144 | NOTE 18 – Income Taxes This note discusses the company's income tax provisions, including NOLs and deferred tax liabilities - The company's federal and state Net Operating Loss (NOL) carryovers may be subject to annual limitations due to multiple ownership changes from public offerings[161] - A deferred tax liability of approximately $4.6 million was established from the Cure Based Development merger[163] - The company recorded a deferred tax benefit of $2,240,300 for the quarter ended December 31, 2019, by reducing the deferred tax liability to zero, based on the expectation of generating sufficient post-merger NOLs[164] NOTE 19 – Subsequent Events This note discloses significant events occurring after the balance sheet date, including the COVID-19 impact and PPP loan - The COVID-19 pandemic's impact on the company's financial condition, liquidity, and operations is currently unknown but being monitored[165] - In April 2020, the company received an unsecured loan of approximately $1.5 million under the Paycheck Protection Program (PPP) of the CARES Act, intending to use proceeds for qualifying expenses and apply for loan forgiveness[166][167] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of cbdMD, Inc.'s financial performance, liquidity, and operational results Overview This section provides a business description, product details, and the initial impact of the COVID-19 pandemic - cbdMD, Inc. produces and distributes high-grade, premium CBD products under the cbdMD brand and pet-related CBD products under the Paw CBD brand, launched in fiscal 2019 and organized as a separate subsidiary in October 2019[170] - The company sources cannabinoids from non-GMO hemp grown in the U.S. and utilizes a manufacturing process that creates broad-spectrum concentrations while eliminating THC content[171] - The COVID-19 pandemic led to temporary corporate office closures, altered work schedules, and a shift in sales focus to online channels due to declining wholesale sales[173] - The company increased production and raw material inventory to mitigate supply chain risks[174] - To ensure liquidity, the company negotiated rent deferrals, vendor payment deferrals, suspended sponsorship agreements, furloughed employees, and secured a $1.46 million PPP loan in April 2020[175][179] Growth Strategies and Outlook This section outlines the company's plans for product expansion, sales channels, and quality assurance - The company's growth strategies include increasing product offerings (e.g., hand sanitizers, new CBD products), expanding sales channels (wholesale, retail, veterinary), growing the Paw CBD animal health division, expanding targeted sponsorships, and pursuing strategic acquisitions or joint ventures[181] - cbdMD emphasizes GMP compliance, with its manufacturing facility and warehouse operations NSF GMP registered and an application pending for U.S. Hemp Authority certification, also utilizing independently GMP certified third-party contract manufacturers[180][182] Results of Operations This section analyzes the company's net sales, cost of sales, gross profit, and operating expenses Key Financial Performance Indicators (Three Months Ended March 31) | Metric | 2020 | 2019 | Change | | :------------------------------------------ | :----------- | :------------- | :----- | | Total net sales | $9,399,036 | $5,636,578 | +$3,762,458 | | Cost of sales | $2,732,076 | $1,914,716 | +$817,360 | | Gross profit as a percentage of net sales | 70.9% | 66.0% | +4.9% | | Operating expenses | $12,267,637 | $5,749,464 | +$6,518,173 | | (Increase) decrease on contingent liability | $21,261,994 | $(30,914,074) | +168.8% | | Net income (loss) before taxes | $14,883,772 | $(32,925,877) | +145.2% | | Net income (loss) attributable to common shareholders | $14,783,756 | $(31,791,738) | +146.5% | Key Financial Performance Indicators (Six Months Ended March 31) | Metric | 2020 | 2019 | Change | | :------------------------------------------ | :----------- | :------------- | :----- | | Total net sales | $19,547,272 | $6,102,265 | +$13,445,007 | | Cost of sales | $6,432,613 | $2,080,027 | +$4,352,586 | | Gross profit as a percentage of net sales | 67.0% | 65.9% | +1.1% | | Operating expenses | $24,827,934 | $7,141,276 | +$17,686,658 | | (Increase) decrease on contingent liability | $38,160,000 | $(30,914,074) | +223.4% | | Net income (loss) before taxes | $25,614,438 | $(33,978,793) | +175.4% | | Net income (loss) attributable to common shareholders | $27,646,786 | $(33,901,451) | +181.5% | - Total net sales increased significantly, driven by growth in both wholesale (up 90.4% for three months, 328.0% for six months) and consumer sales (up 59.1% for three months, 189.0% for six months)[185] - Consumer sales remained the dominant channel, accounting for 72.1% and 69.9% of total net sales for the three and six months ended March 31, 2020, respectively[185] - Cost of sales as a percentage of sales decreased to 29.0% (3 months) and 32.9% (6 months) in 2020, down from 33.9% and 34.0% in 2019, reflecting business maturation and manufacturing process improvements[186][187] - Operating expenses surged by 110% (3 months) and 245% (6 months) due to the Cure Based Development merger and business ramp-up, including increased staff, advertising, sponsorships, and technology[190] Other Income and Other Non-Operating Expenses This section details non-operating income and expenses, including interest and contingent liability changes - Interest income increased to $35,607 for the three months ended March 31, 2020, from $6,274 in the prior year[196] - The contingent liability decreased by $21,261,994 for the three months ended March 31, 2020, primarily due to a decline in the company's stock price and the issuance of Earnout Shares[199] - The company recorded impairments of $600,000 on other securities and $160,000 against other accounts receivable for the three and six months ended March 31, 2020[201] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and financing activities - Cash and cash equivalents increased significantly to $14,835,699 at March 31, 2020, from $4,689,966 at September 30, 2019, with working capital rising to $19,092,846 from $12,033,157[202] - Operating activities used $9,147,052 in cash for the six months ended March 31, 2020[205] - The company raised $4,525,100 net from a preferred stock offering in October 2019 and $16,928,100 net from a common stock offering in January 2020, in addition to a $1,456,100 PPP loan in April 2020, to fund operations, brand development, and working capital[206] Critical Accounting Policies This section highlights key accounting policies requiring significant management judgment and estimates - Management's discussion highlights the importance of judgments, assumptions, and estimates in preparing financial statements, particularly concerning allowances for doubtful accounts, inventory valuation, sales returns, investment valuations, intangible assets, income taxes, and contingent liabilities[208][44] Recent Accounting Pronouncements This section discusses the adoption and evaluation of recent accounting standards - The company adopted ASU No. 2016-02, Leases, on October 1, 2019, and is currently evaluating the impact of ASU No. 2018-13, Fair Value Measurement, which is effective for fiscal years beginning after December 15, 2019[88][89] Off Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements - As of the report date, cbdMD, Inc. does not have any material off-balance sheet arrangements that would significantly affect its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[211] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, cbdMD, Inc. is exempt from market risk disclosures - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[213] ITEM 4. Controls and Procedures Management concluded that disclosure controls were effective, with no material changes in internal control over financial reporting - The co-Chief Executive Officers and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, ensuring timely and accurate reporting of information[214] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[215] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other corporate information ITEM 1. Legal Proceedings This section details a lawsuit filed by cbdMD, Inc. against Sandbox Properties, LLC, for breach of contract - The company filed a lawsuit on April 29, 2020, against Sandbox Properties, LLC, and other kiWW Parties in California Superior Court, asserting claims including fraud and breach of contract[220] - The lawsuit stems from a default on a Settlement Agreement where Sandbox was obligated to pay $1,000,000, with a remaining balance of $750,000 at March 31, 2020, which Sandbox failed to pay[218][153] ITEM 1A. Risk Factors This section outlines new and existing risks, particularly those related to the COVID-19 pandemic - The COVID-19 pandemic poses significant risks, including disruptions in retail commerce, potential adverse impacts on financial condition and operations, and challenges to logistics and supply chains[222][223] - A potential recession or long-term market correction resulting from COVID-19 could materially impact the company's stock value, access to capital, and overall business performance[224] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[225] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities occurred during the reporting period[225] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company's operations[226] ITEM 5. Other Information The Board of Directors consolidated the Compensation Committee and Nominating and Corporate Governance Committee - The Board of Directors consolidated the Compensation Committee and the Nominating and Corporate Governance Committee into a single Compensation, Nominating and Corporate Governance Committee in April 2020[227] - A new committee charter was adopted, and independent directors Bakari Sellers, Peter J. Ghiloni, Scott G. Stephen, and William F. Raines, III were appointed to the committee[227] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents and XBRL files - The exhibits include various corporate documents such as merger agreements, certificates of incorporation, bylaws, and certifications (Section 302 and 906)[228] - XBRL taxonomy extension documents (Instance, Schema, Calculation, Label, Presentation, Definition Linkbase) are also filed[228]