What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-12-15 compared with 2021-12-17 · 698 added, 490 removed, 736 unchanged (62% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including our co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including President (principal executive officer) and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our co-Chief Executive Officers and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our co-Chief Executive Officers and our Chief Financial Officer concluded that our disclosure controls were effective at September 30, 2021.

Management’s Report on Internal Control over Financial Reporting.

As required by Exchange Act Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our President and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our President and our Chief Financial Officer concluded that our disclosure controls were effective at September 30, 2022.

Management ’

s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

12 unchanged sentences

However, these inherent limitations are known features of the financial reporting process.

Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Our management, including our co-CEOs and our CFO, assessed the effectiveness of our internal control over financial reporting as of September 30, 2021.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the 2013 Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as it relates to the classification of common stock issuable under the acquisition of Twenty Two Capital, LLC in the fourth quarter of fiscal 2021.

This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically, our review process on the classification of such certain earnout on the business combination accounting did not account for certain GAAP nuances and resulted in a one-time reclassification on the balance sheet and a quantitatively immaterial adjustment to the consolidated income statement.

The control has been remediated prior to the filing of this report as our review process for future transactions has been adjusted to include third party confirmation/review and/or additional internal accounting scrutiny.

Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 

Our management, including our President and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2022.

Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, but for the additional review procedures renumerated above.

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item will be contained in our proxy statement for our 2022 Annual Meeting of shareholders to be filed on or prior to January 28, 2022 (the “Proxy Statement”) and is incorporated herein by this reference.

The information required by this Item will be contained in our proxy statement for our 2023 Annual Meeting of shareholders to be filed on or prior to January 28, 2023 (the “Proxy Statement”) and is incorporated herein by this reference.

EXECUTIVE COMPENSATION.

6 unchanged sentences

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(1) Financial statements.

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules” beginning on page F-1.

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules”

beginning on page 31.

(2) Financial statement schedules

3 unchanged sentences

FORM 10-K SUMMARY.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

December 17, 2021

/s/ Martin A.

Co-Chief Executive Officer, (co-Principal Executive Officer)

December 17, 2021

/s/ Raymond S.

Co-Chief Executive Officer, (co-Principal Executive Officer)

December 17, 2021

Ronan Kennedy

Chief Financial Officer, (Principal Accounting and Financial Officer)

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ronan Kennedy his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments and supplements to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Martin A.

Chairman of the Board of Directors, co-Chief Executive Officer

December 17, 2021

/s/ Raymond S, Coffman

Co-Chief Executive Officer, Director

December 17, 2021

/s/ Bakari Sellers

December 17, 2021

Bakari Sellers

/s/ Scott Stephen

December 17, 2021

Scott Stephen

/s/ Peter Ghiloni

December 17, 2021

Peter Ghiloni

/s/ William Raines III

December 17, 2021

William Raines III

December 17, 2021

/s/ Sim Farrar

EXHIBIT INDEX

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Exhibit Description

Form of Underwriting Agreement dated May 13, 2019 by and between cbdMD, Inc.

and ThinkEquity, a division of Fordman Financial Management, Inc.

Underwriting Agreement dated October 10, 2019 by and between cbdMD, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc.

Underwriting Agreement dated January 9, 2020 by and between cbdMD, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc.

Underwriting Agreement dated December 8, 2020 by and between cbdMD, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc.

Underwriting Agreement dated June 28, 2021 by and between cbdMD, Inc.

4 unchanged sentences

Articles of Merger dated December 20, 2018 as filed with the Secretary of State of Nevada merging Cure Based Development, LLC with an into cbdMD LLC

Articles of Merger dated December 20, 2018 as filed with the Secretary of State of North Carolina merging Cure Based Development, LLC with an into cbdMD LLC

Articles of Merger dated December 20, 2018 as filed 

with the Secretary of State of North Carolina merging Cure Based Development, LLC with an into cbdMD LLC

Articles of Incorporation

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2021 Equity Compensation Plan+

Form of Representative’s Warrant dated November 16, 2018

Form of Representative’s Warrant dated May 15, 2019

Form of Representative’s Warrant dated October 16, 2019

Form of Representative’s Warrant dated January 9, 2020

Form of Representative’s Warrant dated December 11, 2020

Form of Representative’s Warrant dated June 28, 2021

Form of Representative’

s Warrant dated November 16, 2018

Form of Representative’

s Warrant dated May 15, 2019

Form of Representative’

s Warrant dated October 16, 2019

Form of Representative’

s Warrant dated January 9, 2020

Form of Representative’

s Warrant dated December 11, 2020

Form of Representative’

s Warrant dated June 28, 2021

Form of Indemnification Agreement

Executive Employment Agreement dated September 15, 2020 by and between cbdMD, Inc.

and Martin A.

Amendment No.

1 effective November 13, 2020 to Executive Employment Agreement between cbdMD, Inc.

and Martin A.

Executive Employment Agreement dated December 20, 2018 by and between CBD Industries LLC and R.

Scott Coffman+

Amendment No.

1 effective November 13, 2020 to Executive Employment Agreement between CBD Industries LLC and R.

Scott Coffman+

Executive Employment Agreement dated September 6, 2018 by and between cbdMD, Inc.

Separation Agreement and General Release dated September 16, 2020 by and between cbdMD, Inc.

Executive Employment Agreement dated September 15, 2020 by and between cbdMD, Inc.

Ronan Kennedy+

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and John Wiesehan III dated July 22, 2021+

John Wiesehan Separation Agreement and General Release dated December 1, 2021+

John Wiesehan Separation Agreement and General Release 

dated December 1, 2021+

Executive Employment Agreement dated October 1, 2021 between cbdMD, Inc.

Ronan Kennedy+

Amendment 1 to the Amended and Restated Executive Employment Agreement by and between cbd Industries, LLC and R.

Scott Coffman Restated Agreement effective January 11, 2022

Equipment Purchase Agreement effective April 7, 2022 by and between cbd Industries, LLC and Old Belts Extracts LLC

Separation Agreement by and between Martin A.

Sumchrast and cbdMD, Inc., and its subsidiaries effective June 11, 2022+

Membership Interest Transfer Agreement dated June 22, 2022

Code of Business Conduct and Ethics

2 unchanged sentences

Power of attorney (included on signature page of this report)

Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer

Rule 13a-14(a)/15d-14(a) Certification of Preside n t (Principal Executive Officer)

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

XBRL Instance Document

XBRL Taxonomy Extension Schema

XBRL Taxonomy Extension Calculation Linkbase

XBRL Taxonomy Extension Label Linkbase

XBRL Taxonomy Extension Presentation Linkbase

XBRL Taxonomy Extension Definition Linkbase

+Indicated management contract or compensatory plan.

Section 1350 Certification of President (Principal Executive Officer) and Chief Financial Officer

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Label Linkbase

Inline XBRL Taxonomy Extension Presentation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

+Indicates management contract or compensatory plan.

December 15, 2022

/s/ Kevin MacDermott

Kevin MacDermott

President (Principal Executive Officer)

December 15, 2022

Ronan Kennedy

Chief Financial Officer (Principal Accounting and Financial Officer)

POWER OF ATTORNEY

/s/ Scott Stephen

Chairman of the Board of Directors

December 15, 2022

Scott Stephen

/s/ Raymond S, Coffman

December 15, 2022

/s/ Bakari Sellers

December 15, 2022

Bakari Sellers

/s/ Peter Ghiloni

December 15, 2022

Peter Ghiloni

/s/ William Raines III

December 15, 2022

William Raines III

December 15, 2022

/s/ Sibyl Swift

Director, VP of Scientific and Regulatory Affairs

Sibyl Swift, PhD

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of cbdMD, Inc.

and subsidiaries (the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the financial statements).

and subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), shareholders’

(deficit) equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company ’

s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. 

As discussed in Note 1 to the accompanying financial statements, the Company has historically incurred losses, including a $74.1 million net loss in the current year, resulting in an accumulated deficit of $147.4 million as of September 30, 2022. 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 

Management’s evaluations of the events and conditions and management’s plans regarding those matters are also described in Note 1 to the accompanying financial statements. 

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2016.

Charlotte, North Carolina

December 15, 2022

PART 1 – FINANCIAL INFORMATION

PART 1 –

FINANCIAL INFORMATION

FINANCIAL STATEMENTS.

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Cash and cash equivalents

$ 6,720,234  

$ 26,411,424  

Accounts receivable

Accounts receivable – discontinued operations

Marketable securities

Investment other securities, at cost

1,447,831  

1,113,372  

Accounts receivable –

discontinued operations

10,967  

Marketable securities, at cost

33,351  

Investment other securities

1,000,000  

4,255,914  

5,021,867  

Inventory prepaid

Prepaid software

511,459  

551,519  

Prepaid sponsorship

1,372,845  

1,212,682  

Prepaid expenses and other current assets

701,945  

1,147,178  

Total current assets

16,011,603  

36,502,360  

Other assets:

Property and equipment, net

823,310  

2,561,574  

Operating lease assets

4,477,841  

5,614,960  

Deposits for facilities

244,606  

529,583  

Intangible assets

17,834,549  

23,003,929  

56,670,970  

Investment in other securities, noncurrent

1,400,000  

Total other assets

$ 124,883,376

$ 110,842,801

24,780,306  

88,381,016  

$ 40,791,909  

$ 124,883,376  

See Notes to Consolidated Financial Statements

6 unchanged sentences

Accounts payable

$ 2,036,558  

$ 2,978,914  

Accrued expenses

Operating leases – current portion

Paycheck Protection Program Loan, current portion

2,060,762  

2,727,612  

Operating leases –

current portion

1,178,683  

1,151,150  

59,470  

Total current liabilities

5,285,612  

6,917,146  

Long term liabilities:

Long term liabilities

Paycheck Protection Program Loan

125,491  

108,985  

Operating leases - long term portion

3,680,375  

4,859,058  

Contingent liability

Deferred tax liability

276,000  

9,856,000  

Total long term liabilities

4,081,866  

14,824,043  

Total liabilities

9,367,478  

21,741,189  

Commitments and Contingencies (Note 11)

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Common stock, authorized 150,000,000 shares, $ 0.001 par value, $ 60,665,595 and 57,783,340 shares issued and outstanding, respectively

60,666  

57,783  

Additional paid in capital

178,782,328  

176,417,269  

Accumulated deficit

( 73,337,865 )

( 147,423,563 )  

( 73,337,865 )

1 unchanged sentence

shareholders' equity

31,424,431  

103,142,187  

Total liabilities and shareholders' equity

$ 124,883,376

$ 110,842,801

$ 40,791,909  

$ 124,883,376  

See Notes to Consolidated Financial Statements

1 unchanged sentence

September 30, 2022 and 2021

( 2,851,322 )

( 1,289,044 )

Total Net Sales

1 unchanged sentence

Operating expenses

Impairment of Goodwill and other intangible assets

Loss from operations

( 19,615,990 )

( 17,581,855 )

Realized and Unrealized gain (loss) on marketable and other securities, including impairments

Gain on extinguishment of debt

(Increase) decrease of contingent liability

( 6,687,439 )

Interest (expense) income

(Loss) Income before provision for income taxes

( 24,289,889 )

Gain on extinguishment of debt

Gain on sale of assets

Restructuring expense

Decrease (increase) of contingent liability

Interest expense

Loss before provision for income taxes

Benefit for income taxes

Net (Loss) Income from continuing operations

( 23,394,889 )

Net (Loss) from discontinued operations, net of tax (Note 14)

Net (Loss) Income

( 23,394,889 )

Preferred dividends

Net (Loss) Income attributable to cbdMD, Inc.

Net Loss available to cbdMD, Inc.

common shareholders

$ ( 25,949,498 )

Net (Loss) Income per share:

Net Loss per share:

Basic earnings per share

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FOR THE YEARS ENDED September 30, 2022 and 2021

Net (Loss) Income

$ ( 23,394,889 )

Comprehensive (Loss) Income

( 23,394,889 )

Comprehensive Loss

Preferred dividends

( 2,554,609 )

Comprehensive (Loss) Income attributable to cbdMD, inc.

Comprehensive Loss available to cbdMD, inc.

common shareholders

$ ( 25,949,498 )

See Notes to Consolidated Financial Statements

2 unchanged sentences

Cash flows from operating activities:

Net (Loss) Income

$ ( 23,394,889 )

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

4 unchanged sentences

Inventory and materials impairment

Impairment on discontinued operations asset

Depreciation and amortization

Other than temporary impairment other securities and other accounts receivable

Intangibles amortization

Impairment of goodwill and other intangible assets

Gain on sale of fixed assets

Increase/(Decrease) in contingent liability

( 29,780,000 )

Realized and unrealized loss of Marketable and other securities

Merchant reserve settlement

Realized and unrealized loss (gain) of Marketable and other securities

Termination benefit

Extinguishment of Paycheck Protection Program Loan

( 1,466,113 )

Amortization of operating lease asset

1 unchanged sentence

Accounts receivable

Merchant reserve

( 1,009,192 )

Prepaid inventory

2 unchanged sentences

Operating lease liability

( 1,159,097 )

( 1,045,285 )

Deferred revenue / customer deposits

1 unchanged sentence

Deferred tax liability

( 1,345,300 )

Cash used by operating activities

( 14,093,433 )

( 10,664,335 )

Cash flows from investing activities:

2 unchanged sentences

Purchase of DirectCBDOnline.com

( 2,000,000 )

Purchase of property and equipment

( 1,320,095 )

Cash used by investing activities

( 2,552,013 )

( 1,570,095 )

Cash provided (used) by investing activities

Cash flows from financing activities:

2 unchanged sentences

Preferred dividend distribution

( 2,554,609 )

Deferred Issuance costs

14 unchanged sentences

Balance, September 30, 2021

$ 126,517,784

$ ( 47,388,367 )

Issuance of Preferred Stock

Issuance of Common stock

Issuance of options for share based compensation

Issuance of stock costs

Issuance of restricted stock for share based compensation

Preferred dividend

Net (Loss) Income

( 9,395,621 )

Net Income (loss)

Balance, December 31, 2021

( 56,884,038 )

Issuance of Common stock

2 unchanged sentences

Preferred dividend

Net (Loss) Income

( 12,510,474 )

Net Income (loss)

Balance, March 31, 2022

( 69,954,791 )

Issuance of Common stock

Issuance of options for share based compensation

Issuance of restricted stock for share based compensation

Issuance of options for share based compensation, net

Issuance of restricted stock for share based compensation, net

Preferred dividend

3 unchanged sentences

Issuance of Common stock

Issuance of Preferred Stock

Issuance of options for share based compensation

Issuance of restricted stock for share based compensation

Acquisition of DCO

Preferred dividend

( 1,333,999 )

Net (Loss) Income

( 2,917,082 )

Balance, September 30, 2021

$ 176,417,269

$ ( 73,228,865 )

Net Income (loss)

Balance, Balance at September 30, 2022

( 147,423,563

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020

FOR THE YEARS ENDED

SEPTEMBER 30, 2021 AND 2020

Preferred Stock

Balance, September 30, 2020

$ ( 59,610,260 )

Issuance of Preferred Stock

3 unchanged sentences

Preferred dividend

Adoption of ASU 2016-02

Net Income (loss)

Balance, December 31, 2020

( 46,760,759 )

Issuance of Common stock

Exercise of options for share based compensation

Issuance of stock/warrants for services

Issuance of options for share based compensation

Issuance of restricted stock for share based compensation

Preferred dividend

1 unchanged sentence

Balance, March 31, 2021

( 31,977,003 )

Issuance of Commom Stock

Issuance of options for share based compensation

Issuance of stock/warrants for services

Issuance of retricted stock for share based compensation

Preferred dividend

Net (Loss) Income

( 8,952,702 )

Net Income (loss)

Balance, June 30, 2021

( 41,029,755 )

Issuance of Common stock

Issuance of options for share based compensation

Issuance of stock/warrants for services

Issuance of Preferred Stock

Issuance ofoptions for share based compensation

Issuance of restricted stock for share based compensation

Acquisition of DCO

Preferred dividend

Net (Loss) Income

( 6,258,562 )

Net Income (loss)

Balance, September 30, 2021

$ 126,517,784

$ ( 47,388,367 )

See Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

FOR THE YEAR ENDED September 30, 2022 and 2021

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 –

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

("cbdMD", "we", "us", “our”, 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.

2 unchanged sentences

Our fiscal year end is established as September 30.

On December 20, 2018 (the “Closing Date”), the Company, and its newly organized wholly owned subsidiaries AcqCo, LLC and cbdMD LLC (“CBDI”), completed a two-step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”).

On December 20, 2018 ( the “Closing Date”), the Company, and its newly organized wholly owned subsidiaries AcqCo, LLC and cbdMD LLC (“CBDI”), 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, CBDI survived and operates the prior business of Cure Based Development.

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 unrestricted voting rights to 8,750,000 of the shares 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 (the “Earnout Shares”) in the future upon certain earnout goals being achieved within five years from the closing of the Mergers.

The Company’s shareholders approved the issuance of the 15,250,000 shares of common stock in April 2019 and these shares were issued to members of Cure Based Development on April 19, 2019.

In April 2019, our shareholders also approved the possible issuance of the Earnout Shares.

The first marking period for the earnout was December 31, 2019 and based on measurement criteria, 5,127,792 Earnout Shares had been earned and were issued on February 27, 2020.

The sole member of Cure Based Development at the closing of the Mergers was CBD Holding LLC (“CBDH”).

In February 2020, in connection with its liquidation, CBDH distributed the rights to the Earnout Shares (the “Earnout Rights”) to its members based upon the members’ pro pro-rata ownership interest in CBDH.

Members of CBDH at the time of its liquidation and this distribution included affiliates of Martin A.

Sumichrast and R.

Scott Coffman, directors and executive officers of cbdMD.

A second marking period for the earnout ended December 31, 2020 and based on measurement criteria an additional 3,348,520 Earnout Shares had been earned and were issued on March 8, 2021.

The first quarter of the third marking period ended on March 31, 2021 and based on the measurement criteria an additional 562,278 Earnout Shares had been earned and issued in May of 2021.

The second quarter of the third marking period ended on June 30, 2021 and based on the measurement criteria an additional 503,275 Earnout Shares had been earned and issued in August of 2021.

As consideration for the Mergers in April of 2019, the Company issued 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 vested over a five -year period and 2,187,500 shares remain subject to a voting proxy agreement as of September 30, 2022, as well as to issue another 15,250,000 shares of our common stock (the “Earnout Shares”) in the future upon certain earnout goals (the “Earnout Rights”) being achieved within five years from the closing of the Mergers, and 3,928,792  

Earnout Shares remain subject to Earnout Rights at September 30,2022.

The Company owns and operates the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD and cbdMD Botanicals.

The Company sources cannabinoids, including CBD, which are extracted from non-GMO hemp grown on farms in the United States.

CBD and other hemp-derived cannabinoids are natural substances produced from the hemp plant and the products manufactured by the Company.

CBD and other hemp-derived cannabinoids are natural substances produced from the hemp plant.

The products manufactured by and for the Company comply with the 2018 Farm Bill - our full spectrum products contain trace amounts of THC under the 0.3% by dry weight limit in the 2018 Farm Act while our broad spectrum products are non-psychoactive as they do not contain detectable levels of tetrahydrocannabinol (THC).

In the third quarter of fiscal 2019 cbdMD launched its new CBD pet brand, Paw CBD.

1 unchanged sentence

organized Paw CBD, Inc.

(“Paw CBD”) as a separate wholly owned subsidiary on October 22, 2019, to take advantage of its early mover status in the CBD animal health industry.

On March 15, 2021 cbdMD formed a new wholly owned subsidiary, cbdMD Therapeutics, LLC (“Therapeutics”) for the purposes of isolating and quantifying the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications.

The 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, 2020 (“2020 10-K”) as filed with the SEC on December 22, 2020.

(“Paw CBD”) as a separate wholly owned subsidiary on October 22, 2019, to take advantage of its early mover status in the CBD animal health industry.

September 30, 2022  (“

10 -K”) as filed with the SEC on December 15, 2022.

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.

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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, 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.

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Accounts receivables 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.

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.

As of September 30, 2022 and September 30, 2021, we had an allowance for doubtful accounts of $ 36,980 and $ 3,633 , respectively.

Merchant Receivable and Reserve

Merchant Receivable

The Company primarily sells its products through the internet and has an arrangement to process customer payments with multiple third -party payment processors.

The Company pay a fee between 2.5 % and 5.0 % of the transaction amounts processed.

Pursuant to this agreement, there can be a waiting period between 2 to 5 days prior to reimbursement to the Company, as well as a calculated reserve which some payment processors hold back.

Pursuant to these agreements, there can be a waiting period between 2 to 5 days prior to reimbursement to the Company, as well as a calculated reserve which some payment processors hold back.

Fees and reserves can change periodically with notice from the processors.

At September 30, 2021, the receivable from payment processors included approximately $ 231,257 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet.

At September 30, 2022, the receivable from payment processors included $ 273,451 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet.

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.

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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.

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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 recorded at fair value.

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 recorded 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.

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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.

The income-based approach utilizes discounted cash flows while the market-based approach utilizes market capitalization comparisons.

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.

The Company has analyzed a variety of factors in light of the known impact to date of the COVID-19 pandemic on its business to determine if a circumstance could trigger an impairment loss, and, at this time and based on the information presently known, does not believe that it is more likely than not that an impairment loss has been incurred.

The Company has analyzed a variety of factors on its business to determine if a circumstance could trigger an impairment loss.

See Note 5 for further information on the impairment testing procedures performed.

Intangible Assets

The Company's intangible assets consist of trademarks and other intellectual property, all of which are accounted for in accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other .

The Company's intangible assets consist of trademarks and other intellectual property, all of which were previously accounted for in accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles –

Goodwill and Other .

The Company employs the non-amortization approach to account for purchased intangible assets having indefinite lives.

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In addition, intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred.

In addition, the Company has analyzed a variety of factors in light of the known impact to date of the COVID-19 pandemic on its business to determine if a circumstance could trigger an impairment loss, and, at this time there have been no events identified that would trigger an impairment.

The Company analyzed a variety of factors on its business to determine if a circumstance could trigger an impairment loss, and, at this time and based on the information presently known, has determined that is it more likely than not that an impairment loss has occurred.

See Note 5 more further information on the impairment testing procedures performed at December 31, 2021 and the Company’s decision to change from indefinite to definite lived status for its trademarks.

The Company now accounts for its trademarks in accordance with Accounting Standards Codification (ASC) Topic 360, Property, Plant and Equipment.

The Company began amortizing its trademarks over 20 years beginning January 1, 2022 and will perform impairment tests as prescribed by ASC 360, which states that impairment testing should be completed whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable.

If there are indications that the asset’s carrying value may not be recoverable, there are two further steps involved in long-lived asset impairment testing.

Step I of the impairment test, as per ASC 360, involves estimating the Recoverable Amount of the Asset Group and determining the potential for impairment.

Step II of the impairment test, as per ASC 360, if necessary, involves quantifying the fair value of the asset group.

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 6.

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 consolidated balance sheet.

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 was 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 consolidated balance sheet.

The second marking period for the Earnout Shares ended December 31, 2020 and based on measurement criteria, 3,348,520 Earnout Shares were issued on March 8, 2021.

The second marking period shares increased in value by $ 3,100,012 during the quarter through the time of issuance and had a value of $ 11,271,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The first quarter of the third marking period ended on March 31, 2021 and based on the measurement criteria an additional 562,278 Earnout Shares had been earned and issued in May of 2021.

These shares deceased in value by $ 522,104 during the quarter through the time of issuance and had a value of $ 1,329,000 which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The second quarter of the third marking period ended on June 30, 2021 and based on the measurement criteria an additional 503,275 Earnout Shares had been earned and issued in August of 2021.

These shares deceased in value by $ 222,442 during the quarter through the time of issuance and had a value of $920,000 which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

A component of the purchase price consideration for the Company’s acquisition of Twenty Two Capital, LLC (“Twenty Two”) includes 200,000 of future shares (“Twenty Two Earnout Shares”) to be issued upon the post-acquisition entity reaching certain specified revenue targets, as further described in Note 6.

Under GAAP, the Company is required to record a non-cash contingent liability associated with the Twenty Two Earnout Shares and at the date of the acquisition, recorded a total contingent liability of $ 488,561 .

Under GAAP, the Company is obligated to reassess the obligations associated with the Twenty Two Earnout Shares on a quarterly basis and, in the event the Company’s estimate of the fair value of the contingent consideration changes, will record increases or decreases in the fair value as an adjustment to earnings.

In particular, changes in the market price of the Company’s common stock, which is one of the inputs used in determining the amount of the non-cash contingent liability, will result in increases or decreases in this liability and positively or negatively impact the Company’s net loss or profit for the period.

At September 30, 2021, the Company recorded a decrease in value of the contingent liability of $ 73,561 related to a decrease in the market price of its common stock, which adjusted the total contingent liability related to the DCO Earnout Shares to $ 416,000 .

Paycheck Protection Program Loan

On April 27, 2020, we received a loan in the principal amount of $ 1,456,100 (the “SBA Loan”) in consideration of a Promissory Note, under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S.

Small Business Administration (the “SBA”).

The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll.

As a qualifying business as defined by the SBA, the Company is using the proceeds from this loan to primarily help maintain its payroll as it navigates its business with a focus on returning to normal operations.

The term of the Promissory Note is two years, though it may be payable sooner in connection with an event of default under the Promissory Note.

The SBA Loan carries a fixed interest rate of one percent per year, with the first payment due seven months from the date of initial cash receipt.

Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels.

The Company used the SBA Loan for qualifying expenses in accordance with the terms of the CARES Act.

The Company filed for forgiveness under the terms of the SBA loan and on May 17, 2021 it received notice from the SBA that the loan had been forgiven.

The Company subsequently booked $ 1,466,113 of gain for unpaid principal and accrued interest.

This gain is reflected within Other Income (Expenses) on the consolidated statements of operations.

Small Business Administration (the “SBA”).

The Company used the SBA Loan for qualifying expenses and on May 17, 2021 it received notice from the SBA that the loan had been forgiven.

The Company subsequently booked a $ 1,466,113 gain for unpaid principal and accrued interest.

Revenue Recognition

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A performance obligation is a promise in a contract to transfer a distinct good or service to a customer.

The Company meets that obligation when it has shipped products which have been ordered by the customer.

The Company meets that obligation when it has shipped products which have been ordered by the customer.

The Company has reviewed its various revenue streams for its other contracts under the five -step approach.

Allocation of Transaction Price

In the Company’s current business model, it does 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 has 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.

Revenue Recognition

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Disaggregated Revenue

The Company’s product revenue is generated primarily through two sales channels, E-commerce sales (formerly referred to as consumer sales) and wholesale sales.

The Company believes 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 the Company’s principal revenue generating activities are as follows:

E-commerce sales - consumer products sold through the Company’s online and telephonic channels.

A description of the Company’s principal revenue generating activities are as follows:

E-commerce sales - consumer products sold through the Company’s 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 the Company’s 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.

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The following table represents a disaggregation of revenue by sales channel:

Wholesale sales

E-commerce sales

$ 26,435,203  

74.7 %  

$ 32,907,956  

Wholesale sales

8,968,021  

25.3 %  

11,572,807  

Total Net Sales

$ 35,403,224  

$ 44,480,763  

Contract assets represent unbilled receivables and are presented within accounts receivable, net on the consolidated balance sheets.

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Cost of Sales

The Company’s cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and outbound freight for the Company’s products sales.

For the Company’s 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.

The Company’s cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third -party providers, and outbound freight for the Company’s products sales.

Advertising Costs

The Company expenses all costs of advertising and related marketing and promotional costs as incurred.

The Company incurred approximately $ 15,835,139 and $ 9,946,755 in advertising and marketing and promotional costs included in operating expenses during the years ended September 30, 2021 and 2020 respectively.

The Company incurred $ 14,332,235 and $ 15,835,139 in advertising and marketing and promotional costs included in operating expenses during the years ended September 30, 2022 and 2021 respectively.

The Company believes driving its advertising aids in brand awareness and is critical to maintain brand recognition.

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As of October 1, 2019, CBDI and Paw CBD were 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 Company and as of March 15, 2021, Therapeutics is also a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Company.

The 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 Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the Financial Accounting Standards Board  ("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.

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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.

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The Company recognizes forfeitures when they occur.

Liquidity and Going Concern Considerations

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

The Company experienced a loss of $ 74,086,731 for the fiscal year ended September 30, 2022. 

Excluding one  time non-cash goodwill and intangibles impairment charges of $ 60,955,970 , the Company's loss was $ 13,130,761 , resulting in working capital of $ 10,725,991 .

While the Company is taking strong action, believes in the viability of its strategy and path to profitability, and in its ability to raise additional funds, there can be 

no  assurances to that effect.  The Company’s working capital position may not  be sufficient to support the Company’s daily operations for the twelve  months subsequent to the issuance of these annual financial statements. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and the ability to acquire additional funding.

These and other factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the annual financial statements are issued.

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may 

result in the Company not being able to continue as a going concern.

Restructuring

The Company recorded a one time restructuring charge of $ 602,092 related to severance and benefits payments to the exit of our former co-CEO.

This expenses in reflected in the Company's consolidated statements of operations as of September 30, 2022.

Earnings (Loss) Per Share

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Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

New Accounting Standards

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820).

The ASU modifies, removes, and adds several disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

The ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company adopted ASU 2018-13 on October 1, 2020.

The adoption of this standard had no material impact on the Company's consolidated financial statements and disclosures.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019 - 12, Income Taxes, Simplifying the Accounting for Income Taxes (Topic 740 ).

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ASU 2019 - 12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently in the process of evaluating the impact of this standard update.

NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES

The adoption of this standard had no material impact on the Company’s consolidated financial statements and disclosures.

NOTE 2 –

MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES

The Company has, from time to time, entered into contracts where a portion of the consideration provided by the customer in exchange for the Company's services was common stock, options or warrants (an equity position).

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In determining fair value of marketable securities and investment other securities, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value.

The Company determines the fair value fair value of marketable securities and investment other securities based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

The Company determines the fair value of marketable securities and investment other securities based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

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Where an accounts receivable other is settled with the receipt of the common stock or other instrument, the common stock or other instrument was classified as an asset on the consolidated 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).

For the year ended September 30, 2021 and September 30, 2020 the Company recorded $ 546,878 and $( 932,066 ), respectively of realized and unrealized gain (loss) on marketable and other securities, including impairments.

The realized gain was driven by the sale of our investment in Formula Four Beverages, Inc.

that was previously written to zero based on prior information related to the company’s performance and COVID-19 impacts, while the loss in the prior year was driven by the impairment from its investment in Formula Four Beverages, Inc.

and Kure Corp.

On December 30, 2017, the Company entered into an agreement with Isodiol International, Inc., whereby the Company provided pharmaceutical grade phytochemical compound development services.

As payment for these services, the Company has received 1,226,435 shares of Isodiol's common stock between December 31, 2017 and January 2019.

The Company also received 38,095 shares of Isodiol's common stock upon Isodiol’s acquisition of Kure Corp., giving the Company a total of 1,264,530 shares.

At September 30, 2021, the Company had 1,042,193 shares valued at $ 33,351 .

In September 2020, the Company purchased a membership interest in Adara Sponsor LLC for $ 250,000 , which along with proceeds from other investors was utilized as an investment in Adara Acquisition Corporation (“Adara”), a newly organized blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination (a “SPAC”).

For the year ended September 30, 2022 and 

September 30, 2021 the Company recorded $( 33,350 ) and $ 546,878 , respectively of realized and unrealized gain (loss) on marketable and other securities, including impairments.

The realized gain in 2021 was driven by the sale of our investment in Formula Four Beverages, Inc.

that was previously written to zero based on prior information related to the company’s performance and COVID- 19 impacts.

Our former Co-CEO formerly served as CEO of Adara.

On January 13, 2021, the Company executed second tranche subscriptions agreements and funded the remaining $ 750,000 commitment into Adara Sponsor, LLC.

On February 9, 2021, the public shares of Adara began trading on the NYSE.

Commencing March 24, 2021, holders of the 11,500,000 units sold in the Adara’s initial public offering could elect to separately trade shares of the Adara Class A common stock and warrants included in the units.

The shares of Class A common stock and warrants that were separated now trade on NYSE American LLC under the symbols “ADRA” and “ADRA WS”, respectively.

On September 30, 2021, the Company’s implied, indirect ownership in Adara represented 4.4% (633,988 shares) and 10.1% (1 million) of the warrants .

As of September 30, 2021, ADRA stock closed at $9.80 while ADRA WS closed at $0.54 .

Adara’s focus of targets to pursue for the business combination are expected to be in the consumer products industry including business in the health and wellness, ecommerce, discretionary spending, information technology sectors and related channels of distribution.

While Adara is currently a listed company, the Company’s investment is in Adara Sponsor, LLC and consequently the Company has classified this investment as Level 3 for fair value measurement purposes as there are no observable inputs.

In valuing the investment, the Company used the value paid, which was the price offered to all third-party investors.

The Company assessed the common stock and determined there was not an impairment for the period ended September 30, 2021.

The shares of Class A common stock and warrants that were separated now trade on NYSE American LLC under the symbols “ADRA”

and “ADRA WS”, respectively.

On June 22, 2022, the Company executed a transfer agreement with affiliates of Adara Sponsor, LLC whereby the Company's interest would be transferred to the affiliates of Adara Sponsor, LLC upon Adara's acquisition of Alliance Entertainment, Inc.

(the "Target") in consideration of the Company's original purchase price.

As a result of the SEC litigation against our former CEO, the Target provided a demand to Adara that it required cbdMD and Mr.

Sumichrast to dispose of our interests in Adara Sponsor, LLC as a condition of proceeding with any business combination.

On June 23, 2022, Adara announced it had entered into business combination agreements with the Target subject to a number of conditions to closing, including shareholder SEC approval.

There are no assurances the business combination will be completed.

If the business combination is not completed, Adara will continue to pursue other targets for a potential business combination.

In the event that the business combination does not close, Adara Sponsor, LLC has until February of 2023 to identify another business combination or the Company is at risk to lose our investment.

On April 7, 2022, CBD Industries, LLC entered into an asset sale agreement to sell substantially all its manufacturing assets to a subsidiary of Steady State, LLC ("Steady State").

The equipment sale is initially valued at approximately $ 1.8 million for accounting purposes, the sale price consisting of a trade credit for products to be provided to the Company under the manufacturing and supply agreement and $ 1.4 million of which the Company invested into Steady State in the form of an equity investment consistent with the terms of Steady State's recently completed Series C financing. 

The table below summarizes the assets valued at fair value as of September 30, 2022 :

In Active  

Markets for  

Significant Other

Identical Assets

Total Fair Value

and Liabilities

at September 30,

Marketable Securities

Investment other securities

Identical Assets  

Observable  

Total Fair Value  

and Liabilities  

Inputs  

at September 30,  

Balance at September 30, 2020

$ 26,472  

Change in value of equities

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Balance at September 30, 2021

33,351  

Change in value of equities

( 33,351 )  

Additional Investment

Balance at September 30, 2022

NOTE 3 – INVENTORY

NOTE 3 –

Inventory at September 30, 2022 and 2021 consists of the following:

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Finished Goods

$ 3,198,488  

$ 3,362,897  

Inventory Components

1,213,724  

1,729,176  

Inventory Reserve

( 156,298 )  

Inventory prepaid

511,459  

551,519  

Total Inventory

$ 4,767,373  

$ 5,573,386  

Abnormal amounts of idle facility expense, freight, handling costs, scrap, and wasted material (spoilage) are expensed in the period they are incurred and no material expenses related to these items occurred in the year ended September 30, 2022 .

The Company wrote down inventory of $ 670,580 during the fiscal year ended September 30, 20021 primarily related to regulatory changes affecting packaging, as well as expired product.

NOTE 4 – PROPERTY AND EQUIPMENT

The Company wrote down inventory of $ 878,142 during the first quarter of fiscal year ended September 30, 2022 primarily related to the rationalization of a number of product lines and stock keeping units (“SKU”s), as we work to streamline our offerings to higher velocity products and eliminate slow-moving and aging SKUs.

NOTE 4 –

PROPERTY AND EQUIPMENT

Major classes of property and equipment at September 30, 2022 and 2021 consist of the following:

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Computers, furniture and equipment

$ 1,095,228  

$ 549,910  

Manufacturing equipment

284,275  

2,968,838  

Leasehold improvements

487,081  

870,621  

11,087  

35,979  

1,877,671  

4,425,348  

Less accumulated depreciation

( 1,054,361 )  

( 1,863,774 )

Property and equipment, net

$ 823,310  

$ 2,561,574  

Depreciation expense related to property and equipment was $ 948,962 and $ 1,017,408 for the year ended September 30, 2022 and 2021 , respectively.

NOTE 5 – INTANGIBLE ASSETS

During the third quarter, the Company sold substantially all the assets of its manufacturing facility and as a result the gross investment and accumulated depreciation was removed from the balance sheet, reducing net PP&E.

NOTE 5 –

 GOODWILL AND INTANGIBLE ASSETS

The Company had goodwill at September 30, 2021 of $ 56,670,970 .

The Company performs a Step 0 goodwill impairment analysis at least annually following the steps laid out in ASC 350 - 20 - 35 - 3C.

Our annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test.

In performing a qualitative assessment, we review events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of goodwill.

From time to time the Company also evaluates goodwill impairment on a quarterly basis if any triggering events have occurred that would require such analysis.

For the three months ended December 31, 2021, the Company performed a Step 0 goodwill impairment analysis on consolidated goodwill and determined that a triggering event had occurred to necessitate performing the quantitative impairment test.

After performing the quantitative impairment test in accordance with ASC 350 - 20 - 35 - 3C, the Company determined that goodwill was impaired by $ 13,898,285 .

The Company has recorded this impairment to reduce total goodwill on its condensed consolidated balance sheets and has recorded the corresponding impairment expense on its condensed consolidated statement of operations as of December 31, 2021.

The Company performed the same analysis as of June 30, 2022 and determined that goodwill was impaired by $ 30,776,436 .

At September 30, 2022 the Company performed a subsequent Step 0 analysis and determined an impairment existed and as a result, it recorded an impairment expense of $ 11,996,249 on its consolidated statement of operations of September 30, 2022, resulting in a remaining goodwill balance of zero.

Intangible Assets

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 the Company creates and distributes products and continue to build this brand.

The Company believed the trademark did not have limits on the time it would contribute to the generation of cash flows and therefore identified these as indefinite lived intangible assets.

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.

At the time of acquisition, the Company believed the trademark did not have limits on the time it would contribute to the generation of cash flows and therefore had identified these as indefinite-lived intangible assets.

In July 2021, the Company completed the acquisition of DCO and acquired certain assets, including the trade name, domains and certain other intellectual property.

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The Company believes the trade name has a 10 year life.

In addition to the trade name, DCO has a technology platform used to market to its customer and the Company believe it has a 4 year life.

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 the Company creates and distributes products and continues to build this brand.

The Company believes the trademark does not have limits on the time it will contribute to the generation of cash flows and therefore has identified these as indefinite-lived intangible assets (see Note 1 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.

The Company believes the trademark does not have limits on the time it will contribute to the generation of cash flows and therefore has identified these as indefinite-lived intangible assets.

In addition to the trade name, DCO has a technology platform used to market to its customer and the Company believes it has a 4 year life.

As of December 31, 2021, the Company has re-assessed the “cbdMD”

and “HempMD”

trademarks and have determined that the trademarks should be classified as definite lived intangible assets with useful lives of 20 years versus indefinite lived intangible assets.

The Company used a variety of factors in determining the reclassifications and have made the reclassifications following guidance prescribed by ASC 350 - 30 - 35 - 17, which states that when a reporting entity subsequently determines that in indefinite-lived intangible asset has a finite useful life, the reporting entity should test the asset for impairment as an indefinite lived asset prior to commencing amortization.

As of December 31, 2021, the Company has prepared a tradename impairment analysis in accordance with ASC 350 and has determined that the “cbdMD”

trademark was impaired by $ 4,285,000 .

The Company has recorded this impairment charge as a reduction in the carrying value of the intangible assets on its condensed consolidated balance sheets with the corresponding impairment expense recorded on its condensed consolidated statements of operations.

The Company began amortizing the trademarks over their useful lives of 20 years as of January 2022.

Amortization expense for the year ended September 30, 2022 was $ 932,862 and was recorded on the condensed consolidated statements of operations.

At September 30, 2022, the Company prepared a tradename impairment analysis in accordance with ASC 360 and has determined that there are no indications of impairment.

Intangible assets as of September 30, 2022 and 2021 consisted of the following:

1 unchanged sentence

September 30,

Indefinite lived:

Trademark related to cbdMD

$ 21,585,000  

Trademark for HempMD

Definite lived intangible assets:

50,000  

Technology Relief from Royalty related to DirectCBDOnline.com

667,844  

Tradename related to DirectCBDOnline.com

749,567  

Impairment of definite lived intanigble assets:

( 4,285,000 )  

Amortization of definite lived intangible assets:

Goodwill as of September 30, 2021 ands 2020 consisted of the following:

( 932,862 )  

$ 17,834,549  

$ 23,003,929  

Future amortization of intangible assets as of September 30, 2022 is as follow:

For the year ended September 30,

1,109,418  

1,074,634  

942,457  

12,656,165  

Total future intangibles amortization

$ 17,834,549  

Goodwill as of September 30, 2022 and 2021 consisted of the following:

Goodwill at September 30, 2021

Goodwill related to acquisition of DirectCBDOnline.com

$ 56,670,970  

Impairment of goodwill

( 56,670,970 )

Goodwill at September 30, 2022

NOTE 6 – CONTINGENT LIABILITY

As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue 15,250,000 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 6,500,000 shares and 8,750,000 shares, 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 Earnout Shares can be issued upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the Closing Date.

NOTE 6 –

CONTINGENT LIABILITY

As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue 15,250,000 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 6,500,000 shares and 8,750,000 shares, both of which are subject to leak out provisions, and the unrestricted voting rights to 8,750,000 tranche of shares vesting over a five year period and are subject to a voting proxy agreement.

The Merger Agreement also provided that an additional 15,250,000 Earnout Shares can be issued upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the closing date.

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.

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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 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 Merger Agreement provides that an additional 15,250,000 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:

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$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

.23828125  

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 issuance of the initial 15,250,000 shares and the 15,250,000 Earnout Shares were approved by the Company’s shareholders in April 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 consolidated balance sheet.

In addition, the first marking period for the Earnout Shares was December 31, 2019 and based on measurement criteria, 5,127,792 Earnout Shares were issued on February 27, 2020 and had a value of $ 4,620,000 which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The second marking period for the Earnout Shares was December 31, 2020 and based on measurement criteria, 3,348,520 Earnout Shares were issued on March 8, 2021 and had a value of $ 11,271,000 which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The first quarter of the third marking period ended on March 31, 2021 and based on the measurement criteria an additional 562,278 Earnout Shares had been earned and issued in May of 2021.

The second quarter of the third marking period ended on June 30, 2021 and based on the measurement criteria an additional 503,275 Earnout Shares had been earned and issued in August of 2021.

These shares deceased in value by $ 222,442 during the quarter through the time of issuance and had a value of $ 920,000 which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The third marking period was originally an 18 month period commencing on January 1, 2021 and ending on June 30, 2022 (the “Third Marking Period End Date”), after which time the determination of the issuance of any remaining Earnout Shares would be made pursuant to the terms of the Merger Agreement.

The third quarter of the third marketing period ended on September 30, 2021 and based on the measurement criteria an additional 466,713 Earnout Shares were earned and issued in December 2021.

These shares decreased in value by $ 366,841 during the quarter through the time of issuance and had a value of $ 405,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The fourth quarter of the third marketing period ended on December 31, 2021 and based on the measurement criteria an additional 444,243 Earnout Shares were earned and issued in March 2022.

These shares increased in value by $ 41,914 during the quarter through the time of issuance and had a value of $ 325,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The fifth quarter of the third marketing period ended on March 31, 2022 and based on the measurement criteria an additional 458,877 Earnout Shares were earned and issued in May 2022.

These shares decreased in value by $ 90,792 during the quarter through the time of issuance and had a value of $ 178,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The sixth quarter of the third marketing period ended on June 30, 2022 and based on the measurement criteria an additional 409,505 Earnout Shares were earned and issued in August 2022.

These shares increased in value by $ 17,718 during the quarter through the time of issuance and had a value of $ 198,000 at the time of issuance, which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

At September 30, 2022, up to 3,928,797 remaining Earnout Shares are subject to issuance by the Company.

The third marking period was originally an 18 month period commencing on January 1, 2021 and ending on June 30, 2022 ( the “Third Marking Period End Date”), after which time the determination of the issuance of any remaining Earnout Shares would be made pursuant to the terms of the Merger Agreement.

On March 31, 2021 the Company entered into Addendum No.

1 to the Merger Agreement (“Addendum No.

) with the holders of the remaining Earnout Rights which amended the measurement periods within the third marking period to change the determination of the aggregate net revenues within the third marking period to a quarterly basis for each of the six fiscal quarters within the third marking period, beginning with the quarter ended March 31, 2021, instead of following Third Marking Period End Date.

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The value of the contingent liability was $ 276,000 and $ 9,440,000 at September 30, 2022 and September 30, 2021 , respectively.

As part of the Twenty Two acquisition in July 2021, the Company has a contractual obligation to issue up to an additional 200,000 shares of its common stock as additional consideration, dependent upon the acquisition entity meeting future revenue targets.

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Under GAAP the Company is obligated to reassess the obligations associated with the Twenty Two Earnout Shares on a quarterly basis and, in the event its estimate of the fair value of the contingent consideration changes, the Company will record increases or decreases in the fair value as an adjustment to earnings.

At September 30, 2021, the Company recorded a decrease in value of the contingent liability of $ 73,561 related to a decrease in the market price of our common stock, which adjusted the total contingent liability related to the DCO Earnout Shares to $ 416,000 .

NOTE 7 – RELATED PARTY TRANSACTIONS

The Company, as noted in Note 2, and a number of its affiliates have invested into Adara through Adara Sponsor.

Martin Sumichrast, the Company’s co-CEO, is also CEO of Adara.

NOTE 8 – SHAREHOLDERS ’ EQUITY

Preferred Stock – The Company is authorized to issue 50,000,000 shares of preferred stock, par value $ 0.001 per share.

At December 31, 2021, the Company recorded a decrease in value of the contingent liability of $ 255,000 related to a decrease in the market price of our common stock, which adjusted the total contingent liability related to the Twenty Two Earnout Shares to $ 161,000 .

At March 30, 2022 the Company recorded a decrease in value of the contingent liability of $ 148,000 related to a decrease in the market price of our common stock, which adjusted the total contingent liability related to the Twenty Two Earnout Shares to $ 13,000 .

At June 30, 2022, the Company recorded a decrease in value of the contingent liability of $ 13,000 related to a decrease in the market price of our common stock, which adjusted the total contingent liability related to the Twenty Two Earnout Shares to $ 0 .

As of September 2022 the measurement period has ended and there is no further obligation with respect to this earnout.

In November of 2021 the Company entered into a contractual obligation to issue up to 120,000 RSUs to an employee.

During the twelve month period ending December 31, 2022, the employee shall receive RSUs that are dependent upon a minimum $ 3 million and up to $ 8 million of net sales generated by the employee through accounts established and opened by the employee.

The shares will be subject to meeting the minimum $ 3 million of net sales as well as to calculations including volume-weighted average stock price minimum and maximum.

As of December 31, 2021 the estimated revenue target to be met by the employee through December 31, 2022 was below the minimum threshold for earning RSUs, and therefore, the Company recorded a zero liability related to this contingent liability at December 31, 2021.

During the three months ended March 31, 2022, the employee resigned their position with the Company.

As such, this contractual obligation was terminated.

In April 2022, the Company entered into a contractual obligation to issue up to 100,000 options to an employee.

The shares are subject to meeting a minimum direct to consumer revenue of $ 12.0 million for the December 2022 calendar quarter.

The Company is not expecting to meet this revenue metric for the December 2022 calendar quarter and has therefore valued this liability at $ 0 as of September 30, 2022.

NOTE 7 –

RELATED PARTY TRANSACTIONS

The Company, as noted in Note 2, and a number of its directors and affiliates have invested into Adara through Adara Sponsor.

As mentioned in Note 6, the counterparty in the earnout arrangement is a related party.

NOTE 8 –

SHAREHOLDERS ’

Preferred Stock –

The Company is 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 in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity.

The Company reviewed ASC 480 –

Distinguishing Liabilities from Equity in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity.

There were 5,000,000 and 500,000 shares of 8.0 % Series A Cumulative Convertible Preferred Stock issued and outstanding at September 30, 2022 and September 30, 2021 , respectively.

The total amount of dividends declared and recorded were $ 2,554,609 and $ 366,850 for the years ended September 30, 2021 and 2020.

Common Stock – The Company is authorized to issue 150,000,000 shares of common stock, par value $ 0.001 per share.

The total amount of dividends declared and recorded were $ 4,002,005 and $ 2,554,609 for the years ended September 30, 2022 and 2021 .

Common Stock –

The Company is authorized to issue 150,000,000 shares of common stock, par value $ 0.001 per share.

There were 60,665,595 and 57,783,340 shares of common stock issued and outstanding at September 30, 2022 and 2021 , respectively.

Preferred stock transactions:

The Company has no preferred stock transactions in the year ended 

September 30, 2022 .

In the year ended September 30, 2021 :

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The warrants were valued at $ 244,637 and expire on June 30, 2026.

On December 8, 2020, the Company completed a follow-on firm commitment underwritten public offering of 2,300,000 shares of its 8.0% Series A Cumulative Convertible Preferred Stock for aggregate gross proceeds of $ 17.25 million.

The Company received approximately $ 15.8 million in net proceeds after deducting underwriting discounts and commissions.

The Company also issued to the representative of the underwriters warrants to purchase in aggregate 150,502 shares of common stock with an exercise price of $ 3.74 .

The warrants were valued at $ 254,950 and expire on December 8, 2025 .

In the year ended September 30, 2020:

On October 16, 2019, the Company completed a firm commitment underwritten public offering of 500,000 shares of its 8.0% Series A Cumulative Convertible Preferred Stock for aggregate gross proceeds of $ 5,000,000 .

The Company received approximately $ 4.5 million in net proceeds after deducting underwriting discounts and commissions.

The Company also 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 were valued at $ 178,513 and expire on October 10, 2024 .

Common stock transactions:

In the year ended September 30, 2022 :

In August 2022, the Company issued 5,000 shares of restricted common stock to a newly appointed board member. 

The stock award was valued at the fair market price of $ 2,854 and vested at the grant date.

In August 2022, the Company issued 100,000 of restricted common stock to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan.

The stock awards were valued at the fair market price of $ 41,000 and vested at the grant date.

In August 2022, the Company issued 409,505 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In May 2022, the Company issued 458,887 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In March 2022 the Company issued 444,243 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In January 2022, the Company issued 30,000 shares of restricted stock awards to six employees.

The stock awards were valued at the fair market price of $ 29,250 and vested at the grant date.

In January 2022, the Company issued 320,000 shares to a professional athlete in conjunction with an amendment to the athlete’s sponsorship agreement as referenced in Note 11.

The stock grant was valuated at the fair market price of $ 336,000 upon issuance and will be amortized over the remaining term of the agreement.

On December 28, 2021, the Company issued 466,713 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In October 2021, the Company issued 25,000 shares of restricted common stock to an executive officer of the Company, subject to vesting on January 1, 2022.

In the year ended September 30, 2021 :

On August 16, 2021 the company issued 503,275 shares of restricted common stock in connection with the Earnout shares as referenced Note 6.

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In March 2021, the Company issued 180,000 shares of restricted common stock to a professional athlete to completely satisfy a $ 800,000 obligation due between July and December of 2021.

The Company recorded a total prepaid expense of $ 649,800 in conjunction with the issuances of shares and intends to amortize this over the term of the athlete’s agreement.

In March 2021, the Company issued 27,000 of restricted stock awards to the Company’s board of directors.

The Company recorded a total prepaid expense of $ 649,800 in conjunction with the issuances of shares and intends to amortize this over the term of the athlete’s agreement.

In March 2021, the Company issued 27,000 of restricted stock awards to the Company’s board of directors.

Two thousand of the shares vested at the time of the grant, while the balance vest one fourth on June 30, 2021, one fourth, on September 30, 2021, one fourth on December 31, 2021, and one fourth on March 31, 2022.

1 unchanged sentence

In March 2021, the Company issued 3,348,520 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In February 2021, as partial compensation pursuant to the terms of a Personal Services Agreement for the endorsement of the Company’s products, the Company issued 40,000 common shares.

The Company recorded a total prepaid expense of $ 155,200 in conjunction with the issuance of shares.

In October 2020 the Company issued 50,000 of restricted stock awards to an executive officer, subject to a multi-year vesting schedule with a minimum one year before the first tranche vests as noted below in Note 9.

In the year ended September 30, 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 for aggregate gross proceeds of $ 18,400,000 .

The Company received approximately $ 16.9 million in net proceeds after deducting underwriting discounts and commissions.

The Company also issued to the selling agent warrants to purchase in aggregate 480,000 shares of common stock with an exercise price of $ 1.25 .

The warrants were valued at $ 345,600 and expire on January 14, 2025 .

In February 2020, the Company 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, the Company 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 February 2020, the company issued 5,127,792 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

Stock option transactions:

In the year ended September 30, 2022 :

In August 2022, the Company granted a new board member an aggregate of 30,000 common stock options.

The options vested immediately, have a strike price of $ 0.568 and a five -year term.

The Company has recorded a total prepaid expense of $ 10,290 and were expensed at the issuance date.

In June 2022, an former executive officer of the company forfeited 750,000 common stock options. The forfeited options had an unrecognized value of 

The Company recognized contra-expense of 

$ 604,714 for the forfeited options related to the previously amortized expense for these options.

In May 2022, the Company granted a new executive an aggregate of 405,000 common stock options.

The options vest equally over 1, 2, and 3 years from the grant date.

The options have a strike price $ 0.84 and a five year term.

The total expense of these options totaled $ 176,985 and will be amortized over the term of the vesting periods.

In April 2022, the Company issued 200,000 options to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan.

Fifty thousand of the shares vested upon the grant, 50,000 vest and 6 months from the effective date and 100,000 upon renewal of the consulting agreement in March 2023.

The options have a strike price of $ 1 and five year term.

The total expense of these options totaled $ 131,300 and will be amortized over the term of the vesting periods.

In April 2022, the Company issued 100,000 common stock options to an employee that vest upon the Company achieving certain direct to consumer revenue growth targets for the quarter ended December 2022.

The options have a $ 1 strike price.

The Company performs analysis on these options and as of September 30, 2022 no expense was ascribed to these options.

In March 2022, the Company granted its board of directors an aggregate of 120,000 common stock options.

The options vested immediately, have a strike price of $ 0.818 and a five -year term.

The Company has recorded a total prepaid expense of $ 57,000 and intends to amortize the expense over the 12 -month board term.

In January 2022, the Company granted an aggregate of 130,000 common stock options to a group of 9 employees.

These options vest upon grant and the Company has recorded an expense for these options of $ 79,500 for the three months ended June 30, 2022

In October 2021, the Company granted an aggregate of 75,000 common stock options to an executive officer.

These options vest on October 1, 2022.

The Company has recorded an expense for these options of $ 23,025 and $ 46,050 for the three and twelve months ended September 30, 2022.

In the year ended September 30, 2021 :

In June 2021, the Company entered into a consulting arrangement with an industry professional.

1 unchanged sentence

In April 2021, the Company issued 750,000 common stock options to an executive officer in conjunction with an Amended and Restated Executive Employment Agreement.

The common stock options vest in three equal tranches, the first of which vests on January 1, 2022, the second on January 1, 2023 and the third on January 1, 2024, both under the Corporation’s 2021 Equity Compensation Plan.

The common stock options vest in three equal tranches, the first of which vests on January 1, 2022, the second on January 1, 2023 and the third on January 1, 2024, under the Corporation’s 2021 Equity Compensation Plan.

The Company has recorded an expense of $ 578,963 for the year ended September 30, 2022 for these options.

4 unchanged sentences

The options vest in three equal tranches, the first on April 15, 2021, the second on April 15, 2022 and the third on April 14, 2023 and have an exercise price of $ 3.10 per share and a term of 10 years.

The Company has recorded an expense of $ 116,735 for the year ended September 30, 2021 for these options.

The Company has recorded an expense of $ 116,735  for the year ended September 30, 2022 for these options.

In October 2020, the Company granted an aggregate of 350,000 common stock options to an executive officer.

1 unchanged sentence

The Company has recorded an expense for these options of $ 124,217 for the year ended September 30, 2022 .

The expected volatility rate was estimated based on comparison to the volatility of a peer group of companies in similar industries.

The expected volatility rate was estimated based on comparison to the volatility of a blend of the Company's own stock and a peer group of companies in similar industries.

The expected term used was the full term of the contract for the issuances.

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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.

In the year ended September 30, 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 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 $ 405,396 for the fiscal year ended September 30, 2020.

In February 2020, we granted an aggregate of 30,000 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 $ 10,100 for the fiscal year ended September 30, 2020.

In May 2020, we granted per the annual board compensation plan, an aggregate of 80,000 common stock options four independent directors and are expensed over the annual board term.

The options vest immediately, have an exercise price of $1.57 per share and a term of 10 years .

We have recorded an expense for the options of $ 58,040 for the fiscal year ended September 30, 2020.

In September 2020, we granted an aggregate of 30,000 common stock options to an employee as part of a severance agreement.

The options vest immediately have an exercise price of $2.60 per share and a term of three years .

We have recorded an expense for the options of $ 273,000 for the fiscal year ended September 30, 2020.

The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the years ended September 30, 2022 and 2021 :

Warrant transactions:

The Company has no warrant transactions during the twelve months ended September 30, 2022.

In the year ended September 30, 2021 :

2 unchanged sentences

Weighted average exercise price

$ 0.99  

$ 3.91  

Risk free interest rate

0.16 % - 0.85

1.41 % - 1.64

100.72 % - 105.43

95.96 % - 99.03

Expected term

2.5 - 5.5 years

2.56 % - 2.97 %  

0.16 % - 0.85 %  

101.23 % - 103.98 %  

100.72% - 105.43 %  

Expected term (in years)

2.5 - 5.5  

Divident yield

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The warrants expire on December 8, 2025.

In the year ended September 30, 2020:

In October 2019 in relation to the firm commitment underwritten public offering of the 8.0% Series A Cumulative Convertible Preferred Stock, the Company 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 of 2020 in relation to the follow-on firm commitment underwritten public offering of the Company’s common stock, the Company 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 .

The following table summarizes the inputs used for the Black-Scholes pricing model on the warrants issued in the year ended September 30, 2022 and 2021 :

Weighted average exercise price

$ 1.25 -$ 3.9125

Risk free interest rate

0.39 %- 0.89 %

95.36 %- 96.85

Expected term

0.00 %  

0.39 % - 0.89 %  

0.00 %  

Expected term (in years)

Divident yield

NOTE 9 -STOCK-BASED COMPENSATION

Equity Compensation Plan – On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan (“2015 Plan”).

Equity Compensation Plan –

On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan ( “2015 Plan”).

The 2015 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.

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On April 19, 2019, shareholders approved an amendment to the 2015 Plan and increased the number of shares available for issuance under the 2015 Plan to 2,000,000 and retained the annual evergreen increase provision of the plan.

Subsequent thereto, on August 7, 2019 the Company’s Board of Directors approved an amendment to the 2015 Plan changing the date the automatic evergreen increase is determined to the first trading day of October each calendar year during the term of the 2015 Plan to coincide with the Company’s fiscal year.

On January 8, 2021, the Company’s Board of Directors approved the 2021 Equity Compensation Plan (the “2021 Plan”) and it was subsequently ratified by its shareholders at its annual meeting held on March 12, 2021.

The purpose of the 2021 Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to it and upon whose efforts and judgment the success of the Company is largely dependent.

The 2021 Plan made 5,000,000 common shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof.

The 2021 Plan also contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on October 1 of each calendar year during the term of the 2021 Plan, beginning with calendar year 2022, by an amount equal to 1.0% of the total number of shares of common stock outstanding on September 30 of such calendar year, up to a maximum of 250,000 shares.

The 2021 Plan also contains an “evergreen formula”

pursuant to which the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on October 1 of each calendar year during the term of the 2021 Plan, beginning with calendar year 2022, by an amount equal to 1.0 % of the total number of shares of common stock outstanding on September 30 of such calendar year, up to a maximum of 250,000 shares.

The Company accounts for stock-based compensation using the provisions of ASC 718.

2 unchanged sentences

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 the Company’s 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.

10 unchanged sentences

Weighted-average

contractual term

intrinsic value

Number of shares

exercise price

(in thousands)

Outstanding at September 30, 2020

1,750,000  

$ 4.68  

1,380,000  

( 147,953 )  

( 279,547 )  

Outstanding at September 30, 2021

2,702,500  

1,060,000  

( 1,260,000 )  

Outstanding at September 30, 2022

2,502,500  

Exercisable at September 30, 2022

1,549,167  

$ 4.13  

As of September 30, 2022 , there was approximately $ 301,126 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 2.3 years.

Restricted Stock Award transactions:

In the twelve months ended September 30, 2022:

In August 2022, the Company issued 5,000 shares of restricted common stock to a newly appointed board member. 

The stock award was valued at the fair market price of $ 2,854 and vested at the grant date.

In August 2022, the Company issued 100,000 of restricted common stock to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan.

The stock awards were valued at the fair market price of $ 41,000 and vested at the grant date.

In June 2022, the Company issued 400,000 shares of restricted common stock in connection with the Separation Agreement with a former executive officer in which the former employee forfeited 500,000 shares of unvested restricted stock awards and 500,000 unvested options.

These shares are subject to vest one -half on July 1, 2022 and the balance January 1, 2023.

The fair market value of these shares totaled $ 172,000 and will be amortized over the vesting periods.

The forfeited RSUs and options had an unrecognized value of $ 799,572 and $ 555,286 , respectively.

The Company recognized contra-expense of $ 880,428 and $ 604,714 for the forfeited RSUs and options, respectively, related to the previously amortized expense for these RSUs and options.

In May 2022 the Company issued 125,000 shares of restricted common stock to an executive office of the Company as part of a new hire compensation package.

In May 2022 the Company issued 5,000 of restricted common stock to an employee of the Company.

The stock award was valued at the fair market price $ 3,350 of and expensed upon issuance.

In March 2022, the Company issued 20,000 of restricted stock awards to the Company’s board of directors.

The shares vest quarterly one fourth on June 30, 2022, one fourth, on September 30, 2022, one fourth on December 31, 2022, and one fourth on March 31, 2023.

The stock awards were valued at the fair market price of $ 16,360 upon issuance and will amortize over the individual vesting periods.

In January 2022, the Company issued 30,000 shares of restricted stock awards to six employees.

The stock awards were valued at the fair market price of $ 29,250 and vested at the grant date.

In January 2022, the Company issued 320,000 shares to a professional athlete in conjunction with an amendment to the athlete’s sponsorship agreement as referenced in Note 11.

The stock grant was valuated at the fair market price of $ 336,000 upon issuance and will be amortized over the remaining term of the agreement.

In November 2021, the Company issued 120,000 shares of restricted stock awards to an employee, subject to certain revenue performances metrics through December 2022, as referenced in Note 6.

These shares were forfeited during January 2022.

In October 2021 the Company issued 5,000 shares of restricted stock awards to an employee, which vested immediately upon issuance.

In October 2021 the Company issued 25,000 shares of restricted stock awards to an executive officer, subject to a four -month vesting schedule.

In the twelve months ended September 30, 2021:

In June 2021, the Company entered into a consulting arrangement with an industry professional.

7 unchanged sentences

The stock awards were valued at the fair market price of $ 2,520,000 upon issuance and amortized over the individual vesting periods.

In March 2021, the Company issued 27,000 of restricted stock awards to the members of the Company’s board of directors.

Two thousand shares vested at the time of the grant, while the balance vest in four equal tranches, the first of which vests on June 30, 2021, the second on September 30, 2021, on the third on December 31, 2021, and the fourth on March 31, 2022.

1 unchanged sentence

In March 2021, the Company issued 180,000 shares of restricted common stock to a professional athlete to completely satisfy an obligation due between July and December of 2021.

The Company recorded a total prepaid expense of $ 649,800 in conjunction with the issuances of shares and intends to amortize this over the term of the athlete’s agreement as a marketing expense.

In January 2021, the Company issued 167,500 of restricted stock awards to an aggregate of 15 employees.

3 unchanged sentences

The restricted stock vests in three equal tranches, the first of which vests on October 1, 2021, on the second on October 1, 2022 and the third on October 1, 2023 and were valued at fair market value upon issuance at $ 100,000 which will be amortized over the vesting period.

In June 2020, the Company issued 10,000 restricted stock awards to a Company sponsor.

The restricted stock awards vested June 30, 2020.

The stock awards were valued at fair market upon issuance at $ 56,200 and amortized over the vesting period and were expensed to sponsorship expense.

The Company recognized $ 373,610 and $ 1,626,613 of restricted stock compensation expense for the years ended September 30, 2022 and 2021 , respectively.

NOTE 10 – WARRANTS

NOTE 10 –

Transactions involving the Company equity-classified warrants for the fiscal years ended September 30, 2022 and 2021 are summarized as follows:

7 unchanged sentences

Outstanding at September 30, 2020

914,184  

$ 3.88  

293,984  

( 323,444 )  

( 224,307 )  

Outstanding at September 30, 2021

660,417  

( 70,500 )  

Outstanding at September 30, 2022

589,917  

Exercisable at September 30, 2022

589,917  

$ 4.68  

The following table summarizes outstanding common stock purchase warrants as of September 30, 2022 :

3 unchanged sentences

Exercisable at $7.50 per share

September 2022

Exercisable at $7.50 per share

100,000  

Exercisable at $4.375 per share

51,429  

September 2023

Exercisable at $7.50 per share

60,000  

Exercisable at $3.9125 per share

47,822  

3.9125  

Exercisable at $1.25 per share

36,682  

Exercisable at $3.74 per share

150,502  

December 2025

Exercisable at $3.75 per share

NOTE 11 – COMMITMENTS AND CONTINGENCIES

143,482  

589,917  

$ 4.68  

NOTE 11 –

COMMITMENTS AND CONTINGENCIES

In May 2019, the Company entered into an endorsement agreement with a professional athlete.

4 unchanged sentences

Effective July 1, 2020, the parties entered into a new endorsement agreement amending certain of the contract terms which superseded the original agreement.

Under the current endorsement agreement potential payments to the professional athlete are as follows from July 2020 to December 2022 – up to $2,867,000 to be paid in common stock in three issuances, based on a Volume Weighed Average Price (“VWAP”) calculation, of which the last two issuances can be paid in cash at the Company’s option - $1,400,000 paid in July 2020, $800,000 paid between July 2021 and December 2021, and $667,000 paid between July 2022 and December 2022.

Under the current endorsement agreement potential payments to the professional athlete are as follows from July 2020 to December 2022 –

up to $ 2,867,000 to be paid in common stock in three issuances, based on a Volume Weighed Average Price (“VWAP”) calculation, of which the last two issuances can be paid in cash at the Company’s option - $ 1,400,000 paid in July 2020, $ 800,000 paid between July 2021 and December 2021, and $ 667,000 paid between July 2022 and December 2022.

The Company will make monthly cash payments as follows from:

1 unchanged sentence

In March 2021, the parties entered into an additional amendment to the endorsement agreement whereby the Company issued the professional athlete 180,000 common shares to completely satisfy the $ 800,000 payment options between July 2021 and December 2021.

The Company has recorded expense of $ 971,554 and $ 577,034 for years ended September 30, 2021 and 2020, respectively

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, the United States AMA Supercross, the FIM World Championship events 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 are to be paid for the periods ending:

December 2019 - $150,000, December 2020 -$800,000 and December 2021 - $800,000.

In light of the impact of COVID-19 on these events, both parties entered into an amendment to the sponsorship agreement during October 2020.

The revised total aggregate payments are $1,013,625 during the term of the contract, ending May 2021, and are to be paid for periods ending:

2019 Season - $150,000, 2020 Season - $503,625 and December 2021 - $360,000 .

The Company has recorded expenses related to this agreement of $ 360,003 and $ 666,831 for the years ended September 30, 2021 and 2020, respectively.

In May 2021, cbdMD signed an exclusive sponsorship agreement to be the Official CBD Partner of the NOBULL CrossFit Games in 2021.

NOTE 12 – NOTE PAYABLE

In July 2019, the Company entered into a loan arrangement in the amount of $ 249,100 for a line of equipment, of which $ 96,880 a long term note payable at September 30, 2021.

Payments are for 60 months and have a financing rate of 7.01 %, which requires a monthly payment of $ 4,905 .

In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 12,105 is a long term note payable at September 30, 2021.

In January of 2022, the parties entered into an additional amendment to the endorsement agreement, whereby the Company has foregone certain rights to logo wearing during events while retaining other performance of the athlete through December 2024.

In exchange for change in obligations and term, the parties re-amortized the balance owed during 2022 through 2024, including issuing 320,000 of the Company’s common stock as part of the total compensation. 

The Company has recorded expense of $ 971,554 and $ 577,034 for years ended September 30, 2022 and 2021, respectively. 

 On November 4, 2022, the Company entered into a separation agreement with the athlete that required a final payment truing up the Company’s cash obligation through November 2022. 

No further obligations exist between the parties. 

The Company recorded a one time non-cash expense of approximately $ 850,000 associated with the outstanding un-expensed portion of stock compensation expense previously issued under a higher stock price.

In April 2022, effective February 2022, the Company entered into an endorsement agreement with a professional athlete.

The term of the agreement is through February 2025 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, requirement to provide production days for advertising creation and attendance at meet and greets.

The potential base payments, if all services are provided is $ 1,500,000 over the term of the agreement, in addition to some incentives for sales directly influenced by the athlete.

As previously disclosed, during June of 2022, the Company's CEO resigned from the board of directors and his role as an executive for the Company in June 2022 under the terms of a separation agreement with the Company. 

This resignation was associated with the SEC action taken against this former executive and the Company was not named in the action.

NOTE 12 –

In July 2019, the Company entered into a loan arrangement in the amount of $ 249,100 for a line of equipment as part of the sale of manufacturing equipment during April 2022, the balance of this loan was paid off resulting in a balance of $ 0 as of September 30, 2022. 

In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 3,000 is a long term note payable at 

September 30, 2022.

Payments are for 48 months and have a financing rate of 6.2 %, which requires a monthly payment of $ 841 .

NOTE 13 – PAYCHECK PROTECTION PROGRAM LOAN

NOTE 13 –

PAYCHECK PROTECTION PROGRAM LOAN

In April 2020, The Company applied for an unsecured loan pursuant to the PPP administered by and authorized by the CARES Act.

Section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program.

On April 27, 2020, the Company received the loan from Truist Bank (the “Lender”) in the principal amount of $ 1,456,100 .

The SBA Loan is evidenced by a promissory note issued by the Company (the “Promissory Note”) to the Lender.

On April 27, 2020, the Company received the loan from Truist Bank in the principal amount of $ 1,456,100 .

The SBA Loan is evidenced by a promissory note issued by the Company to Truist Bank.

During May of 2021, the Company received notice from the SBA the loan principal and any accrued interest was completely forgiven.

This gain is reflected within Other Income (Expenses) on the consolidated statements of operations.

NOTE 14 – 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.

At September 30, 2020 the balance in accounts receivable related to discontinued operations was $ 447,134 , which reflects payments made and an impairment of $ 45,783 .

At September 30, 2021 the balance in accounts receivable related to discontinued operations totaled $ 10,967 .

NOTE 15 – LEASES

NOTE 14 –

The Company has lease agreements for its corporate, warehouse and laboratory offices with lease periods expiring between 2024 and 2026.

1 unchanged sentence

The Company determines whether an arrangement is a lease at inception and classify it as finance or operating.

All of the Company’s leases are classified as operating leases.

The Company’s leases do not contain any residual value guarantees.

All of the Company’s leases are classified as operating leases.

The Company’s 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, the Company determined 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.

The Company’s 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.

3 unchanged sentences

Total Operating Lease Costs

$ 1,391,856  

Supplemental cash flow information related to operating leases is summarized as follows:

1 unchanged sentence

Cash paid for amounts included in the measnurement of operating lease liabilities

$ 1,405,887  

As of September 30, 2022 , our operating leases had a weighted average remaining lease term of 3.91 years and a weighted average discount rate of 4.66 %.

1 unchanged sentence

For the year ended September 30,

1,380,204  

1,421,610  

1,159,949  

1,372,862  

Total future lease payments

5,334,625  

Less interest

Total lease liabilities

Future minimum lease payments (including interest) under non-cancelable operating leases as of September 30, 2020 are summarized as follows:

$ 4,859,058  

Future minimum lease payments (including interest) under non-cancelable operating leases as of 

September 30, 2021 are summarized as follows:

For the year ended September 30,

Total future lease payments

$ 1,405,887  

1,380,204  

1,421,610  

1,159,949  

1,372,862  

Total futrue lease payments

6,740,512  

Less interest

( 1,041,040 )

Total lease liabilities

NOTE 16 – EARNINGS PER SHARE

$ 6,010,208  

NOTE 15 –

LOSS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the following periods:

1 unchanged sentence

September 30,

Net income (loss) continuing operations

Net income (loss)

$ ( 70,083,693 )  

$ ( 23,394,889 )

Preferred dividends paid

4,002,005  

2,554,609  

Net income (loss) continuing operations adjusted for preferred dividend

( 74,085,698 )  

( 25,949,498 )

Net income (loss) discontinued operations

Net income (loss) attributable to cbdMD Inc.

common shareholders

( 74,085,698 )  

( 25,949,498 )

Net income (loss) continuing operations

Net income (loss)

( 74,085,698 )  

( 25,949,498 )

Net income (loss) discontinued operations

Net income (loss)

( 74,085,698 )  

( 25,949,498 )

Shares used in computing basic earnings per share

59,750,301  

54,938,128  

Effect of dilutive securities:

1 unchanged sentence

Shares used in computing diluted earnings per share

59,750,301  

54,938,128  

Earnings per share Basic:

Continued operations

( 1.24 )  

Discontinued operations

Basic earnings per share

( 1.24 )  

Earnings per share Dliuted:

Continued operations

( 1.24 )  

Discontinued operations

Diluted earnings per share

At the year ended September 30, 2021, 4,175,417 potential shares underlying options, unvested RSUs and warrants as well as 8,335,000 convertible preferred shares were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share.

NOTE 17 – INCOME TAXES

( 1.24 )  

At the year ended 

September 30, 2022 , 3,335,750 potential shares underlying options, unvested RSUs and warrants as well as 8,335,000 convertible preferred shares were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share.

NOTE 16 –

The Company generated operating losses for the years ended September 30, 2022 and 2021 on which it has recognized a full valuation allowance.

1 unchanged sentence

The following table presents the components of the provision for income taxes from continuing operations for the fiscal years ended September 30, 2022 and 2021 :

Years Ended September 30,

Year Ended September 30,

Total current

( 1,345,300 )

Total deferred

( 1,345,300 )

Total provision

$ ( 895,000 )

$ ( 1,345,300 )

A reconciliation for the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Years Ended September 30,

A reconciliation for the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended September 30,

Federal statutory income tax rate

21.0 %  

State income taxes, net of federal benefit

Permanent differences

( 17.1 )  

Contingent derivative expense

1 unchanged sentence

Change in valuation allowance

( 6.8 )  

Benefit from (provision for) income taxes

Significant components of the Company’s deferred income taxes are shown below:

Years Ended September 30,

Significant components of the Company’s deferred income taxes are shown below:

Year Ended September 30,

Deferred tax assets:

Net operating loss carryforwards

$ 12,909,000  

$ 9,160,000  

ROU - Liability

1,087,000  

1,342,000  

Capital loss carryforward

702,000  

716,000  

Allowance for doubtful accounts

Stock compensation

833,000  

1,107,000  

452,000  

444,000  

Accrued expenses

214,000  

165,000  

40,000  

Inventory reserve

35,000  

16,000  

Capitalized expenses

48,000  

52,000  

Charitable contributions

45,000  

43,000  

Total deferred tax assets

16,373,000  

13,046,000  

Deferred tax liabilities:

Prepaid Expenses

Management fees

( 257,000 )  

( 1,002,000 )  

( 1,254,000 )

( 3,426,000 )  

( 4,481,000 )

Total deferred tax liabilities

( 6,116,000 )

( 4,685,000 )  

( 6,116,000 )

Net deferred tax assets

11,688,000  

6,930,000  

Valuation allowance

( 6,930,000 )

( 11,688,000 )  

( 6,930,000 )

Net deferred tax liability

$ ( 895,000 )

Net deferred tax liability

3 unchanged sentences

At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced.

Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited if a change in ownership of a company occurs.

During the year ending September 30, 2018, the company determined that a change of ownership under IRC Section 382 had occurred during the years ending September 30, 2017 and 2015.

8 unchanged sentences

The Company files income tax returns in the United States, and various state jurisdictions.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense.

At September 30, 2021 and 2020 , there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties.

The CARES Act, which was enacted on March 27, 2020, includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits.

The Company analyzed the provisions of the CARES Act and determined there was no effect on its provision for the year ended September 30, 2020 and will continue to evaluate the impact, if any, the CARES Act may have on the Company’s consolidated financial statements and disclosures.

The Company analyzed the provisions of the CARES Act and determined there was no effect on its provision for the year ended September 30, 2021 and will continue to evaluate the impact, if any, the CARES Act may have on the Company’s consolidated financial statements and disclosures.

On December 20, 2018, the Company completed a two -step merger with Cure Based Development (see Note 2 ).

1 unchanged sentence

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").

At September 30, 2020, the company had recorded $ 895,000 of deferred liabilities related to the naked credits.

During the year ended September 30, 2021, the Company generated 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 $895,000 to $ 0 and a recorded a deferred tax benefit of $ 130,000 for the quarter and $ 895,000 for the year ended September 30, 2021 related to the reduction of the naked credits.

NOTE 18 – ACQUISITIONS

On July 22, 2021, the Company entered into an asset purchase agreement with Twenty Two Capital, LLC (“Twenty Two”) to acquire substantially all the assets of the business operating as directcbdonline.com.

The Company acquired the assets for the consideration of $2,000,000 and up to 600,000 shares of the Company’s restricted common stock.

During the year ended September 30, 2021 , the Company generated 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 deferred tax assets.

NOTE 17 –

The Company acquired the assets for the consideration of $ 2,000,000 and up to 600,000 shares of the Company’s restricted common stock.

At the closing, $ 200,000 of the cash purchase price was deposited into escrow pending possible post-closing adjustments and indemnity provisions.

In addition, at closing, the Company issued Twenty Two 300,000 shares of the Company’s common stock, 100,000 shares of the Company’s common stock to be issued to Twenty Two on or before January 31, 2023, less any amounts setoff against such shares for indemnification claims pending against or paid by the Company under the asset purchase agreement and a remaining 200,000 shares shall be issued to Twenty Two on or before 60th day following the first year anniversary of the Closing subject to certain earn out provisions provided under the asset purchase agreement.

The shares are subject to a 180 day lock up agreement subject to certain limited transfers which will also be subject to the lock up.

The initial 300,000 shares issued and 100,000 indemnification holdback shares had a carrying value of $ 1,064,000 and are included in additional paid in capital in the consolidated balance sheet.

The fair value of the 200,000 earnout shares was determined using a two-factor Monte Carlo simulation using Risk Neutral Geometric Brownian Motion, along with volatility and discounts rates to be applied to revenue projections, share price and earnout settlement value.

The earnout shares were valued at $ 488,529 and are included in contingent liability in the consolidated balance sheet.

As of September 30, 2022 the measuring period for the Twenty Two Earnout Shares is over, the threshold was not met, and there is no longer any value ascribed to this on our balance sheet. 

The following table presents the final purchase price allocation:

Consideration

$ 3,552,529  

Assets Acquired:

Undeposited Funds

$ 18,155  

79,895  

Inventory - Prepaid Shipping

Property and equipment, net

31,094  

Proerpty and equipment, net

Intangible Assets

3,418,383  

Total assets aquired

NOTE 19 – SUBSEQUENT EVENTS

The Company has analyzed its operations subsequent to September 30, 2021 to the date the consolidated financial statements were issued.

In October 2021, the Company issued 25,000 RSUs to an executive officer that vests January 1, 2022 .

In addition, the Company issued 75,000 options that vest on October 1, 2022 .

The stock awards were valued at the fair market price of $ 141,100 upon issuance and amortized over the individual vesting periods.

In October 2021, the Company issued 5,000 RSUs to an employee.

The stock awards was valued at the fair market price of $ 9,800 .

In November 2021, the Company issued up to 120,000 RSUs to an employee.

During the twelve month period ending December 31, 2022 , the employee shall receive RSUs that are dependant upon a minimum $ 3 million of net sales and up to $ 8 million generated by the employee through accounts established and opened by the employee.

The shares will be subject to meeting the minimum $3 million of net sales as well as to calculations including volume-weighted average stock price minimum and maximum.

$ 3,552,529  

NOTE 18 –

SUBSEQUENT EVENTS

The Company has analyzed its operations subsequent to September 30, 2022 to the date the consolidated financial statements were issued and there are no material subsequent events other than previously disclosed in these footnotes. 

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures