What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2023-02-13 · 437 added, 202 removed, 787 unchanged (45% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2022 AND September 30, 2022

March 31, 2023 AND September 30, 2022

September 30,

1 unchanged sentence

Cash and cash equivalents

$ 1,718,552  

$ 6,720,234  

Accounts receivable

1,161,553  

1,447,831  

Accounts receivable –

1 unchanged sentence

Investment other securities

Inventory prepaid

1,000,000  

4,531,890  

4,767,373  

Prepaid sponsorship

92,755  

1,372,845  

Prepaid expenses and other current assets

2,641,452  

701,945  

Total current assets

10,146,202  

16,011,603  

Other assets:

Property and equipment, net

798,177  

823,310  

Operating lease assets

3,921,195  

4,477,841  

Deposits for facilities

138,708  

244,606  

Intangible assets

17,279,840  

17,834,549  

Investment in other securities, noncurrent

1,400,000  

Total other assets

23,537,920  

24,780,306  

$ 33,684,122  

$ 40,791,909  

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2022 AND September 30, 2022

March 31, 2023 AND September 30, 2022

September 30,

35 unchanged sentences

par value, 1,456,693 and 1,348,125 shares issued and outstanding, respectively

60,712  

60,666  

Additional paid in capital

13 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE three months ended December 31, 2022 and 2021

FOR THE three and six months ended March 31, 2023 and 2022

$ 6,584,666  

$ 9,948,858  

$ 12,825,191  

$ 19,805,625  

( 344,646 )  

( 319,972 )  

( 499,954 )  

Total Net Sales

6,240,020  

9,628,886  

12,325,237  

18,950,708  

Cost of sales

2,224,512  

3,186,564  

4,741,964  

7,514,874  

4,015,508  

6,442,322  

7,583,273  

11,435,834  

Operating expenses

5,416,151  

11,452,700  

13,030,097  

23,407,984  

Impairment of goodwill and other intangible assets

18,183,285  

Loss from operations

Realized and Unrealized loss on marketable and other securities, including impairments

( 1,400,643 )  

( 5,010,378 )  

( 5,446,824 )  

( 30,155,435 )

Realized and Unrealized loss on marketable and other securities  

Decrease of contingent liability

Other income (expense)

48,000  

353,000  

109,000  

6,303,000  

17,787  

49,543  

72,987  

Interest expense

( 1,946 )  

( 2,086 )  

( 4,583 )  

Loss before provision for income taxes

( 1,336,802 )  

( 4,657,215 )  

( 5,292,864 )  

( 23,818,120 )

Benefit for income taxes

Net (Loss) Income

( 1,336,802 )  

( 4,657,215 )  

( 5,292,864 )  

( 23,818,120 )

Preferred dividends

1,000,500  

1,000,502  

2,001,002  

Net Loss attributable to cbdMD, Inc.

common shareholders

$ ( 2,337,302 )  

$ ( 5,657,717 )  

$ ( 7,293,866 )  

$ ( 25,819,122 )

Net Loss per share:

Basic earnings per share

( 1.74 )  

( 4.32 )  

( 5.43 )  

Diluted earnings per share

( 1.74 )  

( 4.32 )  

( 5.43 )  

Weighted average number of shares Basic:

1,345,589  

1,310,378  

1,343,394  

1,312,755  

Weighted average number of shares Diluted:

1,345,589  

1,310,378  

1,343,394  

1,312,755  

See Notes to Condensed Consolidated Financial Statements 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE three months ended December 31, 2022 and 2021

FOR THE three and six months ended March 31, 2023 and 2022

Net (Loss) Income

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE three months ended December 31, 2022 and 2021

FOR THE six months ended March 31, 2023 and 2022

Cash flows from operating activities:

3 unchanged sentences

Write off of prepaid assets due to termination of contractual obligation

Issuance of stock for services

Marketing stock amortization

16 unchanged sentences

Purchase of property and equipment

Other Securities

Cash flows from investing activities

6 unchanged sentences

Supplemental Disclosures of Cash Flow Information:

Cash Payments for:

2 unchanged sentences

Issuance of Contingent earnout shares:

See Notes to Condensed Consolidated Financial Statements 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE three months ended December 31, 2022

FOR THE six months ended March 31, 2023

Preferred Stock

7 unchanged sentences

( 152,380,127

Issuance of Common stock

Issuance of options for share based compensation

Issuance of restricted stock for share based compensation

Issuance of Common stock - A360

Issuance of Common stock - DCO

Issuance of Common stock - Keystone

True up of fractional shares resulting from reverse split

Preferred dividend

Balance, March 31, 2023

( 154,717,429

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE three months ended December 31, 2021

FOR THE six months ended March 31, 2022

Preferred Stock

5 unchanged sentences

Balance, December 31, 2021

Issuance of Common Stock

Exercise of options for share based compensation

Issuance of restricted stock for share based compensation

Preferred dividend

Balance, March 31, 2022

See Notes to Condensed Consolidated Financial Statements  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE three months ended December 31, 2022 and 2021 (unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE three and six months ended March 31, 2023 and 2022 (unaudited)

NOTE 1 –

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CBD is a natural substance 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).

The products manufactured by and for the Company comply with the 2018 Farm Bill - our full spectrum products contain trace amounts of tetrahydrocannabinol ("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 THC.

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

8 unchanged sentences

Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2022 as reported in the 2022 10 -K have been omitted.

Reverse Stock Split

On April 12, 2023, the board effected a reverse stock split at a ratio of 

one -for- forty -five, effective as of April 24, 2023.

Unless otherwise indicated, all share numbers in this filing, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the reverse stock split.

See "Subsequent Events" below.

Principles of Consolidation

1 unchanged sentence

All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP and requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented.

2 unchanged sentences

Actual results could differ from these estimates.

While the Company has been relatively successful in navigating the impact of COVID- 19, it had previously been affected by temporary manufacturing closures, changes in product distribution and employment and compensation adjustments.

There are also ongoing related risks to the Company’s business depending on any resurgence of the pandemic.

The Company continues to monitor macroeconomic conditions to remain flexible and to optimize and evolve its business as appropriate.

5 unchanged sentences

Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio.

As of December 31, 2022 and September 30, 2022 , we had an allowance for doubtful accounts of $ 2,047 and $ 36,980 , respectively.

As of March 31, 2023 and September 30, 2022 , we had an allowance for doubtful accounts of $ 19,292 and $ 36,980 , respectively.

Merchant Receivable and Reserve

3 unchanged sentences

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

At December 31, 2022  and September 30, 2022, the receivable from payment processors included approximately $ 265,477 and $ 273,451 , respectively, for the waiting period amount and is recorded as accounts receivable in the accompanying condensed consolidated balance sheet.

At March 31, 2023  and September 30, 2022, the receivable from payment processors included approximately $ 338,502 and $ 273,451 , respectively, for the waiting period amount and is recorded as accounts receivable in the accompanying condensed consolidated balance sheet.

Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis.

25 unchanged sentences

Intangible Assets

The Company’s intangible assets consist of 

definite-lived trademarks and other intellectual property. Prior to December 31, 2021, the Company employed the non-amortization approach to account for purchased intangible assets having indefinite lives.

The Company’s intangible assets consist of definite-lived trademarks and other intellectual property. Prior to December 31, 2021, the Company employed the non-amortization approach to account for purchased intangible assets having indefinite lives.

Under the non-amortization approach, intangible assets having indefinite lives are not amortized into the results of operations, but instead are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value.

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

At December 31, 2022 , the Company has no unfulfilled performance obligations.

At March 31, 2023 , the Company has no unfulfilled performance obligations.

Allocation of Transaction Price

16 unchanged sentences

Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the condensed consolidated balance sheets.

Other than account receivable, Company has no material contract assets nor contract liabilities at December 31, 2022 .

Other than account receivable, Company has no material contract assets nor contract liabilities at March 31, 2023 .

The following tables represent a disaggregation of revenue by sales channel:

11 unchanged sentences

$ 9,628,886  

E-commerce sales

$ 9,796,064  

79.5 %  

$ 13,696,641  

Wholesale sales

2,529,173  

20.5 %  

5,254,067  

Total Net Sales

$ 12,325,237  

100.0 %  

$ 18,950,708  

Cost of Sales  

13 unchanged sentences

The Company from time to time may have amounts on deposit in excess of the insured limits.

The Company had a $ 2.7 million uninsured balance at December 31, 2022 and a $ 5.8 million uninsured balance at September 30, 2022 .

The Company had a $ 791,000  uninsured balance at March 31, 2023 and a $ 5.8 million uninsured balance at September 30, 2022 .

Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies.

Management considers these customer receivables to represent normal business risk.

The Company did not have any customers that represented a significant amount of our sales for the three months ended December 31, 2022 .

The Company did not have any customers that represented a significant amount of our sales for the three and six months ended March 31, 2023 .

Stock-Based Compensation

10 unchanged sentences

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

On February 16, 2023, we held an annual meeting of stockholders.

At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one -for- twenty to one -for-fifty, inclusive, with the exact ratio to be set at the discretion of our board of directors, at any time after approval of the amendment and prior to February 16, 2024.

On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023 ( the "Reverse Stock Split").

Unless otherwise indicated, all share numbers in this report, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the Reverse Stock Split.

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 $ 3,956,062 for the three months ended December 31, 2022, resulting in working capital of $ 5,977,801 .

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 quarterly 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 quarterly 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.

The Company experienced a loss of $ 1,336,802 and $ 5,292,864 for the three and six  months ended March 

31, 2023, resulting in working capital of $ 5,466,788 .

Management has concluded that substantial doubt exists about our ability to continue as a going concern for the next twelve months from the date hereof. 

Our current capital resources, including our equity line of credit with Keystone Capital Partners, LLC may not be sufficient to support our planned operations for the next twelve months from the date hereof.

We believe that upon receipt of approximately $ 2.5 million in net proceeds pursuant to the underwritten public offering completed on May 3, 2023 ( see "Subsequent Event" below), after deducting the underwriting fees and estimated offering expenses payable by us, that our cash and cash equivalents on hand should be sufficient to fund operations through the end of the fiscal year if not longer.

However, depending upon our operating results and cash burn over the next four months, we may be required to raise additional capital to fund operations or scale back our operations or dividends. We expect to continue to incur losses for the foreseeable future as we continue our efforts to increase sales, develop additional products, seek acquisitions and mergers, continue research and development, reduce operating expenses and attempt to achieve profitability.

Furthermore, in the event we identify an acquisition candidate, such acquisition may require immediate capital to close such acquisition. These factors, individually and collectively, raise substantial doubt about our ability to continue as a going concern, and therefore, could materially limit our ability to raise additional funds through an issuance of debt or equity securities or otherwise.

New Accounting Standards

14 unchanged sentences

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 three months ended December 31, 2022 and 2021 the Company recorded $ 0  and $( 33,350 ) respectively, of realized and unrealized gain (loss) on marketable and other securities, including impairments.

The realized loss in the 

first quarter of fiscal 2021 was a result of marking the Company’s holdings of 1,042,193 shares of Isodiol International, Inc.

(“Isodiol”) down to zero after Isodiol was delisted from the TSX during December 2021.

For the six months ended March 31, 2023 and 2022 the Company recorded $ 0  and $( 33,350 ) respectively, of realized and unrealized gain (loss) on marketable and other securities, including impairments.

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”).

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

Certain affiliates of the Company have also invested in 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 December 31, 2022 , the Company’s implied, indirect ownership in Adara represented 4.4 % ( 633,988 shares) and 10.1 % ( 1 million) of the warrants.

As of December 31, 2022 , ADRA stock closed at $ 10.18 while ADRA WS closed at $ 0.07 . 

January 13, 2021, 

the Company executed 

second  tranche subscriptions agreements and funded the remaining $ 750,000 .

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 Allliance Entertainment, Inc.

2 unchanged sentences

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.

In December 2022, Adara filed its definitive proxy to approve the acquisition and query shareholders redemption. 

There are no assurances the business combination will be completed.

If the business combination is not completed, Adara faces a potential redemption from its shareholders during February 2023.

Should this business combination not be effectuated, the Company risks losing it's $ 1 million investment in Adara Sponsor LLC.

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, e-commerce, discretionary spending, information technology sectors and related channels of distribution.

In December 2022, Adara filed its definitive proxy to approve the acquisition and query shareholders redemption.

Effective February 10, 2023, the Company completed the Membership Interest Transfer Agreement with Blystone & Donaldson, LLC, and Mr.

Thomas Finke (collectively, the “Transferees”) dated June 22, 2022.

Pursuant to the terms of the agreement, the Company sold its entire ownership interest in Adara Sponsor, LLC, to the Transferees for the total purchase price of $ 1,000,000 which constitutes the Company’s original purchase price of the interest.

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 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 Company has classified this investment as Level 3 for fair value measurement purposes as there are no observable inputs and has included in non-current assets on the accompanying condensed consolidated balance sheets as the company intends to hold this investment for longer than a year.

The Company has classified this investment as Level 3 for fair value measurement purposes as there are no observable inputs and has included in non-current assets on the accompanying condensed consolidated balance sheets as the Company holds this investment for longer than a year.

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

NOTE 3 - INVENTORY

Inventory at December 31, 2022 and September 30, 2022 consists of the following:

Inventory at March 31, 2023 and September 30, 2022 consists of the following:

September 30,

13 unchanged sentences

$ 4,767,373  

Abnormal amounts of idle facility expense, freight, handling costs, scrap and wasted material (spoilage) are expensed in the period they are in incurred and no material expenses related to these items occurred in the three months ended December 31, 2022 .

At the end of the quarter ended December 31, 2021, the Company wrote down inventory of $ 878,142 , primarily related to a rationalization of a number of product lines and stock keeping units ("SKUs") at the end of the quarter, as we are working to streamline our offering to higher velocity products and eliminate slow-moving and aging SKUs.

NOTE 4 –

PROPERTY AND EQUIPMENT

Major classes of property and equipment at December 31, 2022 and September 30, 2022 consist of the following:

Major classes of property and equipment at March 31, 2023 and September 30, 2022 consist of the following:

September 30,

18 unchanged sentences

$ 823,310  

Depreciation expense related to property and equipment was $ 100,112 and $ 288,384 for the three months ended December 31, 2022 and 2021 , respectively. 

Depreciation expense related to property and equipment was $ 102,390 and $ 508,299 for the three months ended March 31, 2023 and 2022 , respectively. 

NOTE 5 –

GOODWILL AND INTANGIBLE ASSETS

The Company had goodwill at December 31, 2021 was $ 42,772,685 .

The Company had goodwill at March 31, 2022 

of $ 42,772,685 .

The Company impaired goodwill in subsequent reporting periods of fiscal 2022  and goodwill was fully impaired by September 30, 2022.

16 unchanged sentences

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

Intangible assets as of December 31, 2022 and September 30, 2022 consisted of the following:

Intangible assets as of March 31, 2023 and September 30, 2022 consisted of the following:

September 30,

11 unchanged sentences

749,567  

Impairment of definite live intangible assets:

Impairment of intangible assets

( 4,285,000 )

4 unchanged sentences

Amortization

expense related to definite lived intangible assets was $ 277,354 and $ 100,799  for the three months ended December 31, 2022 and 2021 , respectively.

No triggering events were identified at December 31, 2022 that suggested a quantitative impairment analysis under ASC 360 was necessary.

expense related to definite lived intangible assets was $ 277,354 and $ 277,354  for the three months ended March 31, 2023 and 2022 , respectively.

No triggering events were identified at March 31, 2023 

that suggested a quantitative impairment analysis under ASC 360 was necessary.

NOTE 6 –

CONTINGENT CONSIDERATION

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.

As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue 338,889  shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 144,445 shares and 194,945  shares, both of which are subject to leak out provisions, and the unrestricted voting rights to 194,445 tranche of shares vest over a five year period and are subject to a voting proxy agreement.

The Merger Agreement also provides that an additional 338,889 Earnout Shares can be issued upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the Closing Date.

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This change did not impact the fair value of the contingent liability.

The value of the contingent liability was $ 215,000  and $ 276,000 at December 31, 2022 and September 30, 2022  respectively.

The value of the contingent liability was $ 167,000  and $ 276,000 at March 31, 2023 and September 30, 2022  respectively.

The fourth marketing period began on July 1, 2022 and ends in November 2023. 

At December 31, 2022, up to 3,928,797 remaining Earnout Shares are subject to issuance by the Company. 

At March 31, 2023, up to 87,307 remaining Earnout Shares are subject to issuance by the Company. 

Based on the remaining share ratios, the Company would have to generate over $ 162 million in revenue during the fourth marking period to issue the full balance of the shares. 

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

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. This requirement was not satisfied and no further obligation exists as of December 31, 2022.

In December 2022, the Company entered into a contractual obligation to issue up to 556 options and 556 RSUs to an employee. 

The shares are subject to meeting a minimum direct to consumer revenue of $ 45 million for any four consecutive quarters before December 31, 2024. 

Based on the present revenue run rate, the Company has valued these obligations at $ 0 for December 31, 2022.

Based on the present revenue run rate, the Company has valued these obligations at $ 0 for March 31, 2023.

NOTE 7 –

RELATED PARTY TRANSACTIONS

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

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

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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 shares of 8.0 % Series A Cumulative Convertible Preferred Stock issued and outstanding at December 31, 2022 and September 30, 2022 .

The total amount of preferred dividends declared and paid were $ 1,000,502  and $ 1,000,502 , re spectively, for the three months ended December 31, 2022 and 2021 . 

There were 5,000,000 shares of 8.0 % Series A Cumulative Convertible Preferred Stock issued and outstanding at March 31, 2023 and September 30, 2022 .

The total amount of preferred dividends declared and paid were $ 1,000,500  and $ 1,000,502 , re spectively, for the three months ended March 31, 2023 and 2022 . 

Common Stock –

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

There were 60,712,262 and 60,665,595 shares of common stock issued and outstanding at December 31, 2022 and September 30, 2022 , respectively. 

There were 1,456,693 and 1,348,125  shares of common stock issued and outstanding at March 31, 2023 and September 30, 2022 , respectively. 

Preferred stock transactions:

The Company had no preferred stock transactions in the three months ended December 31, 2022  and 2021.

The Company had no preferred stock transactions in the three and six months ended March 31, 2023  and 2022.

Common stock transactions:

In the three months ended December 31, 2022 :

In December 2022, the Company issued 50,000 shares of restricted common stock to an employee. 

25,000 shares vested upon issuance and the Company recorded a total expense of $ 6,250 . 

25,000 shares vest based on meeting certain direct to consumer revenue performance hurdles prior to December 2024.

In the three months ended December 31, 2021:

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 six months ended March 31, 2023 :

March 2, 

2023, we entered into a Purchase Agreement (the "Purchase Agreement") with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone has committed to purchase up to 281,934 of shares of our common stock.

Upon the execution of the Purchase Agreement, we issued 2,616 shares of common stock as "Commitment Shares" to Keystone as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement.

Additional Commitment Shares ( 6,104 ) will be issued over 180 days from March 2, 2023.

The 281,934  shares of our common stock were registered for resale and may 

be issued under the Purchase Agreement or sold by us to Keystone at our discretion from time to time over a 12 -month period commencing April 1, 2023, subject tp a 75 day blackout period commencing April 30,2023.

The purchase price for the shares that we may sell to Keystone under the Purchase Agreement will fluctuate based on the price of our common stock.

Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.

See "Subsequent Events" below.

On February 1, 2023, the Company entered into an Agreement for Advertising Placement with a360 Media, LLC ( “a360”

) in which a360 will provide professional media support and advertising placement in exchange for up to 134,681  shares of the Company’s common stock valued at $ 14.85 per share.

A360 will receive the shares by providing the Company with a credit in the amount of $ 2,000,000 to be used for media support and advertising placement to the Company.

The shares are 70 % fully vested;

15 % of the Shares shall vest upon each advertising placement accrue pro-rata as percentage of the total advertising placement;

and 15 % of the shares shall vest provided there are no restrictions in product categories that the Company is able to market with a360 while the Company utilizes the advertising placement.

Any shares which do not vest within the term of the agreement shall be forfeited.

The Advertising Placement must be used by the Company prior to December 30, 2023, unless otherwise agreed in writing by both parties.

In January of 2023, the Company issued 2,223 shares of common stock to Twenty Two Capital as the final obligation under the 2021 acquisition agreement upon the expiration of the indemnification period.

In the six months ended March 31, 2022:

In March 2022 the Company issued 9,873 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

On December 28, 2021 the Company issued 

10,372 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

In October 2021, the Company issued 

556 shares of restricted common stock to an executive officer of the Company, subject to a January 1, 2022 vest.

Stock option transactions:

In the three months ended December 31, 2022 :

In the six months ended March 31, 2023 :

In February of 2023, the Company granted its board of directors an aggregate of 2,667 common stock options.

The options vested immediately, have a strike price of $ 12.60 and a 

five -year term.

The Company has recorded a total prepaid expense of $ 21,120  and intends to amortize the expense over the 12 -month board term.

In January 2023, the Company issued 2,334 options to a group of employees.

The stock options awards vested at issuance, had a strike price of $ 10.53 , five -year term and a fair market value upon issuance of $ 15,225

In December 2022, the Company issued 2,223 options to an employee. 

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556 options vest based on meeting certain direct to consumer revenue requirements by the end of December 2024.

In the three months ended December 31, 2021:

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

In the six months ended March 31, 2022:

In March of 2022, the Company granted its board of directors an aggregate of 2,667 common stock options.

The options vested immediately, have a strike price of $ 36.81 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 of 2022, the Company granted an aggregate of 

2,889 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 March 31, 2022

In October 2021, the Company granted an aggregate of 

1,667 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  for the three months ended December 31, 2021.

These options were fully vested as of September 30,2022.

The expected volatility rate was estimated based on a weighted average mix of the volatilities of the Company and a peer group of companies in similar industries.

The Company has recorded an expense for these options of $ 23,025  and $ 46,050  for the three and six months ended March 31, 2022.

The expected volatility rate for the Company's stock options was estimated based on a weighted average mix of the volatilities of the Company 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.

The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the three months ended December 31, 2022 and 2021 :

Weighted average exercise price

The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the six  months ended March 31, 2023 and 2022 :

Exercise price

10.35 5 - 12.60 60

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1.56 % - 1.66 %  

106.48 % - 106.51 %

100.23% - 100.30 %  

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2.5 - 4  

2.5 - 6.2  

2.5 - 5 years  

Dividend yield

Warrant Transactions:

The Company has no warrant transactions during the three months ended December 31, 2022 .

The Company has no warrant transactions during the three and six months ended March 31, 2023 .

NOTE 9 –

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Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year.

The following table summarizes stock option activity under both plans for the three months ended December 31, 2022 :

The following table summarizes stock option activity under both plans for the six months ended March 31, 2023 :

Weighted-average

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( 22,889 )  

Outstanding at March 31, 2023

39,946  

Outstanding at December 31, 2022

148.50  

Exercisable at December 31, 2022

Exercisable at March 31, 2023

34,389  

$ 151.20  

As of December 31, 2022 , there was approximately $ 235,361 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 3.0 years.

As of March 31, 2023 , there was approximately $ 155,742  of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 2.7 years.

Restricted Stock Award transactions:

In the three months ended December 31, 2022 :

In the six months ended March 31, 2023 :

In February of 2023, the Company issued 445 of restricted stock awards to the Company’s board of directors.

The shares vest quarterly one fourth on June 30, 2023, one fourth, on September 30, 2023, one fourth on December 31, 2023, and one fourth on March 31, 2024.

The stock awards were valued at the fair market price of $ 5,660 upon issuance and will amortize over the individual vesting periods.

In January 2023, the Company issued 

3,889  shares to a group of employees. 

The shares vested upon issuance, having a fair market value upon issuance of $ 40,950 .

In December 2022, the Company issued 1,112 shares of restricted common stock to an employee. 

25,000 shares vested upon issuance and the Company recorded a total expense of $ 6,250 . 

556 shares vested upon issuance and the Company recorded a total expense of $ 6,250 . 

556 shares vest based on meeting certain direct to consumer revenue performance hurdles prior to December 2024.

During the 

three months ended December 31, 2022, 340,000 options expired due to the termination of certain employees.

In the three months ended December 31, 2021:

In the six months ended March 31, 2022:

In March of 2022, the Company issued 445 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 667 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 of 2022, the Company issued 7,112 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 2,667 shares of restricted stock awards to an employee, subject to certain revenue performances metrics through December 2022, as referenced in Note 6.

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In October 2021 the Company issued 556 shares of restricted stock awards to an executive officer, subject to a four -month vesting schedule.

The Company recognized $ 43,449 and $ 508,754 of restricted stock compensation expense for the three months ended December 31, 2022 and 2021 , respectively. 

NOTE 10 - WARRANTS

Transactions involving the Company equity-classified warrants for the 

three months ended December 31, 2022 and 2021 are summarized as follows:

six months ended March 31, 2023 and 2022 are summarized as follows:

Weighted-average

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( 2,223 )  

Outstanding at December 31, 2022

337.50  

Exercisable at December 31, 2022

Outstanding at March 31, 2023

10,887  

184.50  

Exercisable at March 31, 2023

10,887  

$ 184.50  

During the three month period ended December 31, 2022, 2,223 warrants expired and as a result were forfeited.

The following table summarizes outstanding common stock purchase warrants as of December 31, 2022 :

The following table summarizes outstanding common stock purchase warrants as of March 31, 2023 :

Weighted-average

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176.06  

3.9125  

Exercisable at $56.25 per share

36,682  

Exercisable at $168.30 per share

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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 December 31, 2022.

In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 9,758 is a short term note payable at December 31, 2022.

In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 7,375  is a short term note payable at March 31, 2023.

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

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As of December 31, 2022 , our operating leases had a weighted average remaining lease term of 4.38 years and a weighted average discount rate of 4.66 %.

Future minimum aggregate lease payments under operating leases as of December 31, 2022 are summarized as follows:

As of March 31, 2023 , our operating leases had a weighted average remaining lease term of 3.44 years and a weighted average discount rate of 4.66 %.

Future minimum aggregate lease payments under operating leases as of March 31, 2023 are summarized as follows:

For the year ended September 30,

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Three Months Ended

Six Months Ended

Basic and diluted:

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$ ( 1,336,802 )  

$ ( 4,657,215 )  

$ ( 5,292,864 )  

$ (23,818,120 )

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1,000,502  

2,001,002  

Net loss adjusted for preferred dividend

( 2,337,302 )  

( 5,657,717 )  

( 7,293,866 )  

( 25,819,122 )

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( 2,337,302 )  

( 5,657,717 )  

( 7,293,866 )  

( 25,819,122 )

2 unchanged sentences

1,310,378  

1,343,394  

1,312,755  

Shares used in computing diluted earnings per share

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1,310,378  

Earnings per share Basic:

Continued operations

1,343,394  

1,312,755  

Earnings per share Basic:

Basic earnings per share

( 1.74 )  

Earnings per share Diluted:

Continued operations

( 4.32 )  

( 5.43 )  

Earnings per share Diluted:

Diluted earnings per share

( 1.74 )  

At December 31, 2022 , 2,999,083 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.

( 4.32 )  

( 5.43 )  

At March 31, 2023 , 52,202 potential shares underlying options, unvested RSUs and warrants as well as 185,223 convertible preferred share, and 40,404 a360 shares subject to certain vesting requirement as well as total 288,038 of available shares and remaining commitment share under the Keystone agreement were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share.

NOTE 15  

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The Company has 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”).

Therefore, the Company had calculated the tax provision on a discrete basis under ASC 740 - 270 - 30 - 36 (b) for the quarters ending December 31, 2019, March 31, 2020, and June 30, 2020.

At September 30, 2022 the Company recorded a net deferred tax asset of zero as the cumulative net deferred tax asset had a full valuation on it and there was not enough positive evidence that would warrant recognizing the benefit of the net deferred tax asset.

The Company has determined that using the general methodology for calculating income taxes during an interim period for the quarters ending December 31, 2019, March 31, 2020, and June 30, 2020, provided for a wide range of potential annual effective rates. At September 30, 2022 the Company recorded a net deferred tax asset of zero as the cumulative net deferred tax asset had a full valuation on it and there was not enough positive evidence that would warrant recognizing the benefit of the net deferred tax asset.

In addition, the net indefinite lived deferred tax items were a deferred tax asset so there was not any recognition of a deferred tax liability related to indefinite lived deferred tax liabilities.

At December 31, 2022 , the Company determined the same circumstances to be true and therefore recorded a net deferred tax asset of zero.

At March 31, 2023 , the Company determined the same circumstances to be true and therefore recorded a net deferred tax asset of zero.

NOTE 16  

SUBSEQUENT EVENTS

In January, the Company issued 

175,000 RSUs and 105,000 Options to a group of employees. 

The RSUs vested upon issuance, having a fair market value upon issuance of $ 40,950 .

The stock options awards vested at issuance, had a strike price of $ 0.234 , five -year term and a fair market value upon issuance of $ 15,225 .

In January the Company issued 100,000 shares of common stock to Twenty Two Capital as the final obligation under the 2021 acquisition agreement upon the expiration of the indemnification period.

On February 1, 2023, the Company entered into an Agreement for Advertising Placement with a360 Media, LLC ( “a360”

) in which a360 will provide professional media support and advertising placement in exchange for up to 6,060,606 shares of the Company’s common stock valued at $ 0.33 per share.

A360 will receive the shares by providing the Company with a credit in the amount of $ 2,000,000 to be used for media support and advertising placement to the Company.

The shares are 70 % fully vested;

15 % of the Shares shall vest upon each advertising placement accrue pro-rata as percentage of the total advertising placement;

and 15 % of the shares shall vest provided there are no restrictions in product categories that the Company is able to market with a360 while the Company utilizes the advertising placement.

Any shares which do not vest within the term of the agreement shall be forfeited.

The advertising Placement must be used by the Company prior to December 30, 2023, unless otherwise agreed in writing by both parties.

Adara shareholders approved the proxy vote for the proposed business combination and closed on February 10, 2023, resulting in the Company receiving back it's $ 1 million investment in Adara Sponsor LLC.

On February 16, 2023, we held an annual meeting of stockholders.

At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one -for- twenty to one -for-fifty, inclusive, with the exact ratio to be set at the discretion our board of directors, at any time after approval of the amendment and prior to February 16, 2024.

On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023 ( the “Reverse Stock Split”).

All fractional shares were rounded up when effectuating the reverse stock split.

A total of 39,455 shares of common stock were issued to account for rounding up of fractional shares.

Subsequent to the period covered by this report, commencing on April 19, 2023 and through April 25, 2023, we received aggregate proceeds of approximately $ 36,000 f rom sales of 8,888 shares of our common stock to Keystone.

We paid Keystone $ 35,000 to cover expenses under the terms of the Purchase Agreement.

On May 3, 2023, the Company completed an underwritten public offering of 1,350,000 shares of its common stock at a public offering price of $ 2.10 per share.

Gross proceeds from the offering before deducting underwriting discounts and commissions and offering expenses were approximately $ 2.8 million.

Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 45 days, to purchase up to an additional 202,500 shares of common stock.

The net proceeds to the Company from the Offering were approximately $ 2.5 million, after deducting underwriting discounts and commissions and estimated Offering expenses payable by the Company, and does not take into account the exercise by the Underwriter of its option to purchase additional shares of common stock.

The Company also issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $ 2.52 per share.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations for the three months ended December 31, 2022 and the three months ended December 31, 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report.

The following discussion of our financial condition and results of operations for the three and six months ended March 31, 2023 and the three and six months ended March 31, 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report.

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties such as our plans, objectives, expectations and intentions.

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In addition, we operate a CBD marketplace through directcbdonline.com, our own e-commerce website.

cbdMD Therapeutics

In March 2021 we formed a new wholly owned subsidiary, cbdMD Therapeutics, for the purposes of isolating and quantifying our ongoing investments in science related to our existing and future products, including research and development activities for therapeutic applications and to explore potential cannabinoid-based medicines.

In August of 2022 the Company concluded a randomized, double blind, placebo controlled clinical study in dogs performed in conjunction with Colorado’s State University’s veterinary program.

Preliminary results indicate that our proprietary broad spectrum hemp extract improved mobility, gait, and quality of life in dogs with osteoarthritis.

These results are expected to provide claims related to our proprietary broad spectrum blend’s efficacy and drive new product development to address the needs of the nearly $2 Billion canine arthritis treatment market according to Expert Market Research.

In September of 2022 the Company concluded a multi-year randomized, double blind, placebo controlled clinical study in healthy adults utilizing its proprietary hemp extract blend which demonstrated significant benefits in many areas, including reduction of pain, reduced inflammation, improvements to several immunity markets, and improved mood, and these results are further driving the refinement of current products and the development of new products which utilize the same proprietary blend of hemp extracted cannabinoids.

We believe the results from both of the clinical studies provide us a unique and differentiated competitive marketing advantage for certain of our products and has already started creating additional B2B wholesale opportunities for our organization.

In addition, these results will inform near term product development efforts, and serve as preliminary data for future clinical studies.

The formation of Therapeutics has also led to the identification of a novel cannabinoid that will be patented and utilized in future formulations for cbdMD. We believe the Company’s investments into therapeutics R&D will continue to benefit current products and dietary supplement development.

Recent Developments

At the end of September 2022, we shifted our USA product offering to focus on higher CBD concentration levels for better consumer efficacy while eliminating a number of lower strength SKUs.

These products are supported by clinical claims from our human clinical studies that we have been working on for the last two years.

Prior to making this shift we were focused on selling through our legacy inventory that was at end of life as part of the product shift. 

We believe the promotions we ran resulted in pantry loading which impacted revenue during the first quarter of fiscal 2023.

The Company's management mandate was to achieve profitability and increase revenue by the end of the 2022 calendar year. 

Significant headway was made on cost controls over the last two quarter and we believe additional opportunities to improve our cost structure exist:

we are working to lower our facility costs, we are taking further opportunities to improve freight rates, and we continue to reassess our marketing costs and make improvements to our product portfolio. 

However, declines in revenue and the corresponding loss in contribution dollars offset operational gains. 

As a result, we made changes to our marketing department and in late December 2022 hired a new Chief Marketing Officer that reports to our President.

During January of 2023 we began working to improve our communication to customers and more effectively allocate marketing spend to stabilize and rebuild revenues. 

During the second quarter the Company launched its third National Sanitation Foundation ("NSF") for sport product, our 1500mg broad spectrum gummy. 

Not only was cbdMD the first to commercialize NSF for Sport CBD product it is the only certified gummy product on the market, has the highest concentration on the market and largest portfolio of NSF for Sport offering. 

We believe this certification is important to a large customer based that continues to as well as build credibility with retailers.

The Company also recently launched its first products on Amazon in the UK.

cbdMD is one of only a handful of companies approved to sell CBD products in the Amazon UK CBD pilot program due to its validated Novel Foods application.

Brands approved to sell CBD through Amazon UK are required to pass compliance checks by Amazon and now must have a credible application for Novel Foods Authorization which has been validated by the United Kingdom's Food Standards Agency.

The Company is continuing to work to expand our product listing on Amazon UK and accelerate its revenue on the platform.

In February 2023, the Company’s President resigned to pursue other interest and the Company’s CFO was named Interim CEO.

During the second fiscal quarter we continued to make headway to improve the overall operation of our business. 

We further reduced payroll, have sublet a portion of our warehouse, have engaged brokers to market and seek options on our corporate office lease, cut un-product services, and continuing to assess alternatives to our operating infrastructure to reduce our costs. 

Since the beginning of the second quarter, we have onboard new agencies, fine-tuned go-to-market strategies and communication with customers as well as pricing, are successfully ramping profitable Meta advertising, and are encouraged with our direct-to-consumer revenue trends in March and April as a result of the steps taken. 

Profitability remains a paramount focus and we continue to invest in a strong pipeline of accretive revenue opportunities.

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We continued to pursue many strategies to grow our revenues and expand the scope of our business in fiscal 2023 and beyond:

Grow Core Revenue Channels

Direct to Consumer:

The last several quarters we pulled back on sponsorships, expensive influencers and high acquisition cost marketing spend that resulted in low lifetime value customers.

As a result, overall revenues have declined, but we believe we are in a better position to improve profitability and are now investing carefully in efforts with strong measurable return on spend to drive traffic and conversion rates.

 We continue to focus on the right product at the right price for the right channel and adding channel specific distributors and brokers to help us scale in the food drug and mass channel (“FDM”).

During the last 12 months we successfully expanded throughout GNC’s retail footprint, added Wegmans and are working with several national and regional chains.

We continue to build relationships with key retailers and have expanded our sales organization to include deep channel-specific experience, focused on developing a pipeline of opportunities we believe are strategic to the category and our brand.

Product Innovation:

Our goal is to provide our customers superior functional based products with greater efficacy, absorption and efficacy claims.

We regularly assess and evaluate our product portfolio, and devote resources to ongoing research and development processes with the goal of improving our product offerings to meet consumer demands.

We have a robust pipeline of products to launch during fiscal 2023, including our new clinically proven product cbdMD Max for Pain that launched during the first quarter.

Expand our revenue channels:

We believe it is important to have the right product at the right price for the right channel and worked on a bespoke line of products for the food drug and mass channel (“FDM”) that shipped to Wegmans in late fiscal 2022.

In September we adjusted our wholesale offer to align with our strongest CBD, best prices consumer offer.

We continue to have discussions with key retailers and have expanded our sales organization to include deep channel-specific experience, focused on developing a pipeline of opportunities we believe are strategic to the category and our brand.

 We believe innovation is key to the long-term success of any consumer brand.  We invest in new product development and brand extension that we believe will (i) give us a competitive advantage in the marketplace;

(ii) attract new customers;

and (iii) open up additional revenue opportunities.

During fiscal 2022 we launched an industry first NSF for Sport product line with World Anti-Doping Association (WADA) level assurance, a line of Delta 9 gummies and microdose products, along with a number of functional gummies and capsules.

Based on customer feedback and preliminary clinicals we launched a new line of high-strength CBD products at the end of September 2022 and further launched cbdMD Max for Pain at the end of calendar 2022.

We have a robust pipeline of products to launch during the second half of 2023 that we believe will open up additional distribution channels as well as grow our addressable market.

International Expansion:

We continue to explore sales into markets outside of the United States.

Our products are currently available in 31 countries.

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We are also expanding our E-commerce business to consumers in the United Kingdom (U.K.) and in March 2022, we received notice that the products we submitted have been validated in the UK as well as in the EU.

We continue to work on strategies to continue to expand in the EU, Israel and other major markets which is primarily driven by the regulatory environment. 

In late fiscal year 2022, we registered and began selling products in Japan and we are seeing growth during the early part of fiscal 2023.

Cultivate our Additional Brands:

We believe there continues to be significant opportunities to enhance Paw CBD and cbdMD Botanicals and our marketing team has begun implementing strategy to better execute on these product lines during 2023.

We continue to work on strategies to continue to expand in the EU, Israel and other major markets which is primarily driven by the regulatory environment.  In late fiscal year 2022, we registered and began selling products in Japan and we are seeing growth during the early part of fiscal 2023.

Acquisitions:

We evaluate acquisitions where we believe (i) there is an accretive customer base that can lower our cost of customer acquisitions through either a complementary direct to consumer base or wholesale channels, or (ii) the target has a profitable business or easily attainable cost synergies that can quickly help contribute and accelerate profitability of our Company.

Results of operations

The following tables provide certain selected consolidated financial information for the periods presented:

Three Months Ended December 31,

Three Months Ended March 31,

Total net sales

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Operating expenses

Operating loss from operations

Decrease on contingent liability

Net loss before taxes

Net loss attributable to cbdMD Inc.

common shareholders

Six Months Ended March 31,

Total net sales

Cost of sales

Gross profit as a percentage of net sales

Operating expenses

Impairment of goodwill and other intangible assets

Operating income from operations

(Increase) decrease on contingent liability

Net (loss) income before taxes

Net (loss) income attributable to cbdMD Inc.

Operating loss from operations

Decrease on contingent liability

Net loss before taxes

Net loss attributable to cbdMD Inc.

common shareholders

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Total Net Sales

We had total net sales of $6.1 million and $9.3 million for the three months ended December 31, 2022 and 2021, respectively, resulting in a quarter over quarter decrease in net sales of $3,.2 million or 34.7%.

This decrease is attributable to a decrease of $2.2 million in e-commerce sales and a decrease of $1.0 million in wholesale sales quarter over quarter.

 While management is disappointed with the quarter over quarter net sales decrease, the revenue is generally in line with macro competitive trends in the overall CBD industry. 

As compared to the immediately preceding quarter, the Company's revenue declined 22.6%. 

Our E-commerce sales were impacted during the fourth quarter by 

(i) pantry loading of 

end of life lower strength SKUs as we discounted ahead of our high-strength product at the end of September 2022, (ii) marketing execution issues with certain vendors that created challenges on Meta and (iii) pull back in marketing spend. 

Our Wholesale declined approximately $1.0 million year over year. 

We believe there were two main drivers to the decline in our wholesale business:

(i) our new lower sales price to wholesalers  and (ii) wholesale customers focused on selling through existing inventory before bringing in our new SKUs. 

 Further, we believe the current macro inflationary environment continues to impact discretionary spending with consumers as well as wholesale customers. 

We continue to work on a pipeline of opportunities both domestically and internationally and believe we will see revenue growth in the coming quarters.

E-commerce sales

Wholesale sales

Total Net Sales

We had total net sales of $6.2 million and $9.6 million for the three months ended March 31, 2023 and 2022, respectively, resulting in a decrease in net sales of $3.4 million or 35.4% year over year.

This decrease is attributable to a decrease of $1.7 million in e-commerce sales as we continue to reduce marketing spend as part of our continued efforts to improve profitability. 

Wholesale sales decrease of $1.7 million in mainly attributed to our lower price structure and some larger orders that occurred during the March 2022 quarter. 

Despite the year over year decrease, management is very encouraged by the sequential revenue trends. 

Our E-commerce business remained relatively flat while we made significant changes to our market team and infrastructure while wholesale sales increased approximately 14% for the three months ended March 31, 2023 from the three months ended December 31, 2022, resulting in a combined increase of approximately 2.5% during the same period. 

We believe the current macro inflationary environment continues to impact discretionary spending with consumers as well as wholesale customers. 

We remain cautiously optimistic on a pipeline of opportunities both domestically and internationally and believe we will see revenue growth in the coming quarters.

Cost of sales

Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third party providers, and freight for our product sales.

Our cost of sales as a percentage of net sales was 41.8% and 46.4% for three months ended December 31, 2022 and 2021, respectively.

The changes made during the last quarters have eliminated significant fixed overhead and were aimed at lowering overall costs and making our cost of sale more variable in nature we believe ultimately more predictable.

Our cost of sales as a percentage of net sales was 38.5% and 33.1% for three months ended March 31, 2023 and 2022, respectively.

Operating expenses

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Consolidated Operating Expenses

The following tables provide information on our operating expenses for the three months ended December 31, 2022 and 2021:

The following tables provide information on our operating expenses for the three and six months ended March 31, 2023 and 2022:

Staff related expense

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Professional outside services

Advertising/marketing/social media/events/tradeshows

Affiliate commissions

Advertising/marketing/social media/events/tradeshows/sponsorships/affiliate commissions

Merchant fees

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All other expenses

Our overall operating expenses decreased by $4.3 million or 36.3% three months ended December 31, 2022 over the three months ended December 31, 2021 .

The quarter over quarter decrease was primarily driven by management's ongoing efforts to reduce our cost structure including decreases in staff related expenses ($1.4 million), advertising, marketing, sponsorships and affiliate commission expenses ($2.9 million), reduction in stock expense ($1 million), and R&D and regulatory spend ($0.2 million), partially offset by an increase in all other expenses ($0.5 million) and an increase of 

Staff related expense

Accounting/legal expense

Professional outside services

Advertising/marketing/social media/events/tradeshows/sponsorships/affiliate commissions

Merchant fees

R&D and regulatory

Non-cash stock compensation

Intangibles Amortization

Non-cash stock compensation related to terminated contractual obligation

All other expenses

Our overall operating expenses decreased by $6.0 million or 52.7% three months ended March 31, 2023 over the three months ended March 31, 2022.

The year over year decrease was primarily driven by management's ongoing efforts to reduce our cost structure including decreases in staff related expenses ($1.5 million), advertising, marketing, sponsorships and affiliate commission expenses ($3.6 million), reduction in stock expense ($0.5 million), reduction in depreciation expense ($0.4 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.1 million).

Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses, we reduced our cash adjusted operating expenses from $10.1 million to $4.9 million for the three months ended March 31, 2022 and March 31, 2023 respectively.

Our overall operating expenses, excluding goodwill and intangibles impairment,  decreased by $10.4 million or 44.4% for the six months ended March 31, 2023 over the six months ended March 31, 2022.

The year over year decrease was primarily driven by management's ongoing efforts to reduce our cost structure including decreases in staff related expenses ($2.9 million), advertising, marketing, sponsorships and affiliate commission expenses ($6.5 million), reduction in stock expense ($1.5 million), reduction in depreciation expense ($0.6 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.3 million), partially offset by an increase in all other expenses ($0.5 million) and an increase of 

($0.9 million) non-cash expense related to accelerated stock compensation amortization tied the termination of a contractual obligation, and an increase in intangible amortization expense. 

Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses, we reduced our cash adjusted operating expenses from $10.4 million to $6.2 million for the three months ended December 31, 2021 and December 31, 2022 respectively.

While we showed strong year over year improvement in our operating expense, we are very focused on our sequential performance and trends in order to get us to a profitable quarter. 

We continued to make headway on our cost structure, however gains in our operating costs were offset by loss in revenue during the quarter. 

We have continued to lower our operating costs and at the end of January 2023, staffing is down to 65 full-time team members.  

In addition we made changes to our marketing team starting in December 2022 and brought in new leadership as well as partners to allow us to consistently navigate Meta advertising rules, improve our messaging, customer acquisition, and rebuild our revenue.

 We continue to pursue all avenues that will help lower our costs while maintaining our quality, efficacy and service for our customers;

position us for revenue growth;

and promote a culture of performance and success. 

Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses, and we reduced our cash adjusted operating expenses, excluding goodwill and intangibles impairment, from $22.3 million to $11.1 million for the three months ended March 31, 2022 and March 31, 2023 respectively.

We continue to show strong year over year improvements operating a more disciplined SG&A cost structure.

We are very focused on our sequential performance and trends as we are fixated on delivering a profitable quarter. 

We made significant headway on our cost structure during the second fiscal quarter and were able to stabilize our revenue base while reducing our sequential SG&A costs by $2.2 million, resulting in a sequential reduction of operating losses;

from a $4.0 million operating loss in the first fiscal quarter to $1.4 million for the second fiscal quarter.

We continue to fine tune our operating costs, have sublet a portion of our warehouse, have engaged brokers to market and seek options on our corporate office lease, cut un-product services, and continuing to assess alternatives to our operating infrastructure to reduce our costs. 

Since the beginning of the second quarter, we have onboard new agencies and, fine-tuned some go-to-market strategies, pricing and, been successful ramping profitable Meta advertising and have an exciting line up of new products in the pipeline to launch during the balance of fiscal 2023. 

In addition, we have engaged third parties to review and assess strategic alternatives for the Company.

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and (vii) non-cash stock compensation expense.

The following tables provide information on our corporate overhead for the three months ended December 31, 2022 and 2021:

The following tables provide information on our corporate overhead for the three and six months ended March 31, 2023 and 2022:

Staff related expense

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Professional outside services

Travel expense

Business insurance

Non-cash stock compensation

Our corporate operating expenses are down quarter over quarter and year over year as a result of our ongoing efforts to reduce our cost structure across the board.

Staff related expense

Accounting/legal expense

Professional outside services

Travel expense

Business insurance

Non-cash stock compensation

Our corporate operating expenses are down quarter over quarter and year over year as a result of our ongoing efforts to reduce our cost structure across the board as well as a significant reduction in the amount of non-cash stock compensation expense that has been issued year over year.

The corporate operating expenses are primarily related to the ongoing public company related activities.

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The Therapeutic operating expenses include research and development activities for therapeutic applications.

The following tables provide information on our approximate corporate overhead for the three months ended December 31, 2022 and 2021:

The following tables provide information on our approximate corporate overhead for the three and six months ended March 31, 2023 and 2022:

Staff related expense

R&D and Regulatory

Staff related expense

R&D and Regulatory

The Therapeutic operating expenses include research and development activities for therapeutic applications. 

This division was formed during the third quarter of fiscal 2021.

Our human and pet clinical studies have concluded. We started receiving initial results during the first quarter of fiscal 2023 and expect final reports during the second quarter of fiscal 2023. 

Our human and pet clinical studies have concluded. 

Goodwill Impairment

The Company had goodwill at December 31, 2021 of $42,772,685.

The Company had goodwill at March 31, 2022 of $42,772,685.

The Company impaired goodwill in subsequent reporting periods of fiscal 2022 and goodwill was fully impaired by September 30, 2022. 

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The material components of those are set forth below.

Realized and unrealized gain (loss) on marketable and other securities

We value investments in marketable securities at fair value and record a gain or loss upon sale at each period in realized and unrealized gain (loss) on marketable securities.

For the three months ended December 31, 2022 and 2021, we recorded $0 and $(33,350), respectively.

The realized loss in 2021 was a result of our shares in Isodiol being de-listed.

Decrease in contingent liability

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The value of the non-cash contingent liability was $ 167,000 

at December 31, 2022 , as compared to $276,000 at September 30, 2022 , respectively. 

at March 31, 2023 , as compared to $276,000 at September 30, 2022 , respectively. 

We expect to continue to record changes in the non-cash contingent liability through the balance of the earnout period.

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Liquidity and Capital Resources

We had cash and cash equivalents on hand of $3.4 million and working capital of $6.0 million at December 31, 2022 as compared to cash and cash equivalents on hand of $6.7 million and working capital of $10.7 million at September 30, 2022.

Our current assets decreased approximately 20.0% at December 31, 2022 from September 30, 2022, which is primarily attributable to a decrease in cash used to fund operations as well as a one-time non-cash expenses of approximately $885,000 related to previously un-expensed stock amortization related to an terminated contractual obligation.

Our current liabilities increased by 5.0% at December 31, 2022 from September 30, 2022, and is primarily attributable to increases in accrued expenses, partially offset by a decrease in accounts payable.

During the three months ended December 31, 2022 we used cash primarily to fund our operations.

We had cash and cash equivalents on hand of $1.7 million and working capital of $5.5 million at March 31, 2023 as compared to cash and cash equivalents on hand of $6.7 million and working capital of $10.7 million at September 30, 2022.

Our current assets decreased approximately 12.0% at March 31, 2023 from September 30, 2022, which is primarily attributable to a decrease in cash used to fund operations as well as a one-time non-cash expenses of approximately $885,000 related to previously un-expensed stock amortization related to an terminated contractual obligation, in addition to receiving our $1.0 million investment in Adara back in full. Our current liabilities decreased by 15.7% at March 31, 2023 from September 30, 2022, and is primarily attributable to decreases in accrued expenses and accounts payable.

On March 2, 2023, we entered into a purchase agreement with Keystone Capital Partners, LLC, which provides that subject to the terms and conditions set forth therein, we may sell to Keystone up to 281,934 shares of our common stock, from time to time during the term of the purchase agreement. 

Under the terms and subject to the satisfaction of the conditions set forth in the purchase agreement for a period of 12 months, subject to a blackout period from April 30, 2023 through July 14, 2023 under the terms of our recent underwritten public offering. the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to 281,934 shares of common stock.

 Upon entering into the Purchase Agreement the Company agreed to issue to Keystone 392,282 shares of common stock of the Company as the Commitment Shares as consideration for Keystone’s commitment to purchase shares of common stock upon the Company’s direction under the purchase agreement.

Subsequent to the period covered by this report, commencing on April 19, 2023 and through April 25, 2023, we received gross proceeds of approximately $36,000 f rom sales of 8,888 shares of our common stock to Keystone. 

In addition, subsequent to the period covered by this report, on May 3, 2023 we closed an underwritten public offering of 30,000 shares of our common stock at a public offering price of $2.10 per share.

Net proceeds from the offering after deducting underwriting discounts and commissions and offering expenses were approximately $2.5 million.  

As of May 11, 2023, the Company had approximately $4.2 million of cash.

The Company has nominal debt.

As of May 12, 2023, the Company also has up to 273,044 shares available to be sold under its agreement with Keystone, which it may drawdown on such agreement, subject to trading volume requirements of our common stock and further subject to the blackout period referenced above.

Management has concluded that substantial doubt exists about our ability to continue as a going concern for the next twelve months from the date hereof. 

Our current capital resources, including our equity line of credit with Keystone may not be sufficient to support our planned operations for the next twelve months from the date hereof.

We believe that upon receipt of approximately $2.5 million in net proceeds pursuant to the underwritten public offering completed on May 3, 2023 (see Note 16 of the accompanying financials statement for more information), after deducting the underwriting fees and estimated offering expenses payable by us, that our cash and cash equivalents on hand should be sufficient to fund operations through the end of the fiscal year if not longer.

During the three and six months ended March 31, 2023 we used cash primarily to fund our operations.

We do not have any commitments for capital expenditures.

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We have one endorsement agreement that runs through February 2025 that provides for financial commitments from the Company based on performance/participation (see Note 11 Commitments and Contingencies).

While the Company is taking strong action and believes that it can execute it's strategy and path to profitability within it's balance sheet and 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 quarterly 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.

The Company is taking strong action and believes that it can execute its strategy and path to profitability as well as its ability to raise additional funds, but 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 through the end of fiscal 2023. 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 potential concern about the Company’s ability to continue as a going concern within twelve months after the date that the quarterly financial statements are issued.

Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $2.1 million and $5.5 million for the three months ended December 31, 2022 and 2021, respectively.

Management believes the quarterly cash consumption will continue to improve in subsequent quarters.

Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $1.7 million and $5.3 million for the six months ended March 31, 2023 and 2022, respectively.

Management believes the quarterly cash consumption should continue to improve in subsequent quarters.

Adjusted EBITDA

Adjusted EBITDA for the three and six months ended March 31, 2023 and March 31, 2022 is as follows:

GAAP (loss) from operations

Depreciation & Amortization

Employee and director stock compensation (1)

Other non-cash stock compensation for services (2)

Inventory adjustment(3)

Impairment of Goodwill and other intangible assets (4)

Accrual for severance

a360 non-cash trade credit

Accrual / expenses for discretionary bonus

Non-GAAP adjusted EBITDA

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

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

(3) Represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory.

(4) Represents non-cash goodwill impairment of $13,898,285 and impairment of the cbdMD trademark of $4,285,000.

Critical accounting policies

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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-Q

Item 1. Financial Statements