What changed in this filing

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Item 1. Financial Statements

2023-08-10 compared with 2023-05-15 · 291 added, 245 removed, 979 unchanged (35% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023 AND September 30, 2022

June 30, 2023 AND September 30, 2022

September 30,

44 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023 AND September 30, 2022

June 30, 2023 AND September 30, 2022

September 30,

50 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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 )  

FOR THE three and nine months ended June 30, 2023 and 2022

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

( 1,400,643 )  

( 5,010,378 )  

( 5,446,824 )  

( 30,155,435 )

Realized and Unrealized loss on marketable and other securities  

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

Decrease of contingent liability

48,000  

353,000  

109,000  

6,303,000  

17,787  

49,543  

72,987  

Gain on sale of assets

Restructuring expense

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

( 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 and six months ended March 31, 2023 and 2022

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE three and nine months ended June 30, 2023 and 2022

Net (Loss) Income

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE six months ended March 31, 2023 and 2022

FOR THE nine months ended June 30, 2023 and 2022

Cash flows from operating activities:

8 unchanged sentences

Impairment of goodwill and other intangible assets

Increase/(Decrease) in contingent liability

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

Decrease in contingent liability

Realized and unrealized loss on of marketable and other securities

Amortization of operating lease asset

10 unchanged sentences

Purchase of property and equipment

Proceeds from sale of assets

Other Securities

1 unchanged sentence

Cash flows from financing activities:

Proceeds from issuance of common stock

Preferred dividend distribution

8 unchanged sentences

Interest expense

$ 1,247  

$ 6,817  

Non-cash financial/investing activities:

Issuance of shares in exchange for a360 credit

1,531,999  

Issuance of Contingent earnout shares:

$ 908,000  

See Notes to Condensed Consolidated Financial Statements 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE six months ended March 31, 2023

FOR THE nine months ended June 30, 2023

Preferred Stock

Balance, September 30, 2022

( 147,423,563

1,348,125  

$ 1,348  

5,000,000  

$ 5,000  

$ 178,841,646  

$ ( 147,423,563 )  

$ 31,424,431  

Issuance of Common stock

Issuance of options for share based compensation

79,446  

Issuance of restricted stock for share based compensation

43,449  

43,448  

Preferred dividend

Balance, December 31, 2022

( 1,000,502 )  

( 3,956,062 )  

Balance, December 31, 2022

1,349,163  

$ 1,349  

5,000,000  

$ 5,000  

$ 178,964,539  

$ ( 152,380,127 )  

$ 26,590,761  

Issuance of Common stock

Issuance of options for share based compensation

16,770  

Issuance of restricted stock for share based compensation

56,801  

Issuance of Common stock - A360

94,277  

1,399,906  

1,400,000  

Issuance of Common stock - DCO

29,998  

30,000  

Issuance of Common stock - Keystone

True up of fractional shares resulting from reverse split

29,190  

29,194  

True up of fraction shares resuting from reverse split

Preferred dividend

( 1,000,500 )  

( 1,336,802 )  

Balance, March 31, 2023

1,456,696  

$ 1,457  

5,000,000  

$ 5,000  

$ 180,497,196  

$ ( 154,717,429 )  

$ 25,786,224  

Issuance of Common stock

69,615  

Issuance of Preferred Stock

Issuance of options for share based compensation

34,663  

Issuance of restricted stock for share based compensation

Issuance of Common stock - A360

133,200  

Issuance of Common stock - Maxim

1,350,000  

2,472,730  

2,474,080  

Fraction share true-up

39,533  

( 39 )  

Preferred dividend

( 1,000,501 )  

( 1,770,404 )  

Balance, June 30, 2023

2,855,230  

$ 2,855  

5,000,000  

$ 5,000  

$ 183,212,202  

$ ( 157,488,334 )  

$ 25,731,723  

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE six months ended March 31, 2022

FOR THE nine months ended June 30, 2022

Preferred Stock

10 unchanged sentences

Balance, March 31, 2022

Issuance of Common stock

Exercise of options for share based compensation

Issuance of restricted stock for share based compensation

Preferred dividend

Balance, June 30, 2022

( 131,791,631

See Notes to Condensed Consolidated Financial Statements  

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE three and nine months ended June 30, 2023 and 2022 (unaudited)

NOTE 1 –

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Upon completion of the Mergers, CBDI survived and operates the prior business of Cure Based Development.

As consideration for the Mergers in April of 2019, the Company issued 338,889 shares of our common stock to the members of Cure Based Development, of which unrestricted voting rights to 194,445 of the shares vest over a five -year period of which 48,612 shares remain subject to a voting proxy agreement as of December 31, 2022, as well as to issue another 338,889 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.

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

9 unchanged sentences

This business operates a CBD marketplace through directcbdonline.com.

The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the 2022 10 -K.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein.

4 unchanged sentences

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

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

As of June 30, 2023 and September 30, 2022 , we had an allowance for doubtful accounts of $ 23,343 and $ 36,980 , respectively.

Merchant Receivable and Reserve

3 unchanged sentences

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

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.

At June 30, 2023  and September 30, 2022, the receivable from payment processors included approximately $ 530,560 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.

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.

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

The Company’s intangible assets consist of definite-lived trademarks and other intellectual property.

The Company 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.

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

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

At June 30, 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 March 31, 2023 .

Other than account receivable, Company has no material contract assets nor contract liabilities at June 30, 2023 .

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

38 unchanged sentences

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

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

The Company had a $ 2.0 million uninsured balance at June 30, 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 and six months ended March 31, 2023 .

The Company did not have any customers that represented a significant amount of our sales for the three and nine months ended June 30, 2023 .

Stock-Based Compensation

16 unchanged sentences

The accompanying financial statements have been prepared assuming that the Company will 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 .

The Company experienced a loss of $ 1,770,403 and $ 7,063,270 for the three and nine months ended June 30, 2023, resulting in a reduction of net working capital of $ 5,019,581 .

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.

We believe 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, 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.

2 unchanged sentences

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).

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

In these situations, upon invoicing the customer for the stock or other instruments, the Company recorded the receivable as accounts receivable other, and used the value of the stock or other instrument upon invoicing to determine the value.

If there is insufficient data to support the valuation of the security directly, the Company will value it, and the underlying revenue, on the estimated fair value of the services provided.

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 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:

Level 1 Inputs:

Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs:

Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs:

Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

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 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.

When considering market participant assumptions in fair value measurements, the fair value hierarchy distinguishes between observable and unobservable inputs.

For the nine months ended June 30, 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”).

15 unchanged sentences

NOTE 3 - INVENTORY

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

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

September 30,

Finished Goods

$ 2,896,362  

$ 3,198,488  

Inventory Components

1,356,623  

1,213,724  

Inventory Reserve

( 132,247 )  

Inventory prepaid

411,152  

511,459  

Total Inventory

$ 4,531,890  

$ 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 March 31, 2023 .

NOTE 4 –

PROPERTY AND EQUIPMENT

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

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

September 30,

18 unchanged sentences

$ 823,310  

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

Depreciation expense related to property and equipment was $ 98,225 and $ 158,555  for the three months ended June 30, 2023 and 2022 , respectively, and was $ 300,726 and $ 770,335 for the nine months ended June 30, 2023 and 2022, respectively.

NOTE 5 –

20 unchanged sentences

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

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

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

September 30,

11 unchanged sentences

749,567  

Impairment of intangible assets

Impairment of cbdMD trademark

( 4,285,000 )

4 unchanged sentences

Amortization

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 

expense related to definite lived intangible assets was $ 277,354 and $ 277,354  for the three months ended June 30, 2023 and 2022 , respectively and was $ 832,063 and $ 832,063 for the nine months ended June 30, 2023 and 2022, respectively .

No triggering events were identified at June 30, 2023 

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

29 unchanged sentences

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

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

The value of the contingent liability was $ 122,230  and $ 276,000 at June 30, 2023 and September 30, 2022  respectively.

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

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

At June 30, 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. 

As part of the Twenty Two acquisition in July 2021, the Company has a contractual obligation to issue up to an additional 4,445 shares of its common stock as additional consideration, dependent upon the acquisition entity meeting future revenue targets.

As part of the Twenty Two acquisition in July 2021, the Company had a contractual obligation to issue up to an additional 4,445 shares of its common stock as additional consideration, dependent upon the acquisition entity meeting future revenue targets.

Under US 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 .

7 unchanged sentences

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 March 31, 2023.

Based on the present revenue run rate, the Company has valued these obligations at $ 0 for June 30, 2023.

NOTE 7 –

9 unchanged sentences

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 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 . 

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

The total amount of preferred dividends declared and paid were $ 1,000,501  and $ 1,000,501 , re spectively, for the three months ended June 20, 2023 and 2022, and was $ 3,001,503 and $ 3,001,503 for the nine months ended June 30, 2023 and 2022, respectively.

Common Stock –

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

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. 

There were 2,855,230 and 1,348,125  shares of common stock issued and outstanding at June 30, 2023 and September 30, 2022 , respectively. 

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.

Preferred stock transactions:

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

The Company had no preferred stock transactions in the three and nine months ended June 30, 2023  and 2022.

Common stock transactions:

In the six months ended March 31, 2023 :

In the nine months ended June 30, 2023 :

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.

On April 24, 2023 the Company issued a total of 39,455 shares of common stock to account for rounding up of fractional shares related to the Reverse Stock Split.

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.

2023, the Company 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, The Company 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.

The 281,934  shares of the Company's 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 to a 75 day blackout period commencing April 30, 2023.

The purchase price for the shares that the Company may sell to Keystone under the Purchase Agreement will fluctuate based on the price of the Company's 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.

In April 2023, the Company issued 8,889 shares to Keystone under the Purchase Agreement entered into in March of 2023.

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;

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, of which $ 514,904 remains unutilized as of June 30,2023.

 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;

3 unchanged sentences

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 the nine months ended June 30, 2022:

In May 2022, the Company issued 10,198 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

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

4 unchanged sentences

Stock option transactions:

In the six months ended March 31, 2023 :

In the nine months ended June 30, 2023:

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

8 unchanged sentences

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

In the six months ended March 31, 2022:

In the nine months ended June 30, 2022:

In May 2022, the Company granted a new executive an aggregate of 9,000 common stock options.

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

The options have a strike price of $ 38.00 and a 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 4,445 options to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan.

1,112 of the shares vested upon the grant, 1,112 vest 6 months from the effective date and 2,224 upon renewal of the consulting agreement in March 2023.

The options have a strike price of $ 45.00  and a five year term.

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

The consulting agreement was not renewed in March of 2023 and as such, the 2,224 remaining options were forfeited.

In April 2022, the Company issued 2,223 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 strike price $ 45.00 strike price.

The Company performs analysis on these options and the required revenue growth targets were not met as of December 2022.

As such, these options were forfeited. 

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

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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 six months ended March 31, 2022.

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

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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 six  months ended March 31, 2023 and 2022 :

The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the nine months ended June 30, 2023 and 2022 :

Exercise price

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2.5 - 4  

2.5 - 5 years  

Dividend yield

Warrant Transactions:

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

As part of the public underwritten offer discussed in Note 8, the Company issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $2.52 per share.

NOTE 9 –

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Options granted generally have a five -to- ten -year term and have vesting terms that cover one to three years from the date of grant.

Certain of the stock options granted under the plan have been granted pursuant to various stock option agreements.

Certain stock options granted under the plan have been granted pursuant to various stock option agreements.

Each stock option agreement contains specific terms.

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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 six months ended March 31, 2023 :

The following table summarizes stock option activity under both plans for the nine months ended June 30, 2023 :

Weighted-average

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( 20,678 )  

Outstanding at March 31, 2023

Outstanding at June 30, 2023

42,211  

143.02  

Exercisable at March 31, 2023

Exercisable at June 30, 2023

40,402  

$ 157.02  

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.

As of June 30, 2023 , there was approximately $ 41,031 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 six months ended March 31, 2023 :

In the nine months ended June 30, 2023 :

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

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

In the six months ended March 31, 2022:

In the nine months ended June 30, 2022:

In June 2022, the Company issued 8,889 shares of restricted common stock in connection with the Separation Agreement with a former executive officer in which the former employee forfeited 11,112 shares of unvested restricted stock awards and 11,112 unvested options.

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

The fair market value on these shares totaled $ 172,000 and were 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 2,778 shares of restricted common stock to an executive officer of the Company as part of a new hire compensation package.

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

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

In March of 2022, the Company issued 445 of restricted stock awards to the Company’s board of directors.

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Transactions involving the Company equity-classified warrants for the 

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

nine months ended June 30, 2023 and 2022 are summarized as follows:

Weighted-average

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( 2,226 )  

Outstanding at March 31, 2023

337.50  

Outstanding at June 30, 2023

51,478  

Exercisable at March 31, 2023

Exercisable at June 30, 2023

10,978  

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During the three month period ended December 31, 2022, 2,226 warrants expired and as a result were forfeited.

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

As part of the public underwritten offer discussed in Note 8, the Company issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $ 2.52 per share.

The following table summarizes outstanding common stock purchase warrants as of June 30, 2023 :

Weighted-average

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40,500  

Exercisable at $168.30 per share

168.30  

December 2025

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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 term of the agreement was through February 2025 and 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.

During May 2023, the Company exercised its rights to terminate the contract.

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 of 2022 under the terms of a separation agreement with the Company.

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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 $ 7,375  is a short term note payable at March 31, 2023.

In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 4,135 is a short term note payable at June 30, 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 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:

As of June 30, 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 June 30, 2023 are summarized as follows:

For the year ended September 30,

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NOTE 14  

EARNINGS PER SHARE

LOSS PER SHARE

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

Three Months Ended

Six Months Ended

Nine Months Ended

Basic and diluted:

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( 4.26 )  

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.

At June 30, 2023 , 94,948 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 283,593 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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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 March 31, 2023 , the Company determined the same circumstances to be true and therefore recorded a net deferred tax asset of zero.

At June 30, 2023 , the Company determined the same circumstances to be true and therefore recorded a net deferred tax asset of zero.

NOTE 16  

SUBSEQUENT EVENTS

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

In July 2023, the Company issued 2,616 shares of common stock for second tranche commitment shares pursuant to the Purchase Agreement.

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 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.

The following discussion of our financial condition and results of operations for the three and nine months ended June 30, 2023 and the three and nine months ended June 30, 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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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.

We formed our 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.

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Recent Developments

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.

The Company continues to work on revenue growth and focus on our operating costs in an effort to generate profitable earnings and cash flow.

During the third fiscal quarter, the Company migrated it's ecommerce platform, as it found it could drive traffic to it's website, but that the conversion rate lagged and the legacy platform was somewhat cumbersome to make changes to.

Migrating to the leading direct to consumer ecommerce platform lowers the Company's ongoing IT and infrastructure costs to support our website, allows the Company to be more nimble and as well as plug into best-in-class tools for ecommerce business.

Additionally, the Company continues to engage in industry advocacy and is working with multiple industry groups and legislatures on potential regulatory patents for the category.

During the second quarter, the Company 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.

Starting in the fourth quarter, the Company is beginning to see growth coming from this channel.

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

We continue to be disciplined on our costs, working with multiple brokers to shed our corporate office, as well as working with our marketing vendors to drive growth back into the business for the fourth quarter.

Growth Strategies

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 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.

Our products are available throughout GNC and Wegmans' retail footprints. We continue to build relationships with key retailers and moved to a new boutique sales agency with deep natural and grocery channel-specific experience, focused on developing a pipeline of opportunities we believe are strategic to the category and our brand, though we can make no guarantee on how long specific retailers will maintain a presence within the cbd sales channel. 

Product Innovation:

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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.

During August 2023, we expanded our lineup of hemp-derived Delta 9 gummies, Uplift, Elevate and Relax that provide a daily routine for energy and focus, stress relief, and calming effects. We have a robust pipeline of products to launch during the second half of calendar 2023 that we believe will open up additional distribution channels as well as grow our addressable market.

International Expansion:

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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.

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.

The rights and preferences of our outstanding shares of our Series A Preferred continues to create challenges with M&A opportunities.

Results of operations

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

Three Months Ended March 31,

Three Months Ended June 30,

Total net sales

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Operating expenses

Impairment of goodwill and other intangible assets

Operating loss from operations

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common shareholders

Six Months Ended March 31,

Nine Months Ended June 30,

Total net sales

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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.

We had total net sales of $6.1 million and $8.6 million for the three months ended June 30, 2023 and 2022, respectively, resulting in a decrease in net sales of $2.5 million or 28.8% year over year.

This decrease is attributable to a decrease of $1.5 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. 

Wholesale sales decrease of $960,473 in mainly attributed to our lower price structure over the prior year period.

During the quarter two events impeded our growth.

We were gaining strong momentum on Meta, however in early June they changed category marketing rules and with 'cbd' in our name, it took up much of June and July to regain access to Meta marketing.

Additionally, in June we migrated our ecommerce platform, creating some temporary disruptions during the month.

We are now working to optimize the platform to its fullest.

As a result, our sequential overall revenue remained flat. Our E-commerce business increased by approximately 2.3% for the three months ended June 30, 2023 versus the three months ended March 31, 2023, primarily attributable to the changes to our market team and infrastructure while wholesale sales decreased approximately 17% for the three months ended June 30, 2023 from the three months ended March 31, 2023. 

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

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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 38.5% and 33.1% for three months ended March 31, 2023 and 2022, respectively.

Our cost of sales as a percentage of net sales was 38.5% and 33.1% for three months ended June 30, 2023 and 2022, respectively.

This overall decrease in our cost of sales quarter over quarter is primarily attributable to decreased overhead allocation related to the closure of our lab and manufacturing facility in the second quarter of 2022, which increased margins for that quarter, offset by a new product mix with higher costs in late 2022.

Operating expenses

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Consolidated Operating Expenses

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

The following tables provide information on our operating expenses for the three and nine months ended June 30, 2023 and 2022:

Staff related expense

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Intangibles Amortization

Non-cash stock compensation related to terminated contractual obligation

All other expenses

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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 

Our overall operating expenses decreased by $2.6 million or 31.6% for the three months ended June 30, 2023 over the three months ended June 30, 2022.

The year over year decrease was primarily driven by management's continued ongoing efforts to reduce our cost structure including decreases in staff related expenses ($1.2 million), advertising, marketing, sponsorships and affiliate commission expenses ($2.0 million), reduction in depreciation expense ($0.06 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.09 million), partially offset by an increase in non-cash stock compensation ($1.0 million) as a result of a $1.5 million contra-expense for stock compensation in the prior year quarter related to forfeited RSUs and options.

Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses, and non-cash a360 marketing expense we reduced our cash adjusted operating expenses from $8.8 million to $4.5 million for the three months ended June 30, 2022 and June 30, 2023 respectively.

Our overall operating expenses, excluding goodwill and intangibles impairment, decreased by $13.0 million or 41.0% for the nine months ended June 30, 2023 over the nine months ended June 30, 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 ($4.1 million), advertising, marketing, sponsorships and affiliate commission expenses ($8.6 million), reduction in stock expense ($0.5 million), reduction in depreciation expense ($0.5 million) related to the closure of our lab and manufacturing facility in fiscal 2022, and R&D and regulatory spend ($0.4 million), partially offset by an increase in all other expenses ($0.1 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, 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.

Excluding non-cash depreciation, intangible amortization, and non-cash stock expenses and non-cash a360 marketing expense, and we reduced our cash adjusted operating expenses, excluding goodwill and intangibles impairment, from $29.5 million to $15.5 million for the nine months ended June 30, 2022 and June 30, 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.

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

We continued to make significant headway on our cost structure during the third fiscal quarter and were able to maintain our revenue base while stabilizing our SG&A costs.

As part of our strategic plan to grow revenue, we began ramping up marketing spend in the third quarter, resulting in a slight increase in SG&A resulting in a sequential increase of operating losses;

from a $1.5 million operating loss in the second fiscal quarter to $1.8 million for the third fiscal quarter.

This increase in sequential SG&A is primarily a result of an increase in our non-cash marketing expenses related to our February 2023 contract with a360.

Excluding this non-cash expense, our cash SG&A dropped $0.3 million sequentially and we improved our non-GAAP adjusted EBITDA by $200,000 for the quarter. We continue to focus on optimizing our marketing spend and working with our agencies to remain nimble and find new channels of growth, especially considering of the temporary disruption with Meta.

We believe migrating to one of the fastest growing platforms not only allows the brand to be nimbler and plug into a robust ecosystem built for brands to scale, but also lowers our ongoing operating costs compared to the prior platform.

Corporate overhead

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and (vii) non-cash stock compensation expense.

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

The following tables provide information on our corporate overhead for the three and nine months ended June 30, 2023 and 2022:

Staff related expense

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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.

Our corporate operating expenses are down quarter over quarter (excluding a one time reversal of forfeiture of unvested stock options) and year to date for the nine months ended June 30, 2023 versus 2022 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 and six months ended March 31, 2023 and 2022:

The following tables provide information on our approximate corporate overhead for the three and nine months ended June 30, 2023 and 2022:

Staff related expense

Accounting/legal expense

R&D and Regulatory

Staff related expense

Accounting/legal expense

R&D and Regulatory

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

Our human and pet clinical studies have concluded. 

Our human and pet clinical studies have concluded, and we are waiting for our independent peer reviewed results to be published.

Goodwill Impairment

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The value of the non-cash contingent liability was $ 122,230 

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

at June 30, 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 $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.

We had cash and cash equivalents on hand of $2.8 million and working capital of $5.7 million at June 30, 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 37.8% at June 30, 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 17.1% at June 30, 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. 

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 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.

As of August 10, 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.

In May of 2023, we closed an underwritten public offering of shares of out 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.

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 believe that our cash and cash equivalents on hand should be sufficient to fund operations, however, depending upon our operating results and cash burn over the next five months, we may be required to raise additional capital to fund operations or scale back our operations or 

accrue Series A Preferred 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.

The rights and preferences of our outstanding shares of our Series A Preferred continues to create challenges with M&A opportunities. 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.

During the three and nine months ended June 30, 2023 we used cash primarily to fund our operations.

We do not have any commitments for capital expenditures.

We have a commitment for cumulative cash dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders.

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).

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.

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.

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.

Unless the Company’s balance sheet significantly improves soon, the Company will be prohibited under the North Carolina Business Corporation Act from paying dividends and ultimately not pay (and accrue) monthly dividends.

Under North Carolina law, no distribution may be made if, after giving it effect:

(1) the corporation would not be able to pay its debts as they become due in the usual course of business;

or (2) the corporation's total assets would be less that the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

Further, notwithstanding these factors, we may not have sufficient cash in the future to pay dividends on the Series A Preferred Stock.

The Company’s board of directors has recently adopted resolutions declaring it advisable to amend the Certificate of Designation for the Series A Preferred Stock to provide that each share of Series A Preferred will be automatically converted into three shares of common stock and directing that the proposed amendment be submitted for consideration by the Company’s shareholders at a Special Meeting on September 22, 2023. The amendment requires the approval of both our Series A Preferred and common stock holders, voting as separate classes.

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 $4.0 million and $13.0 million for the nine months ended June 30, 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:

To supplement the Company's unaudited interim consolidated financial statements presented in accordance with U.S.

GAAP, the Company uses certain non-GAAP measures of financial performance.

Non-GAAP financial measures are not prepared in accordance with, or as an alternative to U.S.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts, or is subject to adjustment that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with U.S.

Adjusted EBITDA as presented below is a non-GAAP measure.

cbdMD defines Adjusted EBITDA as Earnings Before Interest, Taxes, Depreciation and Amortization excluding (1) stock based compensation;

(2) one time inventory adjustments;

(3) impairment of goodwill and other intangible items;

(4) one-time severance accruals;

(5) non-cash trade credits;

(6) accruals/expenses for discretionary bonuses.

Our management uses and relies on Adjusted EBITDA, which is a non-GAAP financial measure.

We believe that management, analysts and shareholders benefit from referring to the following non-GAAP financial measure to evaluate and assess our core operating results from period-to-period after removing the impact of items that affect comparability.

Our management recognizes that the non-GAAP financial measures have inherent limitations because of the excluded items described below.

We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measures calculated in accordance with GAAP.

We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between cbdMD and other companies.

In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance.

Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable rules of the Securities and Exchange Commission.

The following table presents a reconciliation of GAAP loss form operations to Adjusted EBITDA.

Adjusted EBITDA for the three and nine months ended June 30, 2023 and June 30, 2022 is as follows:

GAAP (loss) from operations

11 unchanged sentences

(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.

(4) Represents non-cash goodwill impairment of $30,776,436 during the June 2022 quarter in addition to 13,898,285 of non-cash goodwill and impairment of the cbdMD trademark of $4,285,000 during the balance of the nine months ended June 2022.

Critical accounting policies

17 unchanged sentences

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