Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2020 | May 11, 2020 | |
Document And Entity Information | ||
Entity Registrant Name | cbdMD, Inc. | |
Entity Central Index Key | 0001644903 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | NC | |
Entity File Number | 001-38299 | |
Entity Common Stock, Shares Outstanding | 51,335,648 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 14,835,699 | $ 4,689,966 |
Accounts receivable | 662,531 | 1,425,697 |
Accounts receivable other | 0 | 160,137 |
Accounts receivable - discontinued operations | 791,998 | 1,080,000 |
Marketable securities | 83,375 | 198,538 |
Investment other securities | 0 | 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 | 0 | 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 | 0 |
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 |
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 | 0 |
Note payable | 163,858 | 0 |
Customer deposit - related party | 0 | 7,339 |
Total current liabilities | 5,792,420 | 3,709,878 |
Long term liabilities | ||
Long term liabilities | 0 | 363,960 |
Note payable | 205,732 | 0 |
Operating leases - long term liabilities | 6,607,553 | 0 |
Contingent liability | 7,820,000 | 50,600,000 |
Deferred tax liability | 0 | 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 | 0 |
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 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2020 | Sep. 30, 2019 |
cbdMD, Inc. shareholders' equity: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized | 50,000,000 | 50,000,000 |
Preferred stock, issued | 500,000 | 0 |
Preferred stock, outstanding | 500,000 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, authorized | 150,000,000 | 150,000,000 |
Common stock, issued | 51,335,648 | 27,720,356 |
Common stock, outstanding | 51,335,648 | 27,720,356 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Income Statement [Abstract] | ||||
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 |
Costs 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) | 0 | (600,000) | 0 |
Impairment accounts receivable other | (160,000) | 0 | (160,000) | 0 |
(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 | 0 | 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 loss from discontinued operations, net of tax (Note 15) | 0 | 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 non-controlling interest | 0 | (58,536) | 0 | (137,685) |
Preferred dividends | 100,016 | 0 | 166,750 | 0 |
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 | $ .40 | $ .00 | $ 0.74 | $ .00 |
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 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Statement of Other Comprehensive Income [Abstract] | ||||
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 | 0 | (58,536) | 0 | (137,685) |
Preferred dividends | (100,016) | 0 | (166,750) | 0 |
Comprehensive income (loss) attributable to cbdMD, Inc. common shareholders | $ 14,783,756 | $ (31,791,738) | $ 27,646,786 | $ (33,901,451) |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 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 | 0 |
Issuance of stock / warrants for service | 28,250 | 19,313 |
Impairment on discontinued operations asset | 38,002 | 0 |
Depreciation and amortization | 287,457 | 171,356 |
Gain on settlement of note | 0 | (20,000) |
Other than temporary impairment other securities and other accounts receivable | 760,000 | 0 |
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 | 0 |
Merchant reserve settlement | 132,657 | 0 |
Non-cash consideration received for services | 0 | (470,000) |
Changes in operating assets and liabilities: | ||
Accounts receivable | 763,303 | 32,156 |
Accounts receivable - related party | 0 | 204,902 |
Other accounts receivable | 0 | (137,043) |
Note receivable | 0 | (18,000) |
Note receivable - related party | 0 | 156,147 |
Deposits | (22,365) | 0 |
Merchant reserve | 106,590 | (199,907) |
Inventory | (2,270,110) | (1,194,186) |
Prepaid inventory | 386,149 | 0 |
Prepaid expenses and other current assets | 649,308 | 168,041 |
Marketable securities | 0 | 440,211 |
Accounts payable and accrued expenses | 849,113 | 43,076 |
Accounts payable and accrued expenses - related party | 0 | (393,016) |
Operating lease liability | (496,834) | 0 |
Note payable | 175,124 | 0 |
Deferred revenue/customer deposits | (7,339) | (303,125) |
Cash provided by discontinued operations | 250,000 | 0 |
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 | 0 | (1,177,867) |
Purchase of intangible assets | 0 | (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 | 0 |
Preferred dividend distribution | (166,750) | 0 |
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 |
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 | 0 | 1,352,000 |
Adoption of ASU 2016-01 | $ 0 | $ 2,512,539 |
CONSOLIDATED STATEMENT OF SHARE
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY - USD ($) | Common Stock | Preferred Stock | Additional Paid-In Capital | Other Comprehensive Income (Loss) | Accumulated Deficit | Non-controlling Interest | Total |
Beginning balance, shares at Sep. 30, 2018 | 8,123,928 | 0 | |||||
Beginning balance, amount at Sep. 30, 2018 | $ 8,124 | $ 0 | $ 21,781,095 | $ (2,512,539) | $ (6,669,495) | $ 1,411,972 | $ 14,019,155 |
Issuance of common stock, shares | 1,971,428 | ||||||
Issuance of common stock, amount | $ 1,971 | 6,355,027 | 6,356,998 | ||||
Issuance of options for share based compensation | 143,673 | 143,673 | |||||
Issuance of stock costs | (205,569) | (205,569) | |||||
Adoption of ASU 2016-02 | 2,512,539 | (2,512,539) | 0 | ||||
Net income (loss) | (2,109,715) | (79,149) | (2,188,864) | ||||
Ending balance, shares at Dec. 31, 2018 | 10,095,356 | 0 | |||||
Ending balance, amount at Dec. 31, 2018 | $ 10,095 | $ 0 | 28,074,224 | 0 | (11,291,749) | 1,332,823 | 18,125,391 |
Issuance of options for share based compensation | 19,475 | 19,475 | |||||
Issuance of stock/warrants for services, shares | 75,000 | ||||||
Issuance of stock/warrants for services, amount | $ 75 | 289,675 | 289,750 | ||||
Net income (loss) | (31,791,738) | (58,536) | (31,850,274) | ||||
Ending balance, shares at Mar. 31, 2019 | 10,170,356 | 0 | |||||
Ending balance, amount at Mar. 31, 2019 | $ 10,170 | $ 0 | 28,383,374 | 0 | (43,083,487) | 1,274,287 | (13,451,656) |
Beginning balance, shares at Sep. 30, 2019 | 27,720,356 | 0 | |||||
Beginning balance, amount at Sep. 30, 2019 | $ 27,720 | $ 0 | 97,186,524 | 0 | (59,610,260) | 0 | 37,603,984 |
Issuance of preferred stock, shares | 500,000 | ||||||
Issuance of preferred stock, amount | $ 500 | 4,421,428 | 4,421,928 | ||||
Issuance of options for share based compensation | 542,574 | 542,574 | |||||
Issuance of stock costs | (31,757) | (31,757) | |||||
Issuance of restricted stock for share based compensation | 138,000 | 138,000 | |||||
Preferred dividend | (66,734) | (66,734) | |||||
Adoption of ASU 2016-02 | (13,528) | (13,528) | |||||
Net income (loss) | 12,929,763 | 12,929,763 | |||||
Ending balance, shares at Dec. 31, 2019 | 27,720,356 | 500,000 | |||||
Ending balance, amount at Dec. 31, 2019 | $ 27,720 | $ 500 | 102,256,769 | 0 | (46,760,759) | 0 | 55,524,230 |
Issuance of common stock, shares | 23,590,292 | ||||||
Issuance of common stock, amount | $ 23,591 | 21,368,166 | 21,391,757 | ||||
Issuance of options for share based compensation | 429,651 | 429,651 | |||||
Issuance of stock/warrants for services, shares | 25,000 | ||||||
Issuance of stock/warrants for services, amount | $ 25 | 28,225 | 28,250 | ||||
Preferred dividend | (100,016) | (100,016) | |||||
Net income (loss) | 14,883,772 | 14,883,772 | |||||
Ending balance, shares at Mar. 31, 2020 | 51,335,648 | 500,000 | |||||
Ending balance, amount at Mar. 31, 2020 | $ 51,336 | $ 500 | $ 124,082,811 | $ 0 | $ (31,977,003) | $ 0 | $ 92,157,644 |
1. ORGANIZATION AND SUMMARY OF
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Organization and Nature of Business cbdMD, Inc. ("cbdMD", "we", "us", “our”, "Parent Company” or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to “cbdMD, Inc.”. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30. On December 20, 2018 the Company, and its newly organized wholly-owned subsidiaries AcqCo, LLC and cbdMD LLC, completed a two-step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). Upon completion of the Mergers, cbdMD LLC survived and operates the prior business of Cure Based Development. On April 10, 2019, cbdMD LLC was renamed to CBD Industries LLC (“CBDI”). As consideration for the Mergers, the Company had a contractual obligation, after approval by our shareholders, to issue 15,250,000 shares of our common stock to the members of Cure Based Development, of which 8,750,000 of the shares will vest over a five year period and are subject to a voting proxy agreement, as well as to issue another 15,250,000 shares of our common stock in the future upon earnout goals being within the next 5 years. The Company’s shareholders approved the issuance of the 15,250,000 shares of common stock and they were issued to members of Cure Based Development on April 19, 2019. CBDI produces and distributes On October 22, 2019, cbdMD, Inc. filed Articles of Incorporation with the Secretary of State of North Carolina to form a new wholly-owned subsidiary, Paw CBD, Inc. (“Paw CBD”), in conjunction with the organization of its animal health division. In the third quarter of fiscal 2019 cbdMD, Inc. launched its new CBD pet brand, Paw CBD. Following the initial positive response to the brand from retailers and consumers, cbdMD, Inc. organized Paw CBD, Inc. as a separate wholly-owned subsidiary in an effort to take advantage of its early mover status in the CBD animal health industry. Effective September 30, 2019, the Company abandoned and ceased operations of four business subsidiaries: Encore Endeavor 1, LLC (“EE1”), I’M1, LLC (“IM1”), Beauty and Pin Ups, LLC (“BPU”) and Level H&W, LLC (“Level H&W”). Therefore, the results of operations related to these subsidiaries for the Company are reported as discontinued operations. The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended September 30, 2019 (“2019 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal year 2019 as reported in the 2019 10-K have been omitted. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI and Paw CBD. All material intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of the Company's consolidated financial statements have been prepared in accordance with US GAAP, and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the valuation of investments other securities, common stock issued prior to the Company’s initial public offering (the “IPO”), acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, contingent liability and, hence consideration for the Mergers is a material estimate. Actual results could differ from these estimates. The Company is continuing to monitor data related to impact of the COVID-19 pandemic and a Cash and Cash Equivalents For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. Accounts receivable and Accounts receivable other Accounts receivable are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. As of March 31, 2020, we have an allowance for doubtful accounts of $14,318, and had an allowance of $7,286 at September 30, 2019. In addition, the Company has and may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. Where an accounts receivable is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either a marketable security (when the customer is a publicly traded entity) or as an investment other security (when the customer is a private entity). Receivable and Merchant Reserve The Company primarily sells its products through the internet and has an arrangement to process customer payments with third-party payment processors, and will negotiate the fee based on the market. The arrangement with the payment processors requires that the Company pay a fee between 4.0% - 5.2% of the transaction amounts processed. Pursuant to this agreement, there can be a waiting period between 2 - 5 days prior to reimbursement to the Company, and as well as a calculated reserve which some payment processors hold back. Fees and reserves can change periodically with notice from the processors. At March 31, 2020, the receivable from payment processors included approximately $160,013 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet and $280,322 for the reserve amount for a total receivable of $440,335. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end. Customer Deposits Customer deposits consist of payments received in advance of revenue recognition. Revenue is recognized as revenue recognition criteria are met. Property and Equipment Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for manufacturing equipment and automobiles, three years for computer, furniture and equipment, three years for software, and leasehold improvements are over the term of the lease. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable. Fair value accounting The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When the Company records an investment in marketable securities the carrying value is assigned at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For investment other securities without a readily determinable fair value, the Company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes. Goodwill Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Identifiable intangible assets acquired in business combinations are recorded based on their fair values at the date of acquisition. Goodwill is not subject to amortization but must be evaluated for impairment annually. The Company tests for goodwill impairment annually or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In performing a goodwill test, the Company performs a qualitative evaluation and if necessary, a quantitative evaluation. Factors considered in the qualitative test include specific operating results as well as new events and circumstances impacting the operations or cash flows of the business acquired. For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of the business to the respective fair value. The Company determines the fair value of its acquired business using a combination of income-based and market-based approaches and incorporates assumptions it believes market participants would utilize. The income-based approach utilizes discounted cash flows while the market-based approach utilizes market multiples. These approaches are dependent upon internally-developed forecasts that are based upon annual budgets and longer-range strategic plans. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective acquired business and in the internally-developed forecasts. Intangible Assets The Company's intangible assets consist of trademarks and other intellectual property, all of which are accounted for in accordance with ASC Topic 350, Intangibles – Goodwill and Other Intangible assets with finite useful lives are amortized using the straight-line method over their estimated period of benefit. In accordance with ASC 360-10-35-21, definite lived intangibles are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. In conjunction with any acquisitions, the Company refers to ASC-805 as amended by Accounting Standards Update (“ASU”) 2017-01 in determining if the Company is acquiring any inputs, processes or outputs and the impact that such factors would have on the classification of the acquisition as a business combination or asset purchase. Additionally, the Company refers to the aforementioned guidance in reviewing all acquired assets and assumed liabilities for valuation in a business combination, including the determination of intangible asset values and contingent liabilities. Contingent liability A significant component of the purchase price consideration for the Company’s acquisition of Cure Based Development includes a fixed number of future shares to be issued as well as a variable number of future shares to be issued based upon the post-acquisition entity reaching certain specified future revenue targets, as further described in Note 8. The Company made a determination of the fair value of the contingent liabilities as part of the valuation of the assets acquired and liabilities assumed in the business combination. The Company recognized both the fixed number of shares to be issued, and the variable number of shares to be potentially issued, as contingent liabilities on its Consolidated Balance Sheets. These contingent liabilities were recorded at fair value upon the acquisition date and are remeasured quarterly based on the reassessed fair value as of the end of that quarterly reporting period. Additionally, as the fixed shares were issued on April 19, 2019, the value of the shares at that time, in the amount of $53,215,163, was reclassified from contingent liability to additional paid in capital on the balance sheet. In addition the first marking period for the Earnout Shares was December 31, 2019 and based on measurement criteria, 5,127,792 shares were issued on February 27, 2020. The value of the issued Earnout Shares as of February 27, 2020 was $4,620,000 and the decrease in value of $6,924,503 from December 31, 2019 related to those shares is recorded in the Statement of Operations for the three months ended March 31, 2020. Additionally, as the 5,127,792 Earnout Shares were issued on February 27, 2020, the value of the shares in the amount of $4,620,000 was reclassified from the contingent liability to additional paid in capital on the balance sheet. For the three months ended March 31, 2020, the contingent liabilities associated with the business combination were decreased by $21,261,994 to reflect their reassessed fair values as of March 31, 2020. This decrease is reflective of a change in value of the variable number of shares from December 31, 2019, including the change in value of the Earnout Shares from December 31, 2019 until issued February 27, 2020. In December 2019, the Company updated the forecasts for performance of the post-acquisition entity based on current trends and performance that would impact the estimated likelihood that the revenue targets disclosed in Note 8 would be met. The primary catalyst for the $21,261,994 decrease in contingent liabilities is the change in the Company’s common share price between March 31, 2020 and December 31, 2019. These increases or decreases to the contingent liabilities are reflected within Other Income (Expenses) on the consolidated statements of operations. Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers Under ASC 606, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. For our CBD products, the Company meets that obligation when it has shipped products which have been ordered to the customer. The Company has reviewed its various revenue streams for its other contracts under the five-step approach. The below table summarizes amounts related to future performance obligations under fixed contractual arrangements as of March 31, 2020: At March 31, 2020 2020 and thereafter Future performance obligations $ 0 $ 0 Allocation of transaction price In our current business model we do not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order based product sales. However, at times in the past, the Company had entered into contracts with customers wherein there were multiple elements that may have disparate revenue recognition patterns. In such instances, the Company must allocate the total transaction price to these various elements. This is achieved by estimating the standalone selling price of each element, which is the price at which we sell a promised good or service separately to a customer. In circumstances where we have not historically sold relevant products or services on a standalone basis, the Company utilizes the most situationally appropriate method of estimating standalone selling price. These methods include (i) an adjusted market assessment approach, wherein we refer to prices from our competitors for similar goods or serves and adjust those prices as necessary to reflect our typical costs and margins, (ii) an expected cost plus margin approach, wherein we forecast the costs that we will incur in satisfying the identified performance obligation and adding an appropriate margin to such costs, and (iii) a residual approach, wherein we adjust the total transaction price to remove all observable standalone selling prices of other goods or services included in the contract and allocate the entirety of the remaining contract amount to the remaining obligation. Revenue recognition The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 30 day, money back guarantee. In regard to sales for services provided, the Company records revenue when the customer has accepted services and the Company has a right to payment. Based on the contracted services, revenue is recognized when the Company invoices customers for completed services at agreed upon rates or revenue is recognized over a fixed period of time during which the service is performed. Disaggregated Revenue Our product revenue is generated primarily through two sales channels, consumer (E-commerce) and wholesale channels. We also generate service related sales, although this type of revenue is not a primary focus. We believe that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors. A description of our principal revenue generating activities are as follows: - Consumer (E-commerce) sales - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment. - Wholesale sales - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer. - Service related sales – services provided to organizations typically consulting services related to branding, marketing, or advisory. Revenue is recognized when services are delivered to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and typically are based on deliverables and agreed upon timelines. The following table represents a disaggregation of revenue by sales channel: Three Months ended March 31, 2020 % of total Three Months ended March 31, 2019 % of total 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 $ 5,636,578 Six Months ended March 31, 2020 % of total Six Months ended March 31, 2019 % of total 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 $ 6,102,265 Contract Balances Contract assets represent unbilled receivables and are presented within accounts receivable, net on the condensed consolidated balance sheets. Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the condensed consolidated balance sheets. We have no contract assets and contract liabilities at March 31, 2020. Cost of Sales Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and outbound freight for our products sales, and includes labor for our service sales. For our product sales, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale, if any, and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value. Advertising Costs The Company expenses all costs of advertising and related marketing and promotional costs as incurred. The Company incurred approximately $3,398,777 and $1,475,696 in advertising and related marketing and promotional costs included in operating expenses during the three months ended March 31, 2020 and 2019, respectively. The Company incurred approximately $5,809,498 and $1,557,838 in advertising and related marketing and promotional costs included in operating expenses during the six months ended March 31, 2020 and 2019, respectively. Shipping and Handling Fees and Costs All fees billed to customers for shipping and handling are classified as a component of sales. All costs associated with shipping and handling are classified as a component of cost of goods sold. Income Taxes The Parent Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. Prior to April 2017, BPU was a multi-member limited liability company that was treated as a partnership for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of BPU was included in the tax return of the Parent Company. Beginning in April 2017, the Parent Company acquired the remaining interests in BPU. As a result of the acquisition, BPU became a disregarded entity for tax purposes and its entire share of taxable income or loss was included in the tax return of the Parent Company. CBDI, Paw CBD, and Level H&W are wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Parent Company. IM1 and EE1 are multi-member limited liability companies that are treated as partnerships for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of IM1 and EE1 are included in the tax return of the Parent Company. The Parent Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the FASB ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Parent Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of March 31, 2020 and 2019, there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements. Concentrations Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $14,344,758 uninsured balance at March 31, 2020 and a $4,097,190 uninsured balance at September 30, 2019. Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the three and six months ended March 31, 2020. We have three customers whose aggregate accounts receivable balance was approximately 69% of the combined total accounts receivable and accounts receivable discontinued operations as of March 31, 2020, of which one customer is from the discontinued operations and accounts for approximately 51%. The aggregate accounts receivable balance of such customers represented approximately 51% of the Company’s total accounts receivable as of September 30, 2019. Stock-Based Compensation We account for our stock compensation under the ASC 718-10-30, Compensation - Stock Compensation We use the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. The Company recognizes forfeitures when they occur. Earnings (Loss) Per Share The Company uses ASC 260-10, Earnings Per Share New Accounting Standards On October 1, 2019, the Company adopted ASU No. 2016-02, Leases In connection with the adoption of the new guidance, the Company recognized an operating lease asset for $7,704,109 and operating lease liability of $7,950,803 and a reduction of retained earnings of $13,528 in its balance sheet as of December 31, 2019, with no impact to its results of operations and cash flows. The difference between the leased assets and lease liabilities represents the net position of existing prepaid rent and deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which were effectively reclassified upon adoption to reduce the measurement of the leased assets. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). |
2. ACQUISITIONS
2. ACQUISITIONS | 6 Months Ended |
Mar. 31, 2020 | |
Business Combinations [Abstract] | |
ACQUISITIONS | On December 20, 2018 (the “Closing”), the Company, and its newly organized wholly-owned subsidiaries AcqCo, LLC and cbdMD LLC, both North Carolina limited liability companies, completed a two-step merger (the “Merger Agreement”) with Cure Based Development. The Merger Agreement provided that AcqCo LLC merged with and into Cure Based Development with Cure Based Development as the surviving entity (the “Merger”), and immediately thereafter Cure Based Development merged with and into cbdMD LLC with cbdMD LLC as the surviving entity (the “Secondary Merger” and collectively with the Merger, the “Mergers”). cbdMD LLC was renamed on April 10, 2019 to CBDI and has continued as a wholly-owned subsidiary of the Company and maintains the operations of Cure Based Development pre-closing. As consideration for the Merger, the Company had a contractual obligation, after approval by our shareholders, to issue 15,250,000 shares of our common stock to the members of Cure Based Development, of which unrestricted voting rights to 8,750,000 of the shares vest over a five year period and are subject to a voting proxy agreement. The Merger Agreement also provides that an additional 15,250,000 shares of our common stock can be issued upon the satisfaction of aggregate net revenue criteria by CBDI, within 60 months following the Closing. The net revenue criteria are: $20.0, $40.0, $80.0 and $160.0 million, in aggregate $300.0 million (See Note 8 for more information). The initial 15,250,000 shares were approved by our shareholders and issued on April 19, 2019. On February 27, 2020, 5,127,792 shares were issued upon satisfaction of aggregate net revenue criteria per the Merger Agreement. The Company owns 100% of the equity interest of CBDI. The valuation and purchase price allocation for the Mergers was finalized at September 30, 2019. The following table presents the final purchase price allocation: Consideration $ 74,353,483 Assets acquired: Cash and cash equivalents $ 1,822,331 Accounts receivable 850,921 Inventory 1,054,926 Other current assets 38,745 Property and equipment, net 723,223 Intangible assets 21,585,000 Goodwill 54,669,997 Total assets acquired 80,745,143 Liabilities assumed: Accounts payable 257,081 Notes payable – related party 764,300 Customer deposits - related party 265,000 Accrued expenses 460,979 Deferred tax liability 4,644,300 Total Liabilities assumed 6,391,660 Net Assets Acquired $ 74,353,483 The goodwill generated from this transaction can be attributed to the benefits the Company expects to realize from the growth strategies the acquired Company had developed and the entry into an emerging market with high growth potential. See Note 8 regarding contingent liability. In connection with the purchase price allocation, the Company recorded a deferred tax liability of approximately $4,644,000, with a corresponding increase to goodwill, for the tax effect of the acquired intangible assets from Cure Base Development. This liability was recorded as there will be no future tax deductions related to the acquired intangibles, and we have identified these as indefinite-lived intangible assets. The Company also acquired estimated net operating loss carryforwards of approximately $1,996,000, Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited to an annual limit if a change in ownership of a company occurs. |
3. MARKETABLE SECURITIES AND IN
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES | 6 Months Ended |
Mar. 31, 2020 | |
Marketable Securities [Abstract] | |
MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES | The Company may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. If there is insufficient data to support the valuation of the security directly, the company will value it, and the underlying revenue, on the estimated fair value of the services provided. Where an accounts receivable other is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either an investment marketable security (when the customer is a public entity) or as an investment other security (when the customer is a privately held entity). On June 23, 2017, I’M1 and EE1 in aggregate exercised a warrant for 1,600,000 shares of common stock for services delivered to a customer and accounted for this in Investment other securities. The common stock was issued to the Company’s subsidiaries I’M1 and EE1. The customer is a private entity and the stock was valued at $912,000, which was based on its recent financing in June 2017 at $0.57 per share. The Company has classified this common stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used the fair value of the services provided, utilizing an analysis of vendor specific objective evidence of its selling price. In August 2017, each of I’M1 and EE1 distributed the shares to its majority owner, cbdMD, and also distributed shares valued at $223,440 to its non-controlling interests. In August 2017, the Company also provided referral services for kathy Ireland® Worldwide and this customer. As compensation the Company received an additional 200,000 shares of common stock valued at $114,000 using the pricing described above. On December 21, 2017, the Company purchased 300 shares of preferred stock in a private offering from this customer for $300,000. The preferred shares are convertible into common stock at a 20% discount of a defined subsequent financing, or an initial public offering of a minimum $15 million, or at a company valuation of $45 million whichever is the least. The Company has classified this stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used the value paid, which was the price offered to all third party investors. Subsequently, the Company has recently met with other investors of the customer and has indicated desire to sell the equity interest of the Company. As of September 30, 2019, based on conversations with other investors, the market for this equity, and potential selling prices negotiated, the Company determined that the value at September 30, 2019 was $600,000 and an impairment of $502,560 was appropriate for the year ended September 30, 2019. In November 2019, the Company entered into an option to sell the shares by June 30, 2020 to a third party for $600,000. The option required the buyer to provide a non refundable deposit of $30,000. Based upon updates received from the customer during the three months ended March 31, 2020, the Company has determined that it is likely to not realize a return on this asset and has made the determination to take a full impairment of $600,000 at March 31, 2020. In December 2017, the Company completed services per an advisory services agreement with Kure Corp (“Kure”), formerly a related party. As payment for these services, Kure issued 800,000 shares of its stock to the Company. The customer was a private entity and the stock was valued at $400,000, which was based on financing activities by Kure in September 2017 in which shares were valued at $0.50 per share. The Company had classified this common stock, cumulative value of $400,000, as Level 3 for fair value measurement purposes as there were no observable inputs. In valuing the stock the Company used factors including information provided by the issuer regarding their recent results and future plans as well as their most recent financing transactions. On April 30, 2018, Kure. merged with Isodiol International, Inc. (CSE: ISOL, OTCQB: ISOLF, FSE:LB6A.F), a Canadian company (“Isodiol”). Details can be reviewed in our 2018 Form 10-K previously filed. As a result of this merger we received the first issuance of 380,952 shares from Isodiol and valued them based on the trading price on April 30, 2018 of $0.63 per share which totaled $240,000. We also removed the value of the Kure equity of $400,000 from our Level 3 investments as part of the exchange described above. As the full value of the Kure equity will not be received until the future issuances based on earn out goals, we recorded an accounts receivable other of $160,000 as of December 31, 2018. On March 31, 2019, Isodiol spun off Kure to its original shareholders by issuing back all original Kure stock. As a result of the spin off, the Company received 800,000 shares of Kure stock which we valued at the $160,000, and as Kure is private, when the shares are received they will be treated as a Level 3 stock and will be accounted for as the $160,000 accounts receivable other. In light of the difficulties of the vaping industry, Kure Corp’s ability to continue to raise capital, and uncertainty for future strategy, the Company has assessed the value of the common stock to be received and made the determination to take a full impairment of the $160,000 against the other accounts receivable at March 31, 2020. On December 30, 2017 the Company entered into an Agreement with Isodiol which is a developer of pharmaceutical grade phytochemical compounds and a manufacturer and developer of phytoceutical consumer products. The table below summarizes the assets valued at fair value as of March 31, 2020: In Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value at March 31, 2020 Marketable securities $ 83,375 - $ - $ 83,375 Investment other securities - - $ - $ - Level 1 Level 2 Level 3 Total Balance at September 30, 2019 $ 198,538 $ - $ 600,000 $ 798,538 Change in value of equities $ (62,011 ) $ - $ - $ (62,011 ) Balance at December 31, 2019 $ 136,527 $ - $ 600,000 $ 736,527 Change in value of equities $ (53,152 ) $ - $ (600,000 ) $ (653,152 ) Balance at March 31, 2020 $ 83,375 $ - $ - $ 83,375 |
4. INVENTORY
4. INVENTORY | 6 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
INVENTORY | Inventory at March 31, 2020 and September 30, 2019 consists of the following: March 31, September 30, 2020 2019 Finished goods $ 2,518,633 $ 3,050,120 Inventory components 4,053,063 1,251,466 Inventory prepaid 517,309 903,458 Total $ 7,089,005 $ 5,205,044 |
5. PROPERTY AND EQUIPMENT
5. PROPERTY AND EQUIPMENT | 6 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | Major classes of property and equipment at March 31, 2020 and September 30, 2019 consist of the following: March 31, September 30, 2020 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 3,704,255 1,907,909 Less accumulated depreciation (479,809 ) (192,352 ) Net property and equipment $ 3,224,446 $ 1,715,557 Depreciation expense for continuing operations related to property and equipment was $174,206 and $49,936 for the three months ended March 31, 2020 and 2019, respectively and was $287,457 and $54,039 for the six months ended March 31, 2020 and 2019, respectively. Depreciation expense for discontinued operations related to property and equipment was $2,938 and $7,654 for the three and six months ended March 31, 2019, respectively. |
6. INTANGIBLE ASSETS
6. INTANGIBLE ASSETS | 6 Months Ended |
Mar. 31, 2020 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
INTANGIBLE ASSETS | With the Mergers of Cure Based Development, the Company made a strategic shift toward the CBD business and all entities and their associated intangibles were assessed during the year ended September 30, 2019 with that focus and their ability to support that business line. On December 20, 2018, the Company completed the Mergers with Cure Based Development and acquired certain assets, including the trademark "cbdMD" and its variants and certain other intellectual property. The trademark is the cornerstone of this subsidiary and is key as we create and distribute products and continue to build this brand. We believe the trademark does not have limits on the time it will contribute to the generation of cash flows and therefore we have identified these as indefinite-lived intangible assets (see Note 2 for more information). In September 2019, the Company purchased the rights to the trademark name HempMD for $50,000. This trademark will be used in the marketing and branding of certain products to be released under this brand name. We believe the trademark does not have limits on the time it will contribute to the generation of cash flows and therefore we have identified these as indefinite-lived intangible assets. Intangible assets as of March 31, 2020 and September 30, 2019 consisted of the following: March 31, September 30, 2020 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 |
7. PRO FORMA FINANCIAL INFORMAT
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) | 6 Months Ended |
Mar. 31, 2020 | |
Pro Forma Financial Information | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED) | The following unaudited pro-forma data summarizes the results of operations for the three and six months ended March 31, 2020 and 2019, as if the Mergers with Cure Based Development had been completed on October 1, 2017. The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Mergers had taken place on October 1, 2017. The pro-forma financial information represents the continuing operations only. Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Net revenues $ N/A* $ N/A* Operating income (loss) $ N/A* $ N/A* Net income (loss) $ N/A* $ N/A* Net loss per share – basic and fully diluted $ N/A* $ N/A* Six Months Ended March 31, 2020 Six Months Ended March 31, 2019 Net revenues $ N/A* $ 9,185,693 Operating income (loss) $ N/A* $ (4,320,089 ) Net income (loss) $ N/A* $ (35,298,514 ) Net loss per share – basic and fully diluted $ N/A* $ (1.39 ) * All entities were consolidated effective December 21, 2018 therefore, the results of operations are included in these condensed financial statements. For the per share calculation prior to April 2019, it is being assumed that the shares to be issued contractually under the Merger Agreement, upon shareholder approval, were issued at the beginning of each period. This would account for an additional 6,500,000 shares issued directly to the members of Cure Based Development and another 8,750,000 shares issued which would have a voting proxy and leak out on voting rights over a 5 year period. |
8. CONTINGENT LIABILITY
8. CONTINGENT LIABILITY | 6 Months Ended |
Mar. 31, 2020 | |
Contingent Liability | |
CONTINGENT LIABILITY | As consideration for the Mergers, described in Note 2, the Company had a contractual obligation to issue 15,250,000 shares of our common stock, after approval by our shareholders, to the members of Cure Based Development, issued in two tranches 6,500,000 and 8,750,000, both of which are subject to leak out provisions, and the unrestricted voting rights to 8,750,000 tranche of shares will also vest over a five year period and are subject to a voting proxy agreement. The Merger Agreement also provides that an additional 15,250,000 shares of our common stock can be issued upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the Closing Date (“Earn Out”). The contractual obligations and earn out provision are accounted for as a contingent liability and fair value is determined using Level 3 inputs, as estimating the fair value of these contingent liabilities require the use of significant and subjective inputs that may and are likely to change over the duration of the liabilities with related changes in internal and external market factors. The initial two tranches totaling 15,250,000 shares have been valued using a market approach method and included the use of the following inputs: share price upon contractual obligation, discount for lack of marketability to address leak out restrictions, and probability of shareholder disapproval. In addition, the 8,750,000 shares in the second tranche also included an input for a discount for lack of voting rights during the vest periods. The Merger Agreement also provides that an additional 15,250,000 shares (“Earnout Shares”) would be issued as part of the consideration for the Mergers, upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the Closing Date as follows, as measured at four intervals (each a “Marking Period”): the completion of 12, 24, 42, and 59 calendar months from the Closing Date, and based upon the ratios set forth below: Aggregate Net Revenues Shares Issued / Each $ of Aggregate Net Revenue Ratio $1 - $20,000,000 .190625 $20,000,001 - $60,000,000 .0953125 $60,000,001 - $140,000,000 .04765625 $140,000,001 - $300,000,000 .023828125 For clarification purposes, the Aggregate Net Revenues during a Marking Period shall be multiplied by the applicable Shares Issued/Each $ of Aggregate Net Revenue Ratio, minus, the number of shares issued as a result of Aggregate Net Revenues during the prior Marking Periods. The initial 15,250,000 shares and the Earnout Shares were approved by our shareholders and the initial shares were issued on April 19, 2019. The initial shares were issued upon shareholder approval on April 19, 2019 and had a carrying value of $53,215,163. Additionally, as the 15,250,000 initial shares were issued, the value of the shares in the amount of $53,215,163 was reclassified from the contingent liability to additional paid in capital on the balance sheet. The 15,250,000 Earnout Shares which would be issued in the future, upon the satisfaction of net revenue criteria have been valued using a Monte Carlo Simulation. Inputs used included: stock price, volatility, interest rates, revenue projections, and likelihood of obtaining revenue projections, amongst others. The value of the contingent liability was $33,701,994 and $50,600,000 at December 31, 2019 and September 30, 2019, respectively, and represents the Earnout Shares. The first Marking Period for the Earnout Shares was December 31, 2019 and based on measurement criteria, 5,127,792 shares were issued on February 27, 2020. The value of the issued Earnout Shares as of February 27, 2020 was $4,620,000 and the decrease in value of $6,924,503 from December 31, 2019 related to those shares is recorded in the Statement of Operations for the three months ended March 31, 2020. Additionally, as the 5,127,792 Earnout Shares were issued on February 27, 2020, the value of the shares in the amount of $4,620,000 was reclassified from the contingent liability to additional paid in capital on the balance sheet. The remaining Earnout Shares for future evaluation were valued at $7,820,000 on March 31, 2020 as compared to $22,157,491 at December 31, 2019, a decrease of $14,337,491. The decrease in value of $6,924,503 and $14,337,491 combined represent the decrease of the total contingent liability of $21,261,994 and is recorded in the Statement of Operations for the three months ended March 31, 2020. The Company utilized both a market approach and a Monte Carlo simulation in valuing the contingent liability and a key input in both of those methods is the stock price. The main driver of the decrease in the value of the Earnout Shares within the contingent liability was the decrease of the Company’s stock price, which was $0.93 at March 31, 2020 as compared to $2.26 on December 31, 2019 and the issuance on February 27, 2020 of the Earnout Shares for the first marking period. |
9. RELATED PARTY TRANSACTIONS
9. RELATED PARTY TRANSACTIONS | 6 Months Ended |
Mar. 31, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | On December 20, 2018, with the closing of the Merger Agreement with Cure Based Development, we recognized the following related party transactions which happened prior to the Mergers: Cure Based Development received $90,000 from Verdure Holdings LLC for future orders of the Company’s products. Verdure Holdings LLC, at that time, was an affiliate of the CEO of Cure Based Development. This amount has been adjusted based on sales to Verdure Holdings subsequent to the mergers and is recorded as customer deposits - related party on the accompanying balance sheet and was $0 and 7,339 at March 31, 2020 and September 30, 2019, respectively. Cure Based Development entered a lease for office space, which also provides administrative and IT services, from an affiliate of the CEO of Cure Based Development. The lease was a month to month lease for $9,166 per month and ended September 2019. Cure Based Development leases its manufacturing facility from an entity partially owned by an individual who now has a contractual right to receive shares of the Company as part of the Mergers. The current lease was entered into on December 15, 2018 and ends December 15, 2021 and has been amended at an annual base rent rate of $199,200 allowing for a 3% annual increase. In addition, common area maintenance rent is set at $25,200 annually. |
10. SHAREHOLDERS' EQUITY
10. SHAREHOLDERS' EQUITY | 6 Months Ended |
Mar. 31, 2020 | |
Stockholders' Equity Attributable to Parent [Abstract] | |
SHAREHOLDERS' EQUITY | Preferred Stock – We are authorized to issue 50,000,000 shares of preferred stock, par value $0.001 per share. In October 2019, the Company designated 5,000,000 of these shares as 8.0% Series A Cumulative Convertible Preferred Stock. Our 8.0% Series A Cumulative Convertible Preferred Stock ranks senior to our common stock for liquidation or dividend provisions and holders are entitled to receive cumulative cash dividends at an annual rate of 8.0% payable monthly in arrears for the prior month. The Company reviewed ASC 480 – Distinguishing Liabilities from Equity The total amount of dividends declared and paid were $100,016 and $100,016, respectively, for the three months ended March 31, 2020. The total amount of dividends declared and paid were $166,750 and $166,750, respectively, for the six months ended March 31, 2020. Common Stock – We are authorized to issue 150,000,000 shares of common stock, par value $0.001 per share. There were 51,335,648 and 27,720,356 shares of common stock issued and outstanding at March 31, 2020 and September 30, 2019, respectively. Preferred stock transactions: In the three and six months ended March 31, 2020: On October 16, 2019, the Company completed a follow-on firm commitment underwritten public offering of 500,000 shares of its 8.0% Series A Cumulative Convertible Preferred Stock No preferred stock was issued in the three and six months ended March 31, 2019. Common stock transactions: In the three and six months ended March 31, 2020: On January 14, 2020, the Company completed a follow-on firm commitment underwritten public offering of 18,400,000 shares of its common stock In February 2020, we issued 25,000 shares of our common stock to an investor relations firm for services. The shares were valued at $28,250, based on the trading price upon issuance, and is being amortized and expensed as professional services over the service period ending January 2021. In February 2020, we issued 5,000 shares of our common stock to an employee. The shares were valued at $5,650, based on the trading price upon issuance, and was expensed as stock based compensation expense. In the three and six months ended March 31, 2019: On October 2, 2018, the Company completed a follow-on firm commitment underwritten public offering of 1,971,428 shares of its common stock for aggregate gross proceeds of approximately $6.9 million. The Company received approximately $6.3 million in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The Company also issued to representatives of the underwriters warrants to purchase in aggregate 51,429 shares of common stock with an exercise price of $4.375. The warrants were valued at $86,092 and expire on September 28, 2023. In January 2019, we issued 25,000 shares of our common stock to an investment banking firm for general financial advisory services. The shares were valued at $77,250, based on the trading price upon issuance, and is being amortized and expensed as professional services over the service period ending December 2019. In January 2019, we issued 50,000 shares of our common stock to an investment banking firm for general advisory and investment bank services. The shares were valued at $212,500, based on the trading price upon issuance, and is being amortized and expensed as professional services over the service period ending April 2020. Stock option transactions: In the three and six months ended March 31, 2020: In December 2019 we granted an aggregate of 280,000 common stock options to two executives. The options vest 1/3 on January 1, 2020, 1/3 on January 1, 2021 and 1/3 on January 1, 2022, have an exercise price of $3.15 per share and a term of five years. We have recorded an expense for the options of $71,540 and $262,316 for the three and six months ended March 31, 2020, respectively. In February 2020, we granted an aggregate of 30,000 common stock options to an employee. The options vest 1/3 at grant, 1/3 on February 7, 2021, and 1/3 on February 7, 2022, have an exercise price of $3.15 per share and a term of five years. We have recorded an expense for the options of $6,312 for the three months ended March 31, 2020. No options were issued in the three and six months ended March 31, 2019. The expected volatility rate was estimated based on comparison to the volatility of a peer group of companies in similar industries. The expected term used was the full term of the contract for the issuances. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. The pre-vesting forfeiture rate of zero is based upon the experience of the Company. As required under ASC 718, we will adjust the estimated forfeiture rate to our actual experience. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination. The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the six months ended March 31, 2020 and 2019: 2020 2019 Exercise price $ 3.15 — Risk free interest rate 1.41% - 1.64% — Volatility 95.96% - 99.03% — Expected term 3 - 5 years — Dividend yield None — Warrant transactions: In the three and six months ended March 31, 2020: In October 2019 in relation to the follow-on firm commitment underwritten public offering of the 8.0% Series A Cumulative Convertible Preferred Stock, we issued to the representative of the underwriters warrants to purchase in aggregate 47,923 shares of common stock with an exercise price of $3.9125. The warrants expire on October 10, 2024. In January 2020 in relation to the follow-on firm commitment underwritten public offering of the Company’s common stock, we issued to the representative of the underwriters warrants to purchase in aggregate 480,000 shares of common stock with an exercise price of $1.25. The warrants expire on January 14, 2025. In the three and six months ended March 31, 2019: On October 2, 2018 in relation to the follow-on firm commitment underwritten offering, we issued to the representative of the underwriters warrants to purchase in aggregate 51,429 shares of common stock with an exercise price of $4.375. The warrants expire on September 28, 2023. The following table summarizes the inputs used for the Black-Scholes pricing model on the warrants issued in the six months ended March 31, 2020 and 2019: 2020 2019 Exercise price $1.25 - $3.9125 $ 4.375 Risk free interest rate 1.48% - 1.63% 2.90 % Volatility 95.36% - 96.85% 70.61 % Expected term 5 years 5 years Dividend yield None None |
11. STOCK-BASED COMPENSATION
11. STOCK-BASED COMPENSATION | 6 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
STOCK-BASED COMPENSATION | Equity Compensation Plan – On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan (“Plan”). The Plan made 1,175,000 common stock shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The number of shares of common stock available for issuance under the Plan shall automatically increase on the first trading day of our fiscal year during the term of the Plan, beginning with calendar year 2016, by an amount equal to one percent (1%) of the total number of shares of common stock outstanding on the last trading day in September of the immediately preceding fiscal year, but in no event shall any such annual increase exceed 100,000 shares of common stock. On April 19, 2019, shareholders approved an amendment to the Plan and increased the amount of shares available for issuance under the Plan to 2,000,000 and retained the annual evergreen increase provision of the plan. We account for stock-based compensation using the provisions of FASB ASC 718. FASB ASC 718 codification requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. We have only awarded stock options since December 2015. All options are approved by the Compensation. Corporate Governance and Nominating Committee of the Board of Directors. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of our stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model. Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. Options granted generally have a five to ten year term and have vesting terms that cover one to three years from the date of grant. Certain of the stock options granted under the plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms. Stock Options – The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period. The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year. The following table summarizes stock option activity under the Plan: Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2019 1,219,650 6.07 Granted 310,000 3.15 Exercised - - Forfeited 14,650 5.70 Outstanding at March 31, 2020 1,515,000 $ 5.48 7.17 $ — Exercisable at March 31, 2020 898,334 $ 5.28 6.80 $ — As of March 31, 2020, there was approximately $1,171,704 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 2.0 years. Restricted Stock Award transactions: In May 2019 the Company issued 57,500 restricted stock awards in aggregate to eleven employees. The restricted stock awards vested January 1, 2020. The stock awards were valued at fair market upon issuance at $368,000 and amortized over the vesting period. We recognized $0 and $138,000 of stock based compensation expense for the three and six months ended March 31, 2020, respectively. |
12. WARRANTS
12. WARRANTS | 6 Months Ended |
Mar. 31, 2020 | |
Warrants Abstract | |
WARRANTS | Transactions involving our equity-classified warrants are summarized as follows: Number of shares Weighted-average exercise price Weighted- average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2019 423,605 $ 6.64 Issued 527,923 1.49 Exercised - - Forfeited - - Outstanding at March 31, 2020 951,528 $ 3.78 3.77 $ — Exercisable at March 31, 2020 423,605 $ 6.64 2.53 $ — The following table summarizes outstanding common stock purchase warrants as of March 31, 2020: Number of shares Weighted-average exercise price Expiration Exercisable at $7.80 per share 141,676 $ 7.80 September 2021 Exercisable at $4.00 per share 70,500 $ 4.00 September 2022 Exercisable at $7.50 per share 100,000 $ 7.50 October 2022 Exercisable at $4.375 per share 51,429 $ 4.375 September 2023 Exercisable at $7.50 per share 60,000 $ 7.50 May 2024 Exercisable at $3.9125 per share 47,000 $ 3.9125 October 2024 Exercisable at $1.25 per share 480,000 $ 1.25 January 2025 951,528 3.78 |
13. COMMITMENTS AND CONTINGENCI
13. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | In May 2019, the Company entered into an endorsement agreement with a professional athlete. The term of the agreement is through December 31, 2022 and is tied to performance of the athlete in so many professional events annually, and also includes promotion of the Company via social media, wearing of logo during competition, provide production days for advertising creation and attend meet and greets. The potential payments, if all services are provided, in aggregate is $4,900,000 and is paid based on the services above for the period ending: December 2019 - $400,000, December 2020 - $800,000, December 2021 - $1,800,000, and December 2022 - $1,900,000. In light of the impact of COVID-19 on events, we have mutually agreed to suspend payments at minimum from April 2020 until June 2020 and will determine if a contract amendment is warranted based on the professional league’s future direction. We have recorded expense of $116,667 and $283,334 for the three and six months ended March 31, 2020. In September 2019, the Company entered into a sponsorship agreement with Life Time, Inc, an operator of fitness clubs, facilities and events. The term of the agreement is through December 31, 2022 and is tied to the Company being the exclusive CBD company and performance of Life Time Inc. regarding advertisement, marketing and display within facilities and at identified events. The potential payments, if all commitments are met, in aggregate is $4,900,000 and is to be paid for the period ending: December 2019 - $1,125,555, December 2020 - $1,258,148, December 2021 - $1,258,148 and December 2022 - $1,258,149. In light of the impact of COVID-19 on the operation of fitness clubs, facilities and events, we have mutually agreed to suspend payments at minimum from April 202 until June 2020 and will determine if a contract amendment is warranted based on the opening of Life Time Inc. facilities and decisions on Life Time Inc. hosted events. We have recorded expense of $208,000 and $1,173,000 for the three and six months ended March 31, 2020. In October 2019, the Company entered into a sponsorship agreement with Feld Motor Sports to be an official sponsor of the Monster Energy Cup events through 2021, the United States AMA Supercross and FIM World Championship events through 2021, and US Supercross Futures event through 2021. The sponsorship includes various media, marketing, and promotion activities. The payments in aggregate are $1,750,000 and is to be paid for the period ending: December 2019 - $150,000, December 2020 - $800,000 and December 2021 - $800,000. In light of the impact of COVID-19 on the events, we have provided notice of termination for the entire agreement and have agreed to make three monthly payments of $77,430 from April 2020 to June 2020 for services provided in the quarter ending March 31, 2020. We have recorded expense of $465,625 and $528,625 for the three and six months ended March 31, 2020. |
14. NOTE PAYABLE
14. NOTE PAYABLE | 6 Months Ended |
Mar. 31, 2020 | |
Notes Payable [Abstract] | |
NOTE PAYABLE | In July 2019, we entered into a loan arrangement for $249,100 for a line of equipment, of which $172,051 is a long term note payable at March 31, 2020. Payments are for 60 months and have a financing rate of 7.01 %, which requires a monthly payment of $4,905. In January 2020, we entered into a loan arrangement for $35,660 for equipment, of which $25,448 is a long term note payable at March 31, 2020. Payments are for 48 months and have a financing rate of 6.2%, which requires a monthly payment of $783.93. |
15. DISCONTINUED OPERATIONS
15. DISCONTINUED OPERATIONS | 6 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
DISCONTINUED OPERATIONS | Effective September 30, 2019, the Company ceased operations of four business subsidiaries: EE1, IM1, BPU and Level H&W. These subsidiaries accounted for our licensing, entertainment, and products segments prior to fiscal 2019 and the Company determined that these business units are not able to provide support or value to the CBD business, which the Company is now strategically focused on. Therefore, the Company classified the operating results of these subsidiaries as discontinued operations, net of tax in the Consolidated Statements of Operations. The following table shows the summary operating results of the discontinued operations for the three and six months ended March 31, 2020 and 2019: 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 $ - $ 37,958 $ - $ 821,691 Allowances - (1,184 ) - (1,576 ) Total Net Sales - 36,774 - 820,115 Cost of sales - 219,947 - 545,643 Gross Profit - (183,173 ) - 274,473 Operating expenses - 189,870 41,202 342,999 Income Loss) from operations - (373,043 ) (41,202 ) (68,526 ) Realized and Unrealized gain (loss) on marketable securities - 361,835 - (1,142,978 ) Interest income (expense) - 11,811 - 18,159 Income (loss) before provision for income taxes - 603 (41,202 ) (1,193,345 ) Benefit - - - - Net Income (Loss) 603 (41,202 ) (1,193,345 ) - (58,536 ) - (137,685 ) The following table shows the summary assets and liabilities of the discontinued operations as of March 31, 2020 and September 30, 2019. March 31, September 30, 2020 2019 Assets Current assets: Cash and cash equivalents $ - $ - Accounts receivable 791,998 1,080,000 Total current assets included as part of discontinued operations 791,998 1,080,000 Other assets: Total other assets included as part of discontinued operations - - Total assets included as part of discontinued operations $ 791,998 $ 1,080,000 Liabilities Current liabilities: Accounts payable $ - $ - Total current assets included as part of discontinued operations - - Long term liabilities: Total long term liabilities as part of discontinued operations - - Total liabilities included as part of discontinued operations $ - $ - The following table shows the significant cash flow items from discontinued operations for the six months ended March 31,: 2020 2019 Depreciation/ amortization $ - $ 19,992 Realized/unrealized (gain) loss on securities expenditures $ - $ 1,142,978 Impairment on discontinued operations assets $ (38,002 ) $ - Non cash consideration received for services $ - $ (470,000 ) At September 30, 2019, EE1 had an accounts receivable for prior services delivered to two customers in aggregate of $1,080,000 of which $1,000,000 was from a related party at the time. At March 31, 2020 the balance on the accounts receivable is $791,998, which reflects payments made and an impairment of $38,002. As of March 31, 2020, one customer has breached their formal agreement on payments, with an accounts receivable balance of $750,000, and on April 29, 2020, the Company filed a lawsuit for collection of this amount and legal fees. The customer is Sandbox Properties LLC and is an affiliate of Kathy Ireland and kathy ireland Worldwide. As of March 31, 2020, we believe this amount will be collected in full. As two of the subsidiaries, EE1 and IM1, had minority interests (non-controlling interests) and all parties agreed to transfer the non- controlling interest to the Company, we have reclassified the non-controlling interest balance of $(482,648) to additional paid in capital as of September 30, 2019. |
16. LEASES
16. LEASES | 6 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
LEASES | We have lease agreements for our corporate, warehouse and laboratory offices with lease periods expiring between 2021 and 2026. ASC 842 requires the recognition of leasing arrangements on the balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets. We determine whether an arrangement is a lease at inception and classify it as finance or operating. All of our leases are classified as operating leases. Our leases do not contain any residual value guarantees. Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, we determine an incremental borrowing rate for each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date to determine the present value of future lease payments. Our lease terms may include options to extend or terminate the lease. In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes, insurance and common area maintenance expenses during the lease terms, which are variable lease costs. Lease costs on operating leases are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the condensed consolidated statements of operations. Components of operating lease costs are summarized as follows: Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Operating lease costs $ 382,433 $ 764,866 Variable lease costs 25,791 48,891 Total operating lease costs $ 408,224 $ 813,757 Supplemental cash flow information related to operating leases is summarized as follows: Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 357,922 $ 676,681 As of March 31, 2020, our operating leases had a weighted average remaining lease term of 6.13 years and a weighted average discount rate of 4.66%. Future minimum aggregate lease payments under operating leases as of March 31, 2020 are summarized as follows: For the year ended September 30, 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 Future minimum lease payments (including interest) under non-cancelable operating leases as of September 30, 2019 are summarized as follows: For the year ended September 30, 2020 $ 1,394,806 2021 1,452,434 2022 1,392,837 2023 1,380,204 2024 1,421,610 Thereafter 2,532,811 Total obligations and commitments $ 9,574,702 |
17. EARNINGS PER SHARE
17. EARNINGS PER SHARE | 6 Months Ended |
Mar. 31, 2020 | |
Net income (loss) per share: | |
EARNINGS PER SHARE | The following table sets forth the computation of basic and diluted earnings per share for the following periods: Three Months Ended Six Months Ended March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Basic: Net income (loss) continuing operations $ 14,883,772 $ (31,850,877 ) $ 27,854,738 $ (32,845,791 ) Net income (loss) discontinued operations - 59,139 (41,202 ) (1,055,660 ) Net income (loss) attributable to cbdMD, Inc. common shareholders 14,883,772 (31,791,738 ) 27,813,536 (33,901,451 ) Preferred dividends paid 100,016 - 166,750 - Diluted: Net income (loss) continuing operations adjusted for preferred dividend 14,783,756 - 27,687,988 - Net income(loss) adjusted for preferred dividend 14,783,756 - 27,646,786 - Shares used in computing basic earnings per share 36,503,005 10,160,947 36,503,005 10,107,144 Effect of dilutive securities: Options - - - - Warrants - - - - Convertible preferred shares 833,500 - 833,500 - Shares used in computing diluted earnings per share 37,336,505 10,160,947 37,336,505 10,107,144 Earnings per share Basic: Continued operations 0.41 (3.13 ) 0.76 (3.24 ) Discontinued operations (0.00 ) (0.00 ) (0.00 ) (0.11 ) Basic earnings per share 0.41 (3.13 ) 0.76 (3.35 ) Earnings per share Diluted: Continued operations 0.40 - 0.74 - Discontinued operations - - (0.00 ) - Diluted earnings per share 0.40 - 0.74 - At the three and six months ended March 31, 2019, 833,255 potential shares underlying options and warrants, were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share. |
18. INCOME TAXES
18. INCOME TAXES | 6 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | On November 17, 2017, the Company completed an IPO of its common stock. The Company conducted a Section 382 analysis and determined an ownership change occurred upon the IPO. On October 2, 2018 the Company completed a follow-on firm commitment underwritten public offering of its common stock. On May 16, 2019 the Company completed a follow-on firm commitment underwritten public offering of its common stock. On October 16, 2019 the Company completed a follow-on firm commitment underwritten public offering of its 8.0% Series A Cumulative Convertible Preferred Stock. On December 20, 2018, the Company completed a two-step merger with Cure Based Development (see Note 2). As a result of the Mergers the Company established as part of the purchase price allocation a net deferred tax liability related to the book-tax basis of certain assets and liabilities of approximately $4.6 million. The Company has had a valuation allowance against the net deferred tax assets, with the exception of the deferred tax liabilities that result from indefinite-life intangibles ("naked credits"). The Company has determined that using the general methodology for calculating income taxes during an interim period for the quarter ending December 31, 2019, provided for a wide range of potential annual effective rates. Therefore, the Company has calculated the tax provision on a discrete basis under ASC 740-270-30-36(b) for the quarter ending December 31, 2019. Given available information to date and the most probable scenario given the facts and circumstances, management’s expectation is that the Company will generate enough indefinite life deferred tax assets from post-merger NOLs to reduce the naked credits to zero during the year, and continue to record a valuation allowance on remaining DTAs. As a result, the Company decreased the deferred tax liability from $2,240,300 to $0 and a recorded a deferred tax benefit of $2,240,300 for the quarter ending December 31, 2019. The Company recorded $0 income tax provision for the quarter ending March 31, 2020. |
19. SUBSEQUENT EVENTS
19. SUBSEQUENT EVENTS | 6 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company has analyzed its operations subsequent to March 31, 2020 to the date these unaudited condensed consolidated financial statements were issued, and with the rapid spread of COVID-19 around the world and the continuously evolving responses to the pandemic, we have witnessed the significant and growing negative impact of COVID-19 on the global economic and operating environment. We find that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company. However, we are monitoring the rapidly evolving situation and its potential impacts on our financial condition, liquidity, operations, suppliers, industry and workforce. On March 27, 2020, Congress passed and the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act, which is commonly known as the CARES Act . The Company is currently evaluating how these provisions in the CARES Act will impact its financial position, results of operations and cash flows. In April 2020, the Company applied for an unsecured loan in the amount of approximately $1.5 million pursuant to the Paycheck Protection Program administered by the United States Small Business Administration and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act. The Company received the loan proceeds on April 27, 2020. |
1. ORGANIZATION AND SUMMARY O_2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Organization and Nature of Business | cbdMD, Inc. ("cbdMD", "we", "us", “our”, "Parent Company” or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to “cbdMD, Inc.”. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30. On December 20, 2018 the Company, and its newly organized wholly-owned subsidiaries AcqCo, LLC and cbdMD LLC, completed a two-step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). Upon completion of the Mergers, cbdMD LLC survived and operates the prior business of Cure Based Development. On April 10, 2019, cbdMD LLC was renamed to CBD Industries LLC (“CBDI”). As consideration for the Mergers, the Company had a contractual obligation, after approval by our shareholders, to issue 15,250,000 shares of our common stock to the members of Cure Based Development, of which 8,750,000 of the shares will vest over a five year period and are subject to a voting proxy agreement, as well as to issue another 15,250,000 shares of our common stock in the future upon earnout goals being within the next 5 years. The Company’s shareholders approved the issuance of the 15,250,000 shares of common stock and they were issued to members of Cure Based Development on April 19, 2019. CBDI produces and distributes On October 22, 2019, cbdMD, Inc. filed Articles of Incorporation with the Secretary of State of North Carolina to form a new wholly-owned subsidiary, Paw CBD, Inc. (“Paw CBD”), in conjunction with the organization of its animal health division. In the third quarter of fiscal 2019 cbdMD, Inc. launched its new CBD pet brand, Paw CBD. Following the initial positive response to the brand from retailers and consumers, cbdMD, Inc. organized Paw CBD, Inc. as a separate wholly-owned subsidiary in an effort to take advantage of its early mover status in the CBD animal health industry. Effective September 30, 2019, the Company abandoned and ceased operations of four business subsidiaries: Encore Endeavor 1, LLC (“EE1”), I’M1, LLC (“IM1”), Beauty and Pin Ups, LLC (“BPU”) and Level H&W, LLC (“Level H&W”). Therefore, the results of operations related to these subsidiaries for the Company are reported as discontinued operations. The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended September 30, 2019 (“2019 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal year 2019 as reported in the 2019 10-K have been omitted. |
Principles of Consolidation | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI and Paw CBD. All material intercompany transactions and balances have been eliminated in consolidation. |
Use of Estimates | The preparation of the Company's consolidated financial statements have been prepared in accordance with US GAAP, and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the valuation of investments other securities, common stock issued prior to the Company’s initial public offering (the “IPO”), acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, contingent liability and, hence consideration for the Mergers is a material estimate. Actual results could differ from these estimates. The Company is continuing to monitor data related to impact of the COVID-19 pandemic and a |
Cash and Cash Equivalents | For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. |
Accounts Receivable and Accounts Receivable Other | Accounts receivable are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. As of March 31, 2020, we have an allowance for doubtful accounts of $14,318, and had an allowance of $7,286 at September 30, 2019. In addition, the Company has and may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. Where an accounts receivable is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either a marketable security (when the customer is a publicly traded entity) or as an investment other security (when the customer is a private entity). |
Receivable and Merchant Reserve | The Company primarily sells its products through the internet and has an arrangement to process customer payments with third-party payment processors, and will negotiate the fee based on the market. The arrangement with the payment processors requires that the Company pay a fee between 4.0% - 5.2% of the transaction amounts processed. Pursuant to this agreement, there can be a waiting period between 2 - 5 days prior to reimbursement to the Company, and as well as a calculated reserve which some payment processors hold back. Fees and reserves can change periodically with notice from the processors. At March 31, 2020, the receivable from payment processors included approximately $160,013 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet and $280,322 for the reserve amount for a total receivable of $440,335. |
Inventory | Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end. |
Customer Deposits | Customer deposits consist of payments received in advance of revenue recognition. Revenue is recognized as revenue recognition criteria are met. |
Property and Equipment | Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for manufacturing equipment and automobiles, three years for computer, furniture and equipment, three years for software, and leasehold improvements are over the term of the lease. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable. |
Fair Value Accounting | The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When the Company records an investment in marketable securities the carrying value is assigned at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For investment other securities without a readily determinable fair value, the Company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes. |
Goodwill | Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Identifiable intangible assets acquired in business combinations are recorded based on their fair values at the date of acquisition. Goodwill is not subject to amortization but must be evaluated for impairment annually. The Company tests for goodwill impairment annually or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In performing a goodwill test, the Company performs a qualitative evaluation and if necessary, a quantitative evaluation. Factors considered in the qualitative test include specific operating results as well as new events and circumstances impacting the operations or cash flows of the business acquired. For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of the business to the respective fair value. The Company determines the fair value of its acquired business using a combination of income-based and market-based approaches and incorporates assumptions it believes market participants would utilize. The income-based approach utilizes discounted cash flows while the market-based approach utilizes market multiples. These approaches are dependent upon internally-developed forecasts that are based upon annual budgets and longer-range strategic plans. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective acquired business and in the internally-developed forecasts. |
Intangible Assets | The Company's intangible assets consist of trademarks and other intellectual property, all of which are accounted for in accordance with ASC Topic 350, Intangibles – Goodwill and Other Intangible assets with finite useful lives are amortized using the straight-line method over their estimated period of benefit. In accordance with ASC 360-10-35-21, definite lived intangibles are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. In conjunction with any acquisitions, the Company refers to ASC-805 as amended by Accounting Standards Update (“ASU”) 2017-01 in determining if the Company is acquiring any inputs, processes or outputs and the impact that such factors would have on the classification of the acquisition as a business combination or asset purchase. Additionally, the Company refers to the aforementioned guidance in reviewing all acquired assets and assumed liabilities for valuation in a business combination, including the determination of intangible asset values and contingent liabilities. |
Contingent Liability | A significant component of the purchase price consideration for the Company’s acquisition of Cure Based Development includes a fixed number of future shares to be issued as well as a variable number of future shares to be issued based upon the post-acquisition entity reaching certain specified future revenue targets, as further described in Note 8. The Company made a determination of the fair value of the contingent liabilities as part of the valuation of the assets acquired and liabilities assumed in the business combination. The Company recognized both the fixed number of shares to be issued, and the variable number of shares to be potentially issued, as contingent liabilities on its Consolidated Balance Sheets. These contingent liabilities were recorded at fair value upon the acquisition date and are remeasured quarterly based on the reassessed fair value as of the end of that quarterly reporting period. Additionally, as the fixed shares were issued on April 19, 2019, the value of the shares at that time, in the amount of $53,215,163, was reclassified from contingent liability to additional paid in capital on the balance sheet. In addition the first marking period for the Earnout Shares was December 31, 2019 and based on measurement criteria, 5,127,792 shares were issued on February 27, 2020. The value of the issued Earnout Shares as of February 27, 2020 was $4,620,000 and the decrease in value of $6,924,503 from December 31, 2019 related to those shares is recorded in the Statement of Operations for the three months ended March 31, 2020. Additionally, as the 5,127,792 Earnout Shares were issued on February 27, 2020, the value of the shares in the amount of $4,620,000 was reclassified from the contingent liability to additional paid in capital on the balance sheet. For the three months ended March 31, 2020, the contingent liabilities associated with the business combination were decreased by $21,261,994 to reflect their reassessed fair values as of March 31, 2020. This decrease is reflective of a change in value of the variable number of shares from December 31, 2019, including the change in value of the Earnout Shares from December 31, 2019 until issued February 27, 2020. In December 2019, the Company updated the forecasts for performance of the post-acquisition entity based on current trends and performance that would impact the estimated likelihood that the revenue targets disclosed in Note 8 would be met. The primary catalyst for the $21,261,994 decrease in contingent liabilities is the change in the Company’s common share price between March 31, 2020 and December 31, 2019. These increases or decreases to the contingent liabilities are reflected within Other Income (Expenses) on the consolidated statements of operations. |
Revenue Recognition | The Company adopted ASC 606, Revenue from Contracts with Customers Under ASC 606, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. For our CBD products, the Company meets that obligation when it has shipped products which have been ordered to the customer. The Company has reviewed its various revenue streams for its other contracts under the five-step approach. The below table summarizes amounts related to future performance obligations under fixed contractual arrangements as of March 31, 2020: At March 31, 2020 2020 and thereafter Future performance obligations $ 0 $ 0 Allocation of transaction price In our current business model we do not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order based product sales. However, at times in the past, the Company had entered into contracts with customers wherein there were multiple elements that may have disparate revenue recognition patterns. In such instances, the Company must allocate the total transaction price to these various elements. This is achieved by estimating the standalone selling price of each element, which is the price at which we sell a promised good or service separately to a customer. In circumstances where we have not historically sold relevant products or services on a standalone basis, the Company utilizes the most situationally appropriate method of estimating standalone selling price. These methods include (i) an adjusted market assessment approach, wherein we refer to prices from our competitors for similar goods or serves and adjust those prices as necessary to reflect our typical costs and margins, (ii) an expected cost plus margin approach, wherein we forecast the costs that we will incur in satisfying the identified performance obligation and adding an appropriate margin to such costs, and (iii) a residual approach, wherein we adjust the total transaction price to remove all observable standalone selling prices of other goods or services included in the contract and allocate the entirety of the remaining contract amount to the remaining obligation. Revenue recognition The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 30 day, money back guarantee. In regard to sales for services provided, the Company records revenue when the customer has accepted services and the Company has a right to payment. Based on the contracted services, revenue is recognized when the Company invoices customers for completed services at agreed upon rates or revenue is recognized over a fixed period of time during which the service is performed. Disaggregated Revenue Our product revenue is generated primarily through two sales channels, consumer (E-commerce) and wholesale channels. We also generate service related sales, although this type of revenue is not a primary focus. We believe that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors. A description of our principal revenue generating activities are as follows: - Consumer (E-commerce) sales - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment. - Wholesale sales - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer. - Service related sales – services provided to organizations typically consulting services related to branding, marketing, or advisory. Revenue is recognized when services are delivered to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and typically are based on deliverables and agreed upon timelines. The following table represents a disaggregation of revenue by sales channel: Three Months ended March 31, 2020 % of total Three Months ended March 31, 2019 % of total 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 $ 5,636,578 Six Months ended March 31, 2020 % of total Six Months ended March 31, 2019 % of total 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 $ 6,102,265 Contract Balances Contract assets represent unbilled receivables and are presented within accounts receivable, net on the condensed consolidated balance sheets. Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the condensed consolidated balance sheets. We have no contract assets and contract liabilities at March 31, 2020. |
Cost of Sales | Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and outbound freight for our products sales, and includes labor for our service sales. For our product sales, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale, if any, and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value. |
Advertising Costs | The Company expenses all costs of advertising and related marketing and promotional costs as incurred. The Company incurred approximately $3,398,777 and $1,475,696 in advertising and related marketing and promotional costs included in operating expenses during the three months ended March 31, 2020 and 2019, respectively. The Company incurred approximately $5,809,498 and $1,557,838 in advertising and related marketing and promotional costs included in operating expenses during the six months ended March 31, 2020 and 2019, respectively. |
Shipping and Handling Fees and Costs | All fees billed to customers for shipping and handling are classified as a component of sales. All costs associated with shipping and handling are classified as a component of cost of goods sold. |
Income Taxes | The Parent Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. Prior to April 2017, BPU was a multi-member limited liability company that was treated as a partnership for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of BPU was included in the tax return of the Parent Company. Beginning in April 2017, the Parent Company acquired the remaining interests in BPU. As a result of the acquisition, BPU became a disregarded entity for tax purposes and its entire share of taxable income or loss was included in the tax return of the Parent Company. CBDI, Paw CBD, and Level H&W are wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Parent Company. IM1 and EE1 are multi-member limited liability companies that are treated as partnerships for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of IM1 and EE1 are included in the tax return of the Parent Company. The Parent Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the FASB ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Parent Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of March 31, 2020 and 2019, there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements. |
Concentrations | Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $14,344,758 uninsured balance at March 31, 2020 and a $4,097,190 uninsured balance at September 30, 2019. Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the three and six months ended March 31, 2020. We have three customers whose aggregate accounts receivable balance was approximately 69% of the combined total accounts receivable and accounts receivable discontinued operations as of March 31, 2020, of which one customer is from the discontinued operations and accounts for approximately 51%. The aggregate accounts receivable balance of such customers represented approximately 51% of the Company’s total accounts receivable as of September 30, 2019. |
Stock-Based Compensation | We account for our stock compensation under the ASC 718-10-30, Compensation - Stock Compensation We use the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. The Company recognizes forfeitures when they occur. |
Earnings (Loss) Per Share | The Company uses ASC 260-10, Earnings Per Share |
New Accounting Standards | On October 1, 2019, the Company adopted ASU No. 2016-02, Leases In connection with the adoption of the new guidance, the Company recognized an operating lease asset for $7,704,109 and operating lease liability of $7,950,803 and a reduction of retained earnings of $13,528 in its balance sheet as of December 31, 2019, with no impact to its results of operations and cash flows. The difference between the leased assets and lease liabilities represents the net position of existing prepaid rent and deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which were effectively reclassified upon adoption to reduce the measurement of the leased assets. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). |
1. ORGANIZATION AND SUMMARY O_3
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Performance obligations | At March 31, 2020 2020 and thereafter Future performance obligations $ 0 $ 0 |
Disaggregation of revenue | Three Months ended March 31, 2020 % of total Three Months ended March 31, 2019 % of total 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 $ 5,636,578 Six Months ended March 31, 2020 % of total Six Months ended March 31, 2019 % of total 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 $ 6,102,265 |
2. ACQUISITIONS (Tables)
2. ACQUISITIONS (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Business Combinations [Abstract] | |
Purchase price allocation | Consideration $ 74,353,483 Assets acquired: Cash and cash equivalents $ 1,822,331 Accounts receivable 850,921 Inventory 1,054,926 Other current assets 38,745 Property and equipment, net 723,223 Intangible assets 21,585,000 Goodwill 54,669,997 Total assets acquired 80,745,143 Liabilities assumed: Accounts payable 257,081 Notes payable – related party 764,300 Customer deposits - related party 265,000 Accrued expenses 460,979 Deferred tax liability 4,644,300 Total Liabilities assumed 6,391,660 Net Assets Acquired $ 74,353,483 |
3. MARKETABLE SECURITIES AND _2
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Marketable Securities [Abstract] | |
Assets valued at fair value | In Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value at March 31, 2020 Marketable securities $ 83,375 - $ - $ 83,375 Investment other securities - - $ - $ - Level 1 Level 2 Level 3 Total Balance at September 30, 2019 $ 198,538 $ - $ 600,000 $ 798,538 Change in value of equities $ (62,011 ) $ - $ - $ (62,011 ) Balance at December 31, 2019 $ 136,527 $ - $ 600,000 $ 736,527 Change in value of equities $ (53,152 ) $ - $ (600,000 ) $ (653,152 ) Balance at March 31, 2020 $ 83,375 $ - $ - $ 83,375 |
4. INVENTORY (Tables)
4. INVENTORY (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventory | March 31, September 30, 2020 2019 Finished goods $ 2,518,633 $ 3,050,120 Inventory components 4,053,063 1,251,466 Inventory prepaid 517,309 903,458 Total $ 7,089,005 $ 5,205,044 |
5. PROPERTY AND EQUIPMENT (Tabl
5. PROPERTY AND EQUIPMENT (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Major classes of property and equipment | March 31, September 30, 2020 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 3,704,255 1,907,909 Less accumulated depreciation (479,809 ) (192,352 ) Net property and equipment $ 3,224,446 $ 1,715,557 |
6. INTANGIBLE ASSETS (Tables)
6. INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
Intangible assets | March 31, September 30, 2020 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 |
7. PRO FORMA FINANCIAL INFORM_2
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Pro Forma Financial Information | |
Pro forma information | Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Net revenues $ N/A* $ N/A* Operating income (loss) $ N/A* $ N/A* Net income (loss) $ N/A* $ N/A* Net loss per share – basic and fully diluted $ N/A* $ N/A* Six Months Ended March 31, 2020 Six Months Ended March 31, 2019 Net revenues $ N/A* $ 9,185,693 Operating income (loss) $ N/A* $ (4,320,089 ) Net income (loss) $ N/A* $ (35,298,514 ) Net loss per share – basic and fully diluted $ N/A* $ (1.39 ) * All entities were consolidated effective December 21, 2018 therefore, the results of operations are included in these condensed financial statements. |
8. CONTINGENT LIABILITY (Tables
8. CONTINGENT LIABILITY (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Contingent Liability | |
Contingent liability | Aggregate Net Revenues Shares Issued / Each $ of Aggregate Net Revenue Ratio $1 - $20,000,000 .190625 $20,000,001 - $60,000,000 .0953125 $60,000,001 - $140,000,000 .04765625 $140,000,001 - $300,000,000 .023828125 |
10. SHAREHOLDERS' EQUITY (Table
10. SHAREHOLDERS' EQUITY (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Stockholders' Equity Attributable to Parent [Abstract] | |
Fair value assumptions | Stock option transactions: 2020 2019 Exercise price $ 3.15 — Risk free interest rate 1.41% - 1.64% — Volatility 95.96% - 99.03% — Expected term 3 - 5 years — Dividend yield None — Warrant transactions: 2020 2019 Exercise price $1.25 - $3.9125 $ 4.375 Risk free interest rate 1.48% - 1.63% 2.90 % Volatility 95.36% - 96.85% 70.61 % Expected term 5 years 5 years Dividend yield None None |
11. STOCK-BASED COMPENSATION (T
11. STOCK-BASED COMPENSATION (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock option activity | Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2019 1,219,650 6.07 Granted 310,000 3.15 Exercised - - Forfeited 14,650 5.70 Outstanding at March 31, 2020 1,515,000 $ 5.48 7.17 $ — Exercisable at March 31, 2020 898,334 $ 5.28 6.80 $ — |
12. WARRANTS (Tables)
12. WARRANTS (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Warrants Abstract | |
Summary of warants | Number of shares Weighted-average exercise price Weighted- average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2019 423,605 $ 6.64 Issued 527,923 1.49 Exercised - - Forfeited - - Outstanding at March 31, 2020 951,528 $ 3.78 3.77 $ — Exercisable at March 31, 2020 423,605 $ 6.64 2.53 $ — |
Outstanding common stock purchase warrants | Number of shares Weighted-average exercise price Expiration Exercisable at $7.80 per share 141,676 $ 7.80 September 2021 Exercisable at $4.00 per share 70,500 $ 4.00 September 2022 Exercisable at $7.50 per share 100,000 $ 7.50 October 2022 Exercisable at $4.375 per share 51,429 $ 4.375 September 2023 Exercisable at $7.50 per share 60,000 $ 7.50 May 2024 Exercisable at $3.9125 per share 47,000 $ 3.9125 October 2024 Exercisable at $1.25 per share 480,000 $ 1.25 January 2025 951,528 3.78 |
15. DISCONTINUED OPERATIONS (Ta
15. DISCONTINUED OPERATIONS (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued operations | 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 $ - $ 37,958 $ - $ 821,691 Allowances - (1,184 ) - (1,576 ) Total Net Sales - 36,774 - 820,115 Cost of sales - 219,947 - 545,643 Gross Profit - (183,173 ) - 274,473 Operating expenses - 189,870 41,202 342,999 Income Loss) from operations - (373,043 ) (41,202 ) (68,526 ) Realized and Unrealized gain (loss) on marketable securities - 361,835 - (1,142,978 ) Interest income (expense) - 11,811 - 18,159 Income (loss) before provision for income taxes - 603 (41,202 ) (1,193,345 ) Benefit - - - - Net Income (Loss) 603 (41,202 ) (1,193,345 ) - (58,536 ) - (137,685 ) March 31, September 30, 2020 2019 Assets Current assets: Cash and cash equivalents $ - $ - Accounts receivable 791,998 1,080,000 Total current assets included as part of discontinued operations 791,998 1,080,000 Other assets: Total other assets included as part of discontinued operations - - Total assets included as part of discontinued operations $ 791,998 $ 1,080,000 Liabilities Current liabilities: Accounts payable $ - $ - Total current assets included as part of discontinued operations - - Long term liabilities: Total long term liabilities as part of discontinued operations - - Total liabilities included as part of discontinued operations $ - $ - 2020 2019 Depreciation/ amortization $ - $ 19,992 Realized/unrealized (gain) loss on securities expenditures $ - $ 1,142,978 Impairment on discontinued operations assets $ (38,002 ) $ - Non cash consideration received for services $ - $ (470,000 ) |
16. LEASES (Tables)
16. LEASES (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Components of operating lease costs | Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Operating lease costs $ 382,433 $ 764,866 Variable lease costs 25,791 48,891 Total operating lease costs $ 408,224 $ 813,757 |
Supplemental cash flow information related to operating leases | Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 357,922 $ 676,681 |
Future minimum aggregate lease payments under operating leases | For the year ended September 30, 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 |
Future minimum lease payments (including interest) under non-cancelable operating leases | For the year ended September 30, 2020 $ 1,394,806 2021 1,452,434 2022 1,392,837 2023 1,380,204 2024 1,421,610 Thereafter 2,532,811 Total obligations and commitments $ 9,574,702 |
17. EARNINGS PER SHARE (Tables)
17. EARNINGS PER SHARE (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Net income (loss) per share: | |
Computation of basic and diluted earnings per share | Three Months Ended Six Months Ended March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Basic: Net income (loss) continuing operations $ 14,883,772 $ (31,850,877 ) $ 27,854,738 $ (32,845,791 ) Net income (loss) discontinued operations - 59,139 (41,202 ) (1,055,660 ) Net income (loss) attributable to cbdMD, Inc. common shareholders 14,883,772 (31,791,738 ) 27,813,536 (33,901,451 ) Preferred dividends paid 100,016 - 166,750 - Diluted: Net income (loss) continuing operations adjusted for preferred dividend 14,783,756 - 27,687,988 - Net income(loss) adjusted for preferred dividend 14,783,756 - 27,646,786 - Shares used in computing basic earnings per share 36,503,005 10,160,947 36,503,005 10,107,144 Effect of dilutive securities: Options - - - - Warrants - - - - Convertible preferred shares 833,500 - 833,500 - Shares used in computing diluted earnings per share 37,336,505 10,160,947 37,336,505 10,107,144 Earnings per share Basic: Continued operations 0.41 (3.13 ) 0.76 (3.24 ) Discontinued operations (0.00 ) (0.00 ) (0.00 ) (0.11 ) Basic earnings per share 0.41 (3.13 ) 0.76 (3.35 ) Earnings per share Diluted: Continued operations 0.40 - 0.74 - Discontinued operations - - (0.00 ) - Diluted earnings per share 0.40 - 0.74 - |
1. ORGANIZATION AND SUMMARY O_4
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | Dec. 31, 2020 | Mar. 31, 2020 |
Accounting Policies [Abstract] | ||
Future performance obligations | $ 0 | $ 0 |
1. ORGANIZATION AND SUMMARY O_5
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Total net sales | $ 9,399,036 | $ 5,636,578 | $ 19,547,272 | $ 6,102,265 |
Wholesale Product Sales | ||||
Total net sales | $ 2,617,860 | $ 1,375,045 | $ 5,885,981 | $ 1,375,045 |
Percentage of revenue | 27.90% | 24.40% | 30.10% | 22.50% |
Consumer Product Sales | ||||
Total net sales | $ 6,781,176 | $ 4,261,533 | $ 13,661,291 | $ 4,727,220 |
Percentage of revenue | 72.10% | 75.60% | 69.90% | 77.50% |
Service Related Sales | ||||
Total net sales | $ 0 | $ 0 | $ 0 | $ 0 |
Percentage of revenue | 0.00% | 0.00% | 0.00% |
1. ORGANIZATION AND SUMMARY O_6
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | Sep. 30, 2019 | |
Accounting Policies [Abstract] | |||||
Accounts receivable allowance | $ 14,318 | $ 14,318 | $ 7,286 | ||
Merchant reserve | 280,322 | 280,322 | 519,569 | ||
Advertising costs | 3,398,777 | $ 1,475,696 | 5,809,498 | $ 1,557,838 | |
Uninsured balance | $ 14,344,758 | $ 14,344,758 | $ 4,097,190 |
2. ACQUISITIONS (Details)
2. ACQUISITIONS (Details) | 6 Months Ended |
Mar. 31, 2020USD ($) | |
Business Combinations [Abstract] | |
Consideration | $ 74,353,483 |
Assets acquired: | |
Cash and cash equivalents | 1,822,331 |
Accounts receivable | 850,921 |
Inventory | 1,054,926 |
Other current assets | 38,745 |
Property and equipment, net | 723,223 |
Intangible assets | 21,585,000 |
Goodwill | 54,669,997 |
Total assets acquired | 80,745,143 |
Liabilities assumed: | |
Accounts payable | 257,081 |
Notes payable - related party | 764,300 |
Customer deposits - related party | 265,000 |
Accrued expenses | 460,979 |
Deferred tax liability | 4,644,300 |
Total liabilities assumed | 6,391,660 |
Net assets acquired | $ 74,353,483 |
3. MARKETABLE SECURITIES AND _3
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Details) | Mar. 31, 2020USD ($) |
Marketable securities | $ 83,375 |
Investment other securities | 0 |
In Active Markets for Identical Assets and Liabilities (Level 1) | |
Marketable securities | 83,375 |
Investment other securities | 0 |
Significant Other Observable Inputs (Level 2) | |
Marketable securities | 0 |
Investment other securities | 0 |
Significant Unobservable Inputs (Level 3) | |
Marketable securities | 0 |
Investment other securities | $ 0 |
3. MARKETABLE SECURITIES AND _4
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Details 1) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Investment other securities, beginning | $ 736,527 | $ 798,538 |
Change in value of equity | (653,152) | (62,011) |
Investment other securities, ending | 83,375 | 736,527 |
In Active Markets for Identical Assets and Liabilities (Level 1) | ||
Investment other securities, beginning | 136,527 | 198,538 |
Change in value of equity | (53,152) | (62,011) |
Investment other securities, ending | 83,375 | 136,527 |
Significant Other Observable Inputs (Level 2) | ||
Investment other securities, beginning | 0 | 0 |
Change in value of equity | 0 | 0 |
Investment other securities, ending | 0 | 0 |
Significant Unobservable Inputs (Level 3) | ||
Investment other securities, beginning | 600,000 | 600,000 |
Change in value of equity | (600,000) | 0 |
Investment other securities, ending | $ 0 | $ 600,000 |
4. INVENTORY (Details)
4. INVENTORY (Details) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 2,518,633 | $ 3,050,120 |
Inventory components | 4,053,063 | 1,251,466 |
Inventory prepaid | 517,309 | 903,458 |
Inventory | $ 7,089,005 | $ 5,205,044 |
5. PROPERTY AND EQUIPMENT (Deta
5. PROPERTY AND EQUIPMENT (Details) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Property and equipment, gross | $ 3,704,255 | $ 1,907,909 |
Less accumulated depreciation | (479,809) | (192,352) |
Net property and equipment | 3,224,446 | 1,715,557 |
Computers, Furniture and Equipment | ||
Property and equipment, gross | 280,925 | 131,077 |
Manufacturing Equipment | ||
Property and equipment, gross | 2,591,440 | 1,375,986 |
Leasehold Improvements | ||
Property and equipment, gross | 806,998 | 375,954 |
Automobiles | ||
Property and equipment, gross | $ 24,892 | $ 24,892 |
5. PROPERTY AND EQUIPMENT (De_2
5. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Continued Operations | ||||
Depreciation expense | $ 174,206 | $ 49,936 | $ 287,457 | $ 54,039 |
Discontinued Operations | ||||
Depreciation expense | $ 0 | $ 2,938 | $ 0 | $ 7,654 |
6. INTANGIBLE ASSETS (Details)
6. INTANGIBLE ASSETS (Details) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Intangible assets | $ 21,635,000 | $ 21,635,000 |
Trademark Related to cbdMD | ||
Intangible assets | 21,585,000 | 21,585,000 |
Trademark Related to HempMD | ||
Intangible assets | $ 50,000 | $ 50,000 |
7. PRO FORMA FINANCIAL INFORM_3
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||||
Mar. 31, 2020 | [1] | Mar. 31, 2019 | [1] | Mar. 31, 2020 | [1] | Mar. 31, 2019 | |
Pro Forma Financial Information | |||||||
Net revenues | $ 9,185,693 | ||||||
Operating income (loss) | (4,320,089) | ||||||
Net income (loss) | $ (35,298,514) | ||||||
Net loss per share - basic | $ (1.39) | ||||||
Net loss per share - fully diluted | $ (1.39) | ||||||
[1] | All entities were consolidated effective December 21, 2018 therefore, the results of operations are included in these condensed financial statements |
8. CONTINGENT LIABILITY (Detail
8. CONTINGENT LIABILITY (Details Narrative) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Contingent Liability | ||
Contingent liability | $ 7,820,000 | $ 50,600,000 |
10. SHAREHOLDERS' EQUITY (Detai
10. SHAREHOLDERS' EQUITY (Details) - $ / shares | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Options | ||
Exercise price | $ 3.15 | $ 0 |
Risk free interest rate | 0.00% | |
Volatility | 0.00% | |
Dividend yield | 0.00% | 0.00% |
Options | Minimum | ||
Risk free interest rate | 1.41% | |
Volatility | 95.96% | |
Expected term | 3 years | |
Options | Maximum | ||
Risk free interest rate | 1.64% | |
Volatility | 99.03% | |
Expected term | 5 years | |
Warrants | ||
Exercise price | $ 4.375 | |
Risk free interest rate | 2.90% | |
Volatility | 70.61% | |
Expected term | 5 years | 5 years |
Dividend yield | 0.00% | 0.00% |
Warrants | Minimum | ||
Exercise price | $ 1.25 | |
Risk free interest rate | 1.48% | |
Volatility | 95.36% | |
Warrants | Maximum | ||
Exercise price | $ 3.9125 | |
Risk free interest rate | 1.63% | |
Volatility | 96.85% |
10. SHAREHOLDERS' EQUITY (Det_2
10. SHAREHOLDERS' EQUITY (Details Narrative) - shares | Mar. 31, 2020 | Sep. 30, 2019 |
Stockholders' Equity Attributable to Parent [Abstract] | ||
Common stock issued | 51,335,648 | 27,720,356 |
Common stock outstanding | 51,335,648 | 27,720,356 |
11. STOCK-BASED COMPENSATION (D
11. STOCK-BASED COMPENSATION (Details) - Options | 6 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Number of options outstanding, beginning | shares | 1,219,650 |
Number of options granted | shares | 310,000 |
Number of options exercised | shares | 0 |
Number of options forfeited | shares | 14,650 |
Number of options outstanding, ending | shares | 1,515,000 |
Number of options exerciseable | shares | 898,334 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 6.07 |
Weighted average exercise price granted | $ / shares | 3.15 |
Weighted average exercise price exercised | $ / shares | .00 |
Weighted average exercise price forfeited | $ / shares | 5.70 |
Weighted average exercise price outstanding, ending | $ / shares | 5.48 |
Weighted average exercise price exerciseable | $ / shares | $ 5.28 |
Weighted average remaining contractual terms (in years), outstanding | 7 years 2 months 1 day |
Weighted average remaining contractual terms (in years), exerciseable | 6 years 9 months 18 days |
Aggregate intrinsic value outstanding, ending | $ | $ 0 |
Aggregate intrinsic value exerciseable | $ | $ 0 |
11. STOCK-BASED COMPENSATION _2
11. STOCK-BASED COMPENSATION (Details Narrative) | 3 Months Ended | 6 Months Ended |
Mar. 31, 2020USD ($) | Mar. 31, 2020USD ($) | |
Unrecognized compensation cost | $ 1,171,704 | $ 1,171,704 |
Unrecognized compensation cost recognition period | 2 years | |
Restricted Stock | ||
Stock based compensation expense | $ 0 | $ 138,000 |
12. WARRANTS (Details)
12. WARRANTS (Details) - Warrants | 6 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Number of options outstanding, beginning | shares | 423,605 |
Number of options granted | shares | 527,923 |
Number of options exercised | shares | 0 |
Number of options forfeited | shares | 0 |
Number of options outstanding, ending | shares | 951,528 |
Number of options exerciseable | shares | 423,605 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 6.64 |
Weighted average exercise price granted | $ / shares | 1.49 |
Weighted average exercise price exercised | $ / shares | .00 |
Weighted average exercise price forfeited | $ / shares | .00 |
Weighted average exercise price outstanding, ending | $ / shares | 3.78 |
Weighted average exercise price exerciseable | $ / shares | $ 6.64 |
Weighted average remaining contractual terms (in years), outstanding | 3 years 9 months 7 days |
Weighted average remaining contractual terms (in years), exerciseable | 2 years 6 months 11 days |
Aggregate intrinsic value outstanding, ending | $ | $ 0 |
Aggregate intrinsic value exerciseable | $ | $ 0 |
12. WARRANTS (Details 1)
12. WARRANTS (Details 1) - $ / shares | 6 Months Ended | |
Mar. 31, 2020 | Sep. 30, 2019 | |
Warrants | ||
Number of shares | 951,528 | 423,605 |
Weighted-average exercise price | $ 3.78 | $ 6.64 |
Warrant 1 | ||
Number of shares | 141,676 | |
Weighted-average exercise price | $ 7.80 | |
Expiration | September 2021 | |
Warrant 2 | ||
Number of shares | 70,500 | |
Weighted-average exercise price | $ 4 | |
Expiration | September 2022 | |
Warrant 3 | ||
Number of shares | 100,000 | |
Weighted-average exercise price | $ 7.50 | |
Expiration | October 2022 | |
Warrant 4 | ||
Number of shares | 51,429 | |
Weighted-average exercise price | $ 4.375 | |
Expiration | September 2023 | |
Warrant 5 | ||
Number of shares | 60,000 | |
Weighted-average exercise price | $ 7.50 | |
Expiration | May 2024 | |
Warrant 6 | ||
Number of shares | 47,000 | |
Weighted-average exercise price | $ 3.9125 | |
Expiration | October 2024 | |
Warrant 7 | ||
Number of shares | 480,000 | |
Weighted-average exercise price | $ 1.25 | |
Expiration | January 2025 |
15. DISCONTINUED OPERATIONS (De
15. DISCONTINUED OPERATIONS (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | ||||
Total gross sales | $ 0 | $ 37,958 | $ 0 | $ 821,691 |
Allowances | 0 | (1,184) | 0 | (1,576) |
Total net sales | 0 | 36,774 | 0 | 820,115 |
Costs of sales | 0 | 219,947 | 0 | 545,643 |
Gross profit | 0 | (183,173) | 0 | 274,473 |
Operating expenses | 0 | 189,870 | 41,202 | 342,999 |
Income (loss) from operations | 0 | (373,043) | (41,202) | (68,526) |
Realized and unrealized gain (loss) on marketable securities | 0 | 361,835 | 0 | (1,142,978) |
Interest income (expense) | 0 | 11,811 | 0 | 18,159 |
Income (loss) before provision for income taxes | 0 | 603 | (41,202) | (1,193,345) |
(Benefit) provision for income taxes | 0 | 0 | 0 | 0 |
Net income (loss) | 0 | 603 | (41,202) | (1,193,345) |
Net income (loss) attributable to non-controlling interest | $ 0 | $ (58,536) | $ 0 | $ (137,685) |
15. DISCONTINUED OPERATIONS (_2
15. DISCONTINUED OPERATIONS (Details 1) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 0 | $ 0 |
Accounts receivable | 791,998 | 1,080,000 |
Total current assets included as part of discontinued operations | 791,998 | 1,080,000 |
Current liabilities: | ||
Accounts payable | 0 | 0 |
Total current liabilities included as part of discontinued operations | 0 | 0 |
Long term liabilities: | ||
Total long term liabilities included as part of discontinued operations | 0 | 0 |
Total liabilities included as part of discontinued operations | $ 0 | $ 0 |
15. DISCONTINUED OPERATIONS (_3
15. DISCONTINUED OPERATIONS (Details 2) - USD ($) | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | ||
Depreciation/amortization | $ 0 | $ 19,992 |
Realized/unrealized (gain) loss on securities expenditures | 0 | 1,142,978 |
Impairment on discontinued operations assets | (38,002) | 0 |
Non cash consideration received for services | $ 0 | $ (470,000) |
16. LEASES (Details)
16. LEASES (Details) - USD ($) | 3 Months Ended | 6 Months Ended |
Mar. 31, 2020 | Mar. 31, 2020 | |
Leases [Abstract] | ||
Operating lease costs | $ 382,433 | $ 764,866 |
Variable lease costs | 25,791 | 48,891 |
Total operating lease costs | $ 408,224 | $ 813,757 |
16. LEASES (Details 1)
16. LEASES (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended |
Mar. 31, 2020 | Mar. 31, 2020 | |
Leases [Abstract] | ||
Cash paid for amounts included in the measurement of operating lease liabilities | $ 357,922 | $ 676,681 |
16. LEASES (Details 2)
16. LEASES (Details 2) | Mar. 31, 2020USD ($) |
Leases [Abstract] | |
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 |
16. LEASES (Details 3)
16. LEASES (Details 3) | Sep. 30, 2019USD ($) |
Leases [Abstract] | |
2020 (remaining six months) | $ 1,394,806 |
2021 | 1,452,434 |
2022 | 1,392,837 |
2023 | 1,380,204 |
2024 | 1,421,610 |
Thereafter | 2,532,811 |
Total obligations and commitments | $ 9,574,702 |
16. LEASES (Details Narrative)
16. LEASES (Details Narrative) | Mar. 31, 2020 |
Leases [Abstract] | |
Weighted average remaining lease term, operating leases | 6 years 1 month 17 days |
Weighted average discount rate, operating leases | 4.66% |
17. EARNINGS PER SHARE (Details
17. EARNINGS PER SHARE (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Basic: | ||||
Net income (loss) continuing operations | $ 14,883,772 | $ (31,850,877) | $ 27,854,738 | $ (32,845,791) |
Net income (loss) discontinued operations | 0 | 59,139 | (41,202) | (1,055,660) |
Net income (loss) attributable to cbdMD, Inc. common shareholders | 14,883,772 | (31,791,738) | 27,813,536 | (33,901,451) |
Preferred dividends paid | 100,016 | 0 | 166,750 | 0 |
Diluted: | ||||
Net income (loss) continuing operations adjusted for preferred dividend | 14,783,756 | 0 | 27,687,988 | 0 |
Net income (loss) adjusted for preferred dividend | $ 14,783,756 | $ 0 | $ 27,687,988 | $ 0 |
Shares used in computing basic earnings per share | 36,503,005 | 10,160,947 | 36,503,005 | 10,107,144 |
Effect of dilutive securities: | ||||
Options | 0 | 0 | 0 | 0 |
Warrants | 0 | 0 | 0 | 0 |
Convertible preferred shares | 833,500 | 0 | 833,500 | 0 |
Shares used in computing diluted earnings per share | 37,336,505 | 10,160,947 | 37,336,505 | 10,107,144 |
Earnings per share - basic | ||||
Continuing operations | $ .41 | $ (3.13) | $ .76 | $ (3.24) |
Discontinued operations | (.00) | (.00) | (.00) | (.11) |
Basic earnings per share | 0.41 | (3.13) | 0.76 | (3.35) |
Earnings per share - diluted | ||||
Continuing operations | .40 | .00 | .74 | .00 |
Discontinued operations | .00 | .00 | (.00) | .00 |
Diluted earnings per share | $ .40 | $ .00 | $ 0.74 | $ .00 |