cbdMD(YCBD) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements This section presents cbdMD, Inc.'s unaudited condensed consolidated financial statements for the periods ended March 31, 2025, and September 30, 2024, including balance sheets, statements of operations, comprehensive loss, cash flows, and shareholders' equity, along with detailed notes explaining significant accounting policies and financial statement items Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific points in time, detailing assets, liabilities, and equity | Metric | March 31, 2025 | September 30, 2024 | Change | % Change | | :-------------------------------- | :------------- | :----------------- | :----- | :------- | | Total Assets | $10,937,719 | $10,581,457 | $356,262 | 3.37% | | Cash and cash equivalents | $1,765,234 | $2,452,553 | $(687,319) | -28.02% | | Total Liabilities | $10,271,921 | $8,618,040 | $1,653,881 | 19.19% | | Accrued dividends | $6,672,000 | $4,671,000 | $2,001,000 | 42.84% | | Total Shareholders' Equity | $665,798 | $1,963,417 | $(1,297,619) | -66.09% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Total Net Sales | $4,749,426 | $4,376,518 | $9,862,902 | $9,751,923 | | Gross Profit | $2,959,364 | $2,580,728 | $6,359,973 | $6,138,225 | | Loss from operations | $(485,816) | $(1,550,991) | $(572,088) | $(2,616,828) | | Net Loss | $(480,757) | $(3,010,562) | $(465,662) | $(4,007,065) | | Net Loss attributable to common shareholders | $(1,481,257) | $(4,011,062) | $(2,466,663) | $(6,008,065) | | Basic and Diluted loss per share | $(1.90) | $(10.84) | $(3.67) | $(16.23) | Condensed Consolidated Statements of Comprehensive Loss This section presents the total comprehensive loss, encompassing net loss and other comprehensive income or loss items | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Loss | $(480,757) | $(3,010,562) | $(465,662) | $(4,007,065) | | Comprehensive Loss | $(480,757) | $(3,010,562) | $(465,662) | $(4,007,065) | | Comprehensive Loss attributable to common shareholders | $(1,481,257) | $(4,011,062) | $(2,466,663) | $(6,008,065) | Condensed Consolidated Statement of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over a period | Metric | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net Loss | $(465,662) | $(4,007,065) | | Cash flows from operating activities | $(507,426) | $(809,948) | | Cash flows from investing activities | $(179,893) | $(180,015) | | Cash flows from financing activities | $- | $1,297,499 | | Net increase (decrease) in cash | $(687,319) | $307,536 | | Cash and cash equivalents, end of period | $1,765,234 | $2,105,396 | Condensed Consolidated Statements of Shareholders' Equity This section details changes in the equity accounts of the company, including common stock, preferred stock, additional paid-in capital, and accumulated deficit | Metric | March 31, 2025 | September 30, 2024 | | :----------------------------------- | :------------- | :----------------- | | Common Stock Shares Outstanding | 783,355 | 492,383 | | Common Stock Amount | $783 | $492 | | Preferred Stock Shares Outstanding | 5,000,000 | 5,000,000 | | Preferred Stock Amount | $5,000 | $5,000 | | Additional Paid in Capital | $185,194,577 | $184,033,012 | | Accumulated Deficit | $(184,534,562) | $(182,067,898) | | Total Shareholders' Equity | $665,798 | $1,963,417 | - The Company issued 89,964 shares of common stock in January 2025 and 177,634 shares during the first quarter of 2025 for conversions of convertible notes[84][85]. Additionally, 21,875 shares were issued to a consultant in November 2024[86] - Subsequent to quarter end, all preferred stock, including declared and accrued dividends, was converted to common stock, and a one-for-eight reverse stock split was effected on May 6, 2025[78][109][110] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information regarding the figures presented in the financial statements - The Company effected a one-for-eight reverse stock split on April 17, 2025, effective May 6, 2025, impacting all share numbers in the filing[38][110] - The Company's financial statements are prepared assuming it will continue as a going concern, despite a working capital deficit of $3.7 million at March 31, 2025, and a net loss of $465,662 for the six months ended March 31, 2025[64]. The ability to continue is dependent on improving profitability and securing additional funding[65] - All outstanding shares of Series A Preferred Stock were converted to Common Stock on May 6, 2025, at a ratio of one preferred share to 13 common shares, inclusive of all accumulated and unpaid dividends[78][109]. This conversion eliminated $6.7 million in accrued dividends as of March 31, 2025, and is expected to help regain compliance with NYSE American listing standards[141] Allowance for Credit Losses | Metric | March 31, 2025 | September 30, 2024 | | :-------------------------- | :------------- | :----------------- | | Credit loss allowance - beginning of period | $346,197 | $42,180 | | Credit loss provision | $388,693 | $358,339 | | Write offs | $(318,046) | $(54,322) | | Credit loss allowance - end of period | $416,844 | $346,197 | Net Sales by Channel (Six Months Ended March 31) | Sales Channel | 2025 | % of total 2025 | 2024 | % of total 2024 | | :-------------- | :----------- | :-------------- | :----------- | :-------------- | | E-commerce sales | $7,587,523 | 76.9% | $8,049,724 | 82.5% | | Wholesale sales | $2,275,379 | 23.1% | $1,702,199 | 17.5% | | Total Net Sales | $9,862,902 | 100.0% | $9,751,923 | 100.0% | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results for the three and six months ended March 31, 2025 and 2024, highlighting strategic initiatives, recent developments, and key financial performance indicators Our Company This section describes cbdMD, Inc.'s core business, brands, and product offerings in the CBD and functional wellness markets - cbdMD, Inc. owns and operates nationally recognized CBD brands (cbdMD, Paw CBD) and the functional mushroom brand ATRx Labs, producing and distributing hemp-derived broad and full-spectrum CBD products[115] - The Company's product portfolio includes tinctures, gummies, topicals, capsules, and sleep/focus/calming aids under the cbdMD brand, veterinarian-formulated products under Paw CBD, and functional mushroom products under ATRx[116][117][118] - New brands include ATRx and Herbal Oasis ('Oasis'), a THC-infused social seltzer blending cannabinoids and nootropic mushrooms[118][119] Recent Developments This section outlines key operational and financial events that have recently impacted the company's performance and strategic direction - Management is focused on achieving positive earnings by optimizing the product portfolio, right-sizing the cost structure, and investing in marketing for positive customer acquisition returns[121] - Fiscal Q1 2025 marked the first time the Company achieved sequential revenue growth, Non-GAAP Net Income (before preferred dividend accrual), and positive Non-GAAP EBITDA[121] - Q2 2025 revenue declined due to management's focus on securing shareholder approval for Series A Preferred stock conversion, marketing team weaknesses, and intermittent inventory shortages[122][123][124] - The new hemp-derived Oasis beverage line launched in Q1 2025, secured distribution through leading alcohol distributors in Alabama, Florida, Georgia, and North Carolina, and received multiple medals at the 2025 LA Spirits Awards[125] Growth Strategies This section details the company's plans for expanding its market presence, product offerings, and revenue streams - Product innovation focuses on superior functional products with enhanced efficacy and absorption, including reformulations of sleep products and the launch of the Oasis beverage line[127] - The Company is expanding revenue channels by pursuing traditional retail accounts (e.g., Sprouts, GNC), adding Door Dash as a customer, and developing relationships with beer and alcohol distributors for the Oasis line[127] - International expansion efforts include gaining market share in Central and South America through sanitary registration approvals and growing the UK e-commerce business, including on Amazon's platform[127] - The Company continues to cultivate additional brands like Paw CBD and ATRx, and launched the Oasis brand[127]. It also evaluates accretive M&A opportunities, with the elimination of Series A Preferred Stock increasing inbound opportunities[128] Results of Operations This section analyzes the company's financial performance over the reporting periods, focusing on revenue, cost of sales, and operating expenses Net Sales Performance | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | % Change | | :---------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total Net Sales | $4,749,426 | $4,376,518 | $372,908 | 8.52% | | E-commerce sales | $3,634,793 | $3,625,719 | $9,074 | 0.25% | | Wholesale sales | $1,114,633 | $750,799 | $363,834 | 48.46% | | Metric | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | Change | % Change | | :---------------- | :------------------------------ | :------------------------------ | :----- | :------- | | Total Net Sales | $9,862,902 | $9,751,923 | $110,979 | 1.14% | | E-commerce sales | $7,587,523 | $8,049,724 | $(462,201) | -5.74% | | Wholesale sales | $2,275,379 | $1,702,199 | $573,180 | 33.67% | - Cost of sales as a percentage of net sales decreased to 37.7% for the three months ended March 31, 2025, from 41.0% in the prior year, primarily due to a credit provided to a customer in 2024, partially offset by increased warehouse rent[132] Operating Expenses | Expense Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | % Change | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Staff related expense | $1,247,439 | $1,384,558 | $(137,119) | -9.90% | | Accounting/legal/professional services | $287,002 | $427,630 | $(140,628) | -32.89% | | Marketing/Advertising | $1,124,246 | $979,625 | $144,621 | 14.76% | | Rent and utilities | $224,264 | $407,895 | $(183,631) | -45.02% | | All other expenses | $132,577 | $460,150 | $(327,573) | -71.19% | | Total Operating Expenses | $3,445,180 | $4,131,719 | $(686,539) | -16.61% | | Expense Category | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | Change | % Change | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----- | :------- | | Staff related expense | $2,489,318 | $2,771,424 | $(282,106) | -10.18% | | Accounting/legal/professional services | $632,413 | $880,854 | $(248,441) | -28.21% | | Marketing/Advertising | $2,125,487 | $2,372,620 | $(247,133) | -10.42% | | Rent and utilities | $363,509 | $803,206 | $(439,697) | -54.74% | | All other expenses | $439,008 | $974,335 | $(535,327) | -54.94% | | Total Operating Expenses | $6,932,061 | $8,755,053 | $(1,822,992) | -20.82% | - Overall operating expenses decreased by $0.7 million (17%) for the three months and $1.8 million for the six months ended March 31, 2025, driven by cost reduction efforts, including rental decreases from eliminating the HQ office and reduced professional, accounting, and legal expenses[135] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and fund its operations Liquidity Overview | Metric | March 31, 2025 | September 30, 2024 | | :-------------------------- | :------------- | :----------------- | | Cash and cash equivalents | $1.8 million | $2.4 million | | Working capital deficit | $3.7 million | $1.1 million | | Accrued dividend payments | $6.7 million | $4.7 million | | Adjusted working capital (excluding accrued dividends) | $3.3 million | $2.4 million | - The Company's working capital position may not be sufficient for daily operations for the next twelve months, raising substantial doubt about its ability to continue as a going concern[139] - cbdMD is not in compliance with NYSE American continued listing standards due to stockholders' equity below $2.0 million and $4.0 million thresholds[140]. However, the post-period conversion of Series A Preferred Stock and accrued dividends to common stock (totaling $6.7 million) is expected to bring the Company into compliance[141] Adjusted EBITDA This section presents Adjusted EBITDA, a non-GAAP financial measure, to provide insights into the company's operational performance excluding certain non-cash and non-recurring items - Adjusted EBITDA is a non-GAAP measure defined as Earnings Before Interest, Taxes, Depreciation and Amortization, excluding stock-based compensation, M&A, and financing transaction expenses[145] Non-GAAP Adjusted EBITDA | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | GAAP (loss) from operations | $(485,816) | $(1,550,991) | $(572,088) | $(2,616,828) | | Non-GAAP adjusted EBITDA | $(197,986) | $(678,189) | $16,831 | $(1,376,178) | - The Company achieved positive Non-GAAP Adjusted EBITDA of $16,831 for the six months ended March 31, 2025, a significant improvement from a loss of $(1,376,178) in the prior year period[149] Critical Accounting Policies This section outlines the significant accounting policies that require management's most difficult, subjective, or complex judgments and estimates - The preparation of financial statements requires management to make judgments, assumptions, and estimates that affect reported amounts, with significant estimates including allowances for credit losses, inventory valuation, and valuation of investments and long-lived assets[151] Recent Accounting Pronouncements This section discusses the impact of recently issued accounting standards on the company's financial reporting - The Company is evaluating the impacts of ASU 2023-09 (Income Taxes) and adopted ASU 2023-07 (Segment Reporting), which enhances segment disclosure requirements[68][69] Off Balance Sheet Arrangements This section discloses any material off-balance sheet arrangements that could have a current or future effect on the company's financial condition - As of the report date, the Company has no undisclosed off-balance sheet arrangements that are material to its financial condition or results of operations[155] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, cbdMD, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[156] ITEM 4. Controls and Procedures Management, including the principal executive and accounting officers, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025. There were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were deemed effective as of the end of the reporting period, ensuring timely and accurate information disclosure[157] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[158] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings There are no legal proceedings to report for the Company - The Company has no legal proceedings to disclose[160] ITEM 1A. Risk Factors The Company incorporates by reference risk factors from its 2024 10-K and highlights potential impacts of tariffs on imported packaging materials, which could increase costs, disrupt supply chains, and negatively affect financial condition - The Company incorporates risk factors from its 2024 10-K and specifically notes the potential for increased costs and supply chain disruptions due to tariffs on imported packaging materials[160][161] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company has not sold any unregistered securities during the reporting period, except for those previously disclosed - No unregistered sales of equity securities occurred during the period covered by this report, other than those previously disclosed[162] ITEM 3. Defaults Upon Senior Securities There are no defaults upon senior securities to report for the Company - The Company has no defaults upon senior securities to report[163] 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[164] ITEM 5. Other Information This section provides the Auditor Firm ID for Cherry Bekaert LLP - The Auditor Firm ID for Cherry Bekaert LLP, the Company's external auditors, is 677[166] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, articles of incorporation amendments, and certifications - The exhibits include various corporate documents such as merger agreements, articles of incorporation, and certifications, with recent amendments related to the automatic conversion of preferred stock and an 8-to-1 reverse stock split effective May 6, 2025[167]