cbdMD Reports Second Quarter Fiscal 2020 Results - Business Wire

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CHARLOTTE, N.C.--(BUSINESS WIRE)--cbdMD, Inc. (NYSE American: YCBD, YCBD PR A) (the “Company”), one of the leading, highly trusted, and most recognized cannabidiol (CBD) brands, reported today its second fiscal 2020 quarter ended March 31, 2020 results, as well as some significant developments, the highlights of which were:

• The Company reported net sales of $9.4 million, a year-over-year quarterly increase of approximately 67%.

• The Company reported a significant shift in online sales as an overall percentage of net sales, with direct to consumer e-commerce online sales reporting 72% of overall sales, up from 67% from the prior quarter.

• The Company reported an increase in its gross profit margin as a percent of net sales to 70.9% as compared to 66.0% in prior year same period.

• The Company reported a quarterly loss from operations of $5.6 million, of which approximately $665,000 was non-cash items, resulting in a 9% improvement in sequential quarterly results.

• The Company reported a $21.2 million decrease in the Company’s non-cash contingent liability and net income before provision for income tax of $14.8 million.

• The Company reported net income for the first quarter of fiscal 2020 of $14.8 million or $0.40 cents per diluted share.

• Working capital was $19.1 million at March 31, 2020 and cash on hand was $14.8 million as of March 31, 2020.

• The Company announced that its has reduced its overall operating costs in the month of April by 40% which has resulted in a reduction in operating loss of over approximately 85%, both as compared to our prior quarter monthly average, and that this trend is continuing through this current quarter.

• The Company reiterates that it expects to reach cash flow positive by the end of calendar 2020, and based on the current operating trends, expects to reach this milestone with a significant cash cushion.

• The Company has expanded its B2B retail reach to over 6,300 doors worldwide, an increase of 1,000 doors from prior quarter.

• The Company announced that it is expanding its exclusive CBD partnership with Life Time Inc. (“Life Time”) to include the sales of cbdMD products through both Life Time’ e-commerce and in-club retail channels.

“We are pleased to report strong second quarter results, as well as provide a mid-quarter update on operations. We reported $9.4 million in quarterly net sales, a 67% increase over the same quarter last year. Our gross profit margin remains strong at 67% year-to-date and 70.9% for the quarter. Our overall direct to consumer e-commerce sales for the March fiscal quarter were $6.8 million or 72% of our total net sales, an increase of $2.5 million or 58% from the prior year’s quarter. Our B2B brick and mortar sales were $2.6 million or 28% of our total net sales, an increase of $1.2 million or 85% from the prior year’s quarter. Direct to consumer e-commerce sales for the six months ending March were $13.6 million or 70% of our total net sales, an increase of $8.9 million or 189% from the prior year period. Our B2B brick and mortar sales were $5.9 million or 30% of total net sales, an increase of $4.5 million or 321% from the prior year period. Our operating expenses for the March quarter were $12.2 million, of which approximately $665,000 was non-cash expenses, resulting in a cash use of $4.2 million for the quarter. Year to date our operating expenses were $24.8 million, of which approximately $1.5 million was non-cash expenses, resulting in a cash use of approximately $9.1 million for the six months ending March 31, 2020,” said Martin Sumichrast, Chairman and co-CEO of the Company.

“In addition, in early March we started to take measures at our Company to help secure the health of our employees and vendors. When the stay at home order in North Carolina was implemented, we temporarily closed our corporate office, instituted a remote work structure and altered work schedules at our manufacturing and warehouse facilities. We also took steps to increase production to build up our finished goods inventory as well as purchased additional raw material inventory items thereby allowing us to maintain production if supply chain interruptions were to happen, which at this point I am happy to say has not happened. In short, while we have had to make significant logistical changes during the past 60 days, our team has risen to the challenge and our business has remained fully open and operational. We are also happy to report that as of today, we are not aware of any of our employees who have tested positive for COVID-19,” said Sumichrast.

“Along with taking the necessary safety measures, we also immediately instituted a rigorous cost containment plan across all departments and shifted our resources from our B2B retail brick and mortar sales to our direct to consumer online sales. The result has been quite remarkable. While we normally don’t discuss mid quarter results, we are in an unprecedented time, and therefore we have decided to discuss our company’s operations for April, our first full post COVID-19 impacted month.”

“First of all, our overall sales in April were in line with sales in March. Second, we are seeing a significant shift in our overall sales blend, where now our direct to consumer online sales are tracking at 80%, up from 62% of overall sales in fiscal 2019. This of course has helped us maintain a very healthy overall gross profit margin, which we believe we can maintain at 65% or higher. Third, and most dramatic, our overall operating expenses have been reduced by approximately 40% in April from our monthly average in the prior quarter. Some of this operational cost reduction is the direct result of cancellations of certain marketing spends, but others, such as travel and trade shows, are a direct effect from the changing environment brought on by the COVID-19 pandemic. The net result of all of these changes is that in April we are showing an approximate 85% decrease in our loss from operations from just a few months prior, and we are seeing this carry through as we cross the mid-way point in May. While the uncertainty caused by the pandemic has required us to withdraw our fiscal 2020 financial revenue guidance, based on what we experiencing, we remain confident that we will achieve our target of positive cash flow by the end of calendar 2020, and perhaps sooner. In addition, with approximately $14.8 million in cash on hand at March 31, 2020, and the dramatic improvement in our operating results, we believe we have more than enough financial cushion to get us to profitability. Despite these truly unprecedented times, we are thankful that early this year we made bold strategic decisions, such as becoming fully capitalized in January of 2020, paying for our infrastructure so we have almost no debt, promoting our online direct to consumer business model which has allowed us to pivot when needed, and choosing to operate our business with a view towards variable cost initiatives,” said Sumichrast.

“We are pleased to announce that our agreement with Life Time, Inc., where cbdMD is the Exclusive CBD Partner of Life Time, is expanding to include the sales of cbdMD products through both Life Time e-commerce and retail (in-club) channels. With approximately two million active members, Life Time provides an incredible opportunity to directly offer our robust line of THC-free CBD products to this targeted base of customers, who are laser focused on the importance of health and wellbeing each and every day. We feel confident that, as our products are introduced online through https://shop.lifetime.life/ and in their 145+ fitness facilities nationwide, sales will be significant. One indication of the potential demand among their membership is that research provided to us by Life Time indicated that “cbdMD” was the number one searched term on the Life Time e-commerce website since our partnership began in October 2019. We are excited to get our products in Life Time's Spas and Cafes as well as in the hands of all the nutritionists and fitness coaches serving their two million members. cbdMD, and our commitment to health and wellness, represents a perfect fit with Life Time since our roster of Team cbdMD athletes include some of the biggest and most notable individuals in their respective sports, our products are THC-Free and, like Life Time, cbdMD is a leading, trusted brand, which as consumer purchase data regarding CBD suggests, is a dominant factor in decision making,” said Sumichrast.

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About cbdMD, Inc.

cbdMD, Inc. is a nationally recognized consumer cannabidiol (CBD) brand whose current products include CBD tinctures, CBD capsules, CBD gummies, CBD topicals, CBD bath bombs, and CBD pet products. cbdMD is also a proud partner of Bellator MMA and Life Time, Inc., and has one of the largest rosters of professional sports athletes who are part of “Team cbdMD.” To learn more about cbdMD and our comprehensive line of over 100 SKUs of U.S. produced, THC-free¹ CBD products, please visit www.cbdMD.com, follow cbdMD on Instagram and Facebook, or visit one of the 4,000 retail outlets that carry cbdMD products.

Forward-Looking Statements

This press release contains certain forward-looking statements that are based upon current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements can be identified by the use of words such as ''should,'' ''may,'' ''intends,'' ''anticipates,'' ''believes,'' ''estimates,'' ''projects,'' ''forecasts,'' ''expects,'' ''plans,'' and ''proposes.'' These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including, without limitation, statements made with respect to the expansion of the consumer market for CBD products and our ability to increase our market share, our limited operating history, our ability to expand our business and significantly increase our revenues, our ability to effectively leverage our brand partnerships and sponsorships, our ability to effectively compete in our market, our ability to achieve our net sales guidance, and our ability to report profitable operations in the future. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading "Risk Factors" in cbdMD, Inc.'s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as filed with the Securities and Exchange Commission (the "SEC") and our other filings with the SEC. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of cbdMD, Inc. and are difficult to predict. cbdMD, Inc. does not undertake any duty to update any forward-looking statements except as may be required by law. The information which appears on our websites and our social media platforms, including, but not limited to, Instagram and Facebook, is not part of this press release.

¹ THC-free is defined as below the level of detection using valid scientific analytical tools.

cbdMD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 2020 AND SEPTEMBER 30, 2019
	(Unaudited)
	March 31,			September 30,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	14,835,699		$	4,689,966
Accounts receivable		662,531			1,425,697
Accounts receivable other		-			160,137
Accounts receivable – discontinued operations		791,998			1,080,000
Marketable securities		83,375			198,538
Investment other securities		-			600,000
Deposits		28,365			6,850
Merchant reserve		280,322			519,569
Inventory		6,571,696			4,301,586
Inventory prepaid		517,309			903,458
Deferred issuance costs		-			93,954
Prepaid software		167,852			206,587
Prepaid equipment deposits		115,555			868,589
Prepaid expenses and other current assets		830,565			688,104
Total current assets		24,885,267			15,743,035
Other assets:
Property and equipment, net		3,224,446			1,715,557
Operating lease assets		7,413,256			-
Deposits for facilities		755,383			754,533
Intangible assets, net		21,635,000			21,635,000
Goodwill		54,669,997			54,669,997
Total other assets		87,698,082			78,775,087
Total assets	$	112,583,349		$	94,518,122

cbdMD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 2020 AND SEPTEMBER 30, 2019 (continued)
	(Unaudited)
	March 31,				September 30,
	2020				2019
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	3,506,663			$	3,021,271
Accrued expenses		1,044,992				681,269
Operating leases – short term liabilities		1,076,907				-
Note payable		163,858				-
Customer deposit – related party		-				7,339
Total current liabilities		5,792,420				3,709,878
Long term liabilities:
Long term liabilities		-				363,960
Note payable		205,732				-
Operating leases - long term liabilities		6,607,553				-
Contingent liability		7,820,000				50,600,000
Deferred tax liability		-				2,240,300
Total long term liabilities		14,633,285				53,204,260
Total liabilities		20,425,705				56,914,138
cbdMD, Inc. shareholders' equity:
Preferred stock, authorized 50,000,000 shares, $0.001 par value, 500,000 and 0 shares issued and outstanding, respectively		500				-
Common stock, authorized 150,000,000 shares, $0.001 par value, 51,335,648 and 27,720,356 shares issued and outstanding, respectively		51,336				27,720
Additional paid in capital		124,082,811				97,186,524
Accumulated deficit		(31,977,003	)			(59,610,260	)
Total cbdMD, Inc. shareholders' equity		92,157,644				37,603,984
Total liabilities and shareholders' equity	$	112,583,349			$	94,518,122

cbdMD, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2020 AND 2019 (Unaudited)
		Three months				Three months				Six months				Six months
		Ended				Ended				Ended				Ended
		March 31, 2020				March 31, 2019				March 31, 2020				March 31, 2019
Total Gross Sales		$	9,703,800			$	7,752,478			$	20,116,291			$	8,436,207
Allowances			(304,764	)			(2,115,900	)			(569,019	)			(2,333,942	)
Total Net Sales			9,399,036				5,636,578				19,547,272				6,102,265
Cost of sales			2,732,076				1,914,716				6,432,613				2,080,027
Gross Profit			6,666,960				3,721,862				13,114,659				4,022,238
Operating expenses			12,267,637				5,749,463				24,827,934				7,141,274
Income (Loss) from operations			(5,600,677	)			(2,027,601	)			(11,713,275	)			(3,119,036	)
Realized and Unrealized gain (loss) on marketable securities			(53,152	)			9,524				(115,162	)			(64,640	)
Impairment on investment other securities			(600,000	)			-				(600,000	)			-
Impairment accounts receivable other			(160,000	)			-				(160,000	)			-
(Increase) decrease on contingent liability			21,261,994				(30,914,074	)			38,160,000				(30,914,074	)
Interest income			35,607				6,274				42,875				43,959
Income (loss) before provision for income taxes			14,883,772				(32,925,877	)			25,614,438				(34,053,791	)
Benefit for income taxes			-				1,075,000				2,240,300				1,208,000
Net Income (Loss) from continuing operations			14,883,772				(31,850,877	)			27,854,738				(32,845,791	)
Net Income (Loss) from discontinued operations, net of tax (Note 15)			-				603				(41,202)				(1,193,345	)
Net Income (Loss)			14,883,772				(31,850,274	)			27,813,536				(34,039,136	)
Net (Loss) attributable to noncontrolling interest			-				(58,536	)			-				(137,685	)
Preferred dividends			100,016				-				166,750				-
Net Income (Loss) attributable to cbdMD, Inc. common shareholders		$	14,783,756			$	(31,791,738	)		$	27,646,786			$	(33,901,451	)
Net Income (Loss) per share:
Basic earnings per share		$	0.41			$	(3.13)			$	0.76			$	(3.35)
Diluted earnings per share		$	0.40			$	-			$	0.74			$	-
Weighted average number of shares Basic:			36,503,005				10,160,947				36,503,005				10,107,144
Weighted average number of shares Diluted:			37,336,505				10,160,947				37,336,505				10,107,144

cbdMD, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2020 AND 2019 (Unaudited)
		Three months				Three months				Six months				Six months
		Ended				Ended				Ended				Ended
		March 31, 2020				March 31, 2019				March 31, 2020				March 31, 2019
Net Income (Loss)		$	14,883,772			$	(31,850,274	)		$	27,813,536			$	(34,039,136	)
Comprehensive Income (Loss)			14,883,772				(31,850,274	)			27,813,536				(34,039,136	)
Comprehensive Income (loss) attributable to non-controlling interest			-				(58,536	)			-				(137,685	)
Preferred dividends			(100,016	)			-				(166,750	)			-
Comprehensive Income (Loss) attributable to cbdMD, Inc. common shareholders		$	14,783,756			$	(31,791,738	)		$	27,646,786			$	(33,901,451	)

cbdMD, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019 (unaudited)
		Six Months Ended March 31,				Six Months Ended March 31,
		2020				2019
Cash flows from operating activities:
Net income (loss)		$	27,813,536			$	(34,039,136	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Stock based compensation			972,225				163,148
Restricted stock expense			138,000				-
Issuance of stock / warrants for service			28,250				19,313
Impairment on discontinued operations asset			38,002				-
Depreciation and amortization			287,457				171,356
Gain on settlement of Note			-				(20,000	)
Other than temporary impairment other securities and other accounts receivable			760,000				-
Increase/(Decrease) in contingent liability			(38,160,000	)			30,914,074
Realized and unrealized loss of marketable securities			115,162				1,207,617
Non-cash lease expense			585,020				-
Merchant reserve settlement			132,657				-
Non-cash consideration received for services			-				(470,000	)
Changes in operating assets and liabilities:
Accounts receivable			763,303				32,156
Accounts receivable – related party			-				204,902
Other accounts receivable			-				(137,043	)
Note receivable			-				(18,000	)
Note receivable – related party			-				156,147
Deposits			(22,365	)			-
Merchant reserve			106,590				(199,907	)
Inventory			(2,270,110	)			(1,194,186	)
Prepaid inventory			386,149				-
Prepaid expenses and other current assets			649,308				168,041
Marketable securities			-				440,211
Accounts payable and accrued expenses			849,113				43,076
Accounts payable and accrued expenses – related party			-				(393,016	)
Operating lease liability			(496,834	)			-
Note payable			175,124				-
Deferred revenue / customer deposits			(7,339	)			(303,125	)
Cash provided by discontinued operations			250,000				-
Deferred tax liability			(2,240,300	)			(1,208,000	)
Cash used by operating activities			(9,147,052	)			(4,462,372	)
Cash flows from investing activities:
Net cash used for merger			-				(1,177,867	)
Purchase of intangible assets			-				(79,999	)
Purchase of property and equipment			(1,796,346	)			(102,204	)
Cash used by investing activities			(1,796,346	)			(1,360,070	)
Cash flows from financing activities:
Proceeds from issuance of common stock			16,771,756				6,356,997
Proceeds from issuance of preferred stock			4,421,928				-
Preferred dividend distribution			(166,750	)			-
Deferred issuance costs			62,197				(177,521	)
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, beginning of period			4,689,966				4,282,553
Cash and cash equivalents, end of period		$	14,835,699			$	4,639,587

cbdMD, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019 (unaudited) (continued)
Supplemental Disclosures of Cash Flow Information:
		Six Months ended March 31,			Six Months Ended March 31,
		2020			2019
Cash Payments for:
Interest expense		$	17,097		$	23,938
Non-cash financial activities:
Warrants issued to secondary selling agent		$	524,113		$	86,092
Stock received for prior period services, adjusted for other accounts receivable write down prior to receipt		$	-		$	1,352,000
Adoption of ASU 2016-01		$	-		$	2,512,539

 

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