Business Wire | Aug 12, 2020 07:00AM EDT

cbdMD Reports Record Net Sales In Its Third Quarter Fiscal 2020 Results

Aug. 12, 2020

CHARLOTTE, N.C.--(BUSINESS WIRE)--Aug. 12, 2020--cbdMD, Inc. (NYSE American: YCBD, YCBD PR A) (the "Company"), one of the leading, highly trusted, and most recognized cannabidiol (CBD) brands, reported today record net sales of $10.6 million in its third fiscal 2020 quarter ended June 30, 2020.

"cbdMD reported its single biggest quarterly net sales in its history. Our decisions to concentrate on building brand equity for award winning cbdMD and Paw CBD brands, as well as and focus on our e-commerce strength, has paid off. We have separated ourselves from our competitors and demonstrated that we can grow market share and be fiscally responsible at the same time, with our GAAP and non-GAAP operating results improving by 80% and 96%, respectively, from the comparable periods in fiscal 2019. With $15 million in cash on hand at June 30, 2020, we believe we have more than enough financial strength to grow our operations for the foreseeable future, absent any additional unforeseen impact from COVID-19," said Martin Sumichrast, the Company's Chairman and co-Chief Executive Officer.

The highlights from the June 2020 quarter were:

* The Company reported net sales of $10.6 million for the three months ended June 30, 2020, a year-over-year quarterly increase of approximately 33% and a sequential quarterly increase from the three months ended March 31, 2020 of approximately 13%.

* The Company reported record quarterly e-commerce, direct to consumer (DTC) net sales of $8.2 million, an increase of 77% year-over-year and a sequential quarterly increase of approximately 21%. The Company's e-commerce, direct to consumer (DTC) sales accounted for in excess of 77% of total net sales in the June 2020 quarter, an increase from 58% from prior year's quarter.

* The Company's CBD pet brand, Paw CBD, reported an approximate 64% increase in net sales from its March 2020 quarter of approximately $750,000 to approximately $1,229,000 for its June 2020 quarter.

* The Company reported a gross profit margin of 64.7% as a percent of net sales as compared to 63.4% for the comparable period in fiscal 2019 and adjusted non-GAAP gross profit margin as a percent of net sales was 67.7% as compared to a 65% in the comparable period in fiscal 2019.

* The Company reported an 80% year-over-year improvement in its GAAP loss from operations of ($1,337,508) as compared to ($6,466,639) in the comparable 2019 period.

* The Company reported a 96% year-over-year improvement in its non GAAP adjusted loss from operations of ($187,092) as compared to ($5,019,541) in the comparable fiscal 2019 period after adjusting for the following: a non-cash inventory adjustment of $311,000, a non-cash stock option expense of $388,000, a depreciation expense of $233,000 and a non-cash charge of $233k for old inventory.

* The Company reported a net loss of ($9,052,752), or $(0.18) per share, which was mainly due to a non-cash expense of approximately $7.58 million in the Company's contingent liability which is associated with earnout shares which may be issued under the terms of the December 2018 acquisition of Cure Based Development.

* Working capital was $19.7 million and cash on hand was approximately $15 million at June 30, 2020, respectively.

* CBD Industries, LLC, the Company's wholly owned manufacturing and distribution subsidiary, was recently added to NSF International's dietary supplements Good Manufacturing Practice (GMP) registration.

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About cbdMD, Inc.

cbdMD, Inc. is a nationally recognized consumer cannabidiol (CBD) brand whose current products include CBD tinctures, CBD capsules, CBD gummies, CBD topicals, CBD bath bombs, and CBD pet products. cbdMD is also a proud partner of Bellator MMA and Life Time, Inc., and has one of the largest rosters of professional sports athletes who are part of "Team cbdMD." To learn more about cbdMD and our comprehensive line of over 100 SKUs of U.S. produced, THC-free1 CBD products, please visit www.cbdMD.com, follow cbdMD on Instagram and Facebook, or visit one of the 6,000 retail outlets that carry cbdMD products.

Forward-Looking Statements

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

_________________________ 1 Non-THC is defined as below the level of detection using validated scientific analytical tools.

Non-GAAP Financial Measures

This press release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company has included adjusted income (loss) from operations and adjusted gross profit because management uses this measure to assess operating performance, in order to highlight trends in the Company's business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Neither adjusted income (loss) from operations nor adjusted gross profit has not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income (loss) and gross profit margins as indicators of the Company's operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this press release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

cbdMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2020 AND SEPTEMBER 30, 2019

(Unaudited)

June 30, September 30,

2020 2019

Assets

Current assets:

Cash and cash equivalents $ 15,006,319 $ 4,689,966

Accounts receivable 715,205 1,425,697

Accounts receivable other - 160,137

Accounts receivable - discontinued operations 700,884 1,080,000

Marketable securities 52,527 198,538

Investment other securities - 600,000

Deposits - 6,850

Merchant reserve - 519,569

Inventory 6,397,326 4,301,586

Inventory prepaid 281,885 903,458

Deferred issuance costs - 93,954

Prepaid software - 206,587

Prepaid equipment deposits 201,698 868,589

Prepaid expenses and other current assets 755,906 688,104

Total current assets 24,111,750 15,743,035



Other assets:

Property and equipment, net 3,067,909 1,715,557

Operating lease assets 7,119,289 -

Deposits for facilities 706,852 754,533

Intangible assets, net 21,635,000 21,635,000

Goodwill 54,669,997 54,669,997

Total other assets 87,199,047 78,775,087



Total assets $ 111,310,797 $ 94,518,122

cbdMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2020 AND SEPTEMBER 30, 2019

(continued)



(Unaudited)

June 30, September 30,

2020 2019

Liabilities and shareholders' equity

Current liabilities:

Accounts payable $ 1,825,135 $ 3,021,271

Accrued expenses 1,396,983 681,269

Operating leases - short term liabilities 1,109,585 -

Note payable 54,720 -

Customer deposit - related party - 7,339

Total current liabilities 4,386,423 3,709,878

Long term liabilities:

Long term liabilities - 363,960

Note payable 182,714 -

Paycheck Protection Program loan 1,456,100 -

Operating leases - long term liabilities 6,305,422 -

Contingent liability 15,400,000 50,600,000

Deferred tax liability - 2,240,300

Total long term liabilities 23,344,236 53,204,260



Total liabilities 27,730,659 56,914,138



cbdMD, Inc. shareholders' equity:

Preferred stock, authorized 50,000,000shares, $0.001 par value, 500,000 and 0 500 - shares issued and outstanding, respectively

Common stock, authorized 150,000,000shares, $0.001 par value, 51,345,648 and 51,346 27,720 27,720,356 shares issued and outstanding,respectively

Additional paid in capital 124,558,046 97,186,524

Accumulated deficit (41,029,754 ) (59,610,260 )

Total cbdMD, Inc. shareholders' equity 83,580,138 37,603,984

Total liabilities and shareholders' equity $ 111,310,797 $ 94,518,122

cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2020 AND 2019

(Unaudited)



Three months Three months Nine months Nine months

Ended Ended Ended Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Total Gross 10,809,387 9,734,459 30,925,678 18,170,667 Sales

Allowances (172,842 ) (1,729,310 ) (741,861 ) (4,063,252 )

Total Net 10,636,545 8,005,149 30,183,817 14,107,414 Sales

Cost of sales 3,748,024 2,929,160 10,180,637 5,009,187



Gross Profit 6,888,521 5,075,989 20,003,180 9,098,228



Operating 8,226,029 11,542,628 33,053,962 18,683,905 expenses

Income (Loss)from (1,337,508 ) (6,466,639 ) (13,050,782 ) (9,585,677 )operations

Realized andUnrealizedgain (loss) on (30,849 ) (13,162 ) (146,011 ) (77,802 )marketablesecurities

(Increase)Decrease of (7,580,000 ) (21,547,606 ) 30,580,000 (52,461,680 )contingentliability

Impairment oninvestment - - (600,000 ) - othersecurities

Impairmentaccounts - - (160,000 ) - receivableother

Interestincome 3,436 6,229 46,311 50,189 (expense)

Income (loss)before (8,944,921 ) (28,021,178 ) 16,669,518 (62,074,970 )provision forincome taxes



Benefit(Provision) - 1,088,000 2,240,300 2,296,000 for incometaxes

Net Income(Loss) from (8,944,921 ) (26,933,178 ) 18,909,818 (59,778,970 )continuingoperations

Net Income(Loss) fromdiscontinued (7,781 ) (2,269,778 ) (48,983 ) (3,463,123 )operations,net of tax(Note 16)

Net Income (8,952,702 ) (29,202,956 ) 18,860,835 (63,242,093 )(Loss)

Net Gain(Loss)attributable - (1,503,707 ) - (1,641,391 )tononcontrollinginterest

Preferred 100,050 - 266,800 - dividends



Net Income(Loss)attributable $ (9,052,752 ) $ (27,699,249 ) $ 18,594,035 $ (61,600,702 )to cbdMD, Inc.commonshareholders



Net Income(Loss) per share:

Basic earnings $ (0.18 ) $ (1.19 ) $ 0.45 $ (4.22 )per share

Dilutedearnings per $ - $ - $ 0.44 $ - share



Weightedaverage number 51,335,648 23,193,793 41,411,261 14,585,619 of sharesBasic:

Weightedaverage number - - 42,534,519 - of sharesDiluted:

cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2020 AND 2019

(Unaudited)



Three months Three months Nine months Nine months

Ended Ended Ended Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Net Income $ (8,952,702 ) $ (29,202,956 ) $ 18,860,835 $ (63,242,093 )(Loss)

Comprehensive (8,952,702 ) (29,202,956 ) 18,860,835 (63,242,093 )Income (Loss)



ComprehensiveIncome (loss)attributable to - (1,503,707 ) - (1,641,391 )non-controllinginterest

Preferred (100,050 ) - (266,800 ) - dividends

ComprehensiveIncome (Loss)attributable to $ (9,052,752 ) $ (27,699,249 ) $ 18,594,035 $ (61,600,702 )cbdMD, Inc.commonshareholders

cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)



Nine Months Nine Months Ended Ended June 30, June 30,

2020 2019

Cash flows from operating activities:

Net Income (loss) $ 18,860,835 $ (63,242,093 )

Adjustments to reconcile net (income) lossto net cash used by operating activities:

Stock based compensation 1,391,271 2,022,812

Restricted stock expense 138,001 92,000

Issuance of stock / warrants for service 84,450 289,750

Intangible impairment - 2,114,334

Inventory and materials impairment 233,372 -

Impairment on discontinued operations asset 45,783 -

Depreciation and amortization 499,394 272,121

Gain on settlement of Note - (20,000 )

Other than temporary impairment other 760,000 - securities and other accounts receivable

Increase/(Decrease) in contingent liability (30,580,000 ) 52,461,680

Realized and unrealized loss of marketable 146,011 1,705,069 securities

Merchant reserve settlement 132,657 -

Non-cash consideration received for - (470,000 )services

Non-cash lease expense 878,986 -

Changes in operating assets andliabilities:

Accounts receivable 710,629 399,074

Accounts receivable - related party - 204,902

Other accounts receivable - (298,754 )

Note receivable - (27,000 )

Note receivable - related party - 156,147

Deposits (147,166 ) -

Merchant reserve 386,912 (199,907 )

Inventory (2,329,112 ) (2,581,958 )

Prepaid inventory 621,573 -

Prepaid expenses and other current assets 1,007,374 (717,894 )

Marketable securities - 701,593

Accounts payable and accrued expenses (480,424 ) 1,073,211

Accounts payable and accrued expenses - - (313,591 )related party

Operating lease liability (766,289 ) -

Note payable 42,968 -

Deferred revenue / customer deposits (7,339 ) (380,804 )

Collection on discontinued operations 333,333 - accounts receivable

Deferred tax liability (2,240,300 ) (2,296,000 )

Cash used by operating activities (10,277,081 ) (9,055,308 )

Cash flows from investing activities:

Net cash used for merger - (1,167,295 )

Purchase of intangible assets - (79,999 )

Purchase of property and equipment (1,851,746 ) (359,421 )

Cash used by investing activities (1,851,746 ) (1,606,715 )

Cash flows from financing activities:

Proceeds from issuance of common stock 16,771,756 19,009,897

Proceeds from issuance of preferred stock 4,421,928 -

PPP loan 1,456,100 -

Note Payable - related party - (764,300 )

Preferred dividend distribution (266,800 ) -

Deferred issuance costs 62,197 (232,914 )

Cash provided by financing activities 22,445,180 18,012,683

Net increase (decrease) in cash 10,316,353 7,350,660

Cash and cash equivalents, beginning of 4,689,966 4,282,553 period

Cash and cash equivalents, end of period $ 15,006,319 $ 11,633,213

cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited) (continued)

Supplemental Disclosures of Cash Flow Information:

Nine Nine Months Months Ended ended June 30, June 30,

2020 2019



Cash Payments for:

Interest expense $ 26,126 $ 36,418



Non-cash financial activities:

Warrants issued to secondary selling agent $ 524,113 $ 309,592

Stock received for prior period services, adjusted for $ - $ 1,352,000other accounts receivable write down prior to receipt

Adoption of ASU 2016-01 $ - $ 2,512,539

cbdMD, Inc.

SUPPLEMENTAL FINANCIAL INFORMATION

RECONCILIATION OF ADJUSTED INCOME (LOSS) FROM OPERATIONS

(Unaudited)

Three months Three months

Ended Ended

June 30, June 30, 2020 2019



GAAP Income (Loss) from operations (1,337,508 ) (6,466,639 )



Adjustments:

Inventory adjustment ^(1) 316,922 -

Non-cash stock related expense ^(2) 388,185 1,389,224

Depreciation expense 211,937 57,874

One-time abnormal inventory adjustment ^(3) 233,372 -

Adjusted Income (loss) from operations (187,092 ) (5,019,541 )

Three months Three months

Ended Ended

June 30, June 30, 2020 2019



GAAP net sales 10,636,545 8,005,149

GAAP cost of sales 3,748,024 2,929,160



Adjustments:

Inventory adjustment ^(1) 316,922 130,795

Adjusted cost of sales 3,431,102 2,798,365

Adjusted Gross Profit 7,205,443 67.7 % 5,206,784 65.0 %

(1) Amount represents an adjustment after performing a physical inventory account.

(2) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period.

(3) Amount represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging.

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CONTACT: John Weston Director of Investor Relations john.weston@cbdmd.com 704-249-9515