What changed in this filing

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Item 9A. Controls and Procedures

2023-12-22 compared with 2022-12-15 · 525 added, 404 removed, 1030 unchanged (47% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

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

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

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

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

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

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

Based on that evaluation, our Interim Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls were effective at September 30, 2023.

Management ’

6 unchanged sentences

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

As an emerging growth company experiencing rapid growth, we have worked diligently to improve processes within the Company which has created continuous change, specifically including in our IT and manufacturing environments that increase risk related to transaction processing which can impact our financial reporting.

We have implemented a significant number of manual compensating controls to address this risk.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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

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

Our management, including our Interim Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of September 30, 2023.

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

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OTHER INFORMATION.

DISCLOSURE REGARIND FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

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(1) Financial statements.

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

beginning on page 31.

The consolidated financial statements and Report of Independent Registered Accounting Firm begin on page 31.

(2) Financial statement schedules

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EXHIBIT INDEX

Incorporated by Reference

Incorporated by

Exhibit Description

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

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

Underwriting Agreement, dated as of April 30, 2023, between cbdMD, Inc.

and Maxim Group LLC  

Merger Agreement dated December 3, 2018 by and among Level Brands, Inc., AcqCo, LLC, cbdMD LLC and Cure Based Development, LLC

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

Articles of Merger dated December 20, 2018 as filed 

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

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

Articles of Incorporation

10 unchanged sentences

2021 Equity Compensation Plan+

Form of Representative’

s Warrant dated November 16, 2018

Form of Representative’

s Warrant dated May 15, 2019

Form of Representative’

s Warrant dated October 16, 2019

Form of Representative’

s Warrant dated January 9, 2020

Form of Representative’

s Warrant dated December 11, 2020

Form of Representative’

s Warrant dated June 28, 2021

Form of Representative’s Warrant dated November 16, 2018

Form of Representative’s Warrant dated May 15, 2019

Form of Representative’s Warrant dated October 16, 2019

Form of Representative’s Warrant dated January 9, 2020

Form of Representative’s Warrant dated December 11, 2020

Form of Representative’s Warrant dated June 28, 2021

Form of Representative’s Warrant dated May 3, 2023  

Form of Indemnification Agreement

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

Ronan Kennedy+

Form of voting proxy

Office Lease dated July 11, 2019

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Endorsement Agreement effective July 1, 2020

Form of Lockup Agreement

Amended and Restated Executive Employment Agreement dated April 19, 2021 by and between cbdMD, Inc.

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and John Wiesehan III dated July 22, 2021+

John Wiesehan Separation Agreement and General Release 

dated December 1, 2021+

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

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

1 unchanged sentence

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

Scott Coffman Restated Agreement effective January 11, 2022

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

Scott Coffman Restated Agreement effective January 11, 2022+  

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

Separation Agreement by and between Martin A.

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

Membership Interest Transfer Agreement dated June 22, 2022

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

Membership Interest Transfer Agreement dated June 22, 2022  

Agreement for Advertising Placement dated February 1, 2023  

Side Letter –

Keystone Capital Partners, LLC  

Common Stock Purchase Agreement dated March 2, 2023 by and among cbdMD, Inc.

and Keystone Capital Partners, LLC  

Registration Rights Agreement dated March 2, 2023 by and among cbdMD, Inc.

and Keystone Capital Partners, LLC  

Code of Business Conduct and Ethics

Subsidiaries of the Registrant

Insider Trading Policy

Subsidiaries of the Registrant  

Consent of Cherry Bekaert LLP

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

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

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

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

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

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Clawback Policy

Inline XBRL Instance Document

8 unchanged sentences

December 22, 2023

/s/ Kevin MacDermott

Kevin MacDermott

President (Principal Executive Officer)

Ronan Kennedy  

Interim Chief Executive Officer (Principal Executive Officer)

December 22, 2023

8 unchanged sentences

December 22, 2023

Scott Stephen

/s/ Raymond S, Coffman

December 15, 2022

Scott Stephen  

/s/ Bakari Sellers

1 unchanged sentence

Bakari Sellers

/s/ Peter Ghiloni

December 15, 2022

Peter Ghiloni

/s/ William Raines III

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and subsidiaries (the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), shareholders’

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

equity, and cash flows for each of the years in the two-year period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

1 unchanged sentence

s Ability to Continue as a Going Concern

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

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

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

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

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

As discussed in Note 1 to the accompanying financial statements, the Company has historically incurred losses, including a net loss of approximately $23 in the current year, resulting in an accumulated deficit of approximately $174 million as of September 30, 2023.

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

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

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

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

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

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

Accordingly, we express no such opinion.

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Intangible Asset Impairment —

Finite-lived intangible assets —

Refer to Note 5 of the consolidated financial statements.

Critical Audit Matter Description

The Company’s consolidated finite-lived intangible assets, prior to the Company’s impairment analysis, totaled approximately $17.0 million as of September 30, 2023.

Finite-lived intangible assets are tested for impairment if events or circumstances indicate that the assets might be impaired.

The Company’s impairment evaluation of its finite-lived intangible assets involves the comparison of the fair value of the relevant asset group to their carrying values. 

The Company performed an undiscounted cash flow analysis on the asset group and determined that the assets may not be recoverable. 

As such, the Company developed an estimate of fair value of the intangible assets.

As a result of the impairment test conducted by management, the Company recorded an impairment charge of approximately $13.2 million to its finite-lived intangible assets.

Given the significant estimates and assumptions management made to estimate the fair value of the finite-lived tradenames, performing audit procedures to evaluate the reasonableness of management’s methodologies, inputs and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures with respect to management’s assessment of impairment to its finite-lived intangible assets included the following, among others:

We evaluated management’s interpretations of the impairment model as outlined in ASC 360, including the reasonableness of their identification of the asset group and their allocation of identified impairment to the individual assets within the asset group.

With the assistance of our fair value specialists, we evaluated the reasonableness of the methodologies utilized by management to derive their fair value estimates.  We also evaluated the key inputs and assumptions utilized in the impairment analysis.

/s/ Cherry Bekaert LLP

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Charlotte, North Carolina

December 15, 2022

December 22, 2023  

PART 1 –

FINANCIAL INFORMATION

FINANCIAL STATEMENTS.

CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS

11 unchanged sentences

discontinued operations

10,967  

Marketable securities, at cost

33,351  

Investment other securities

2 unchanged sentences

4,255,914  

5,021,867  

Inventory prepaid

23 unchanged sentences

17,834,549  

56,670,970  

Investment in other securities, noncurrent

700,000  

1,400,000  

Total other assets

20 unchanged sentences

1,178,683  

59,470  

Total current liabilities

4 unchanged sentences

125,491  

108,985  

Operating leases - long term portion

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Common stock, authorized 150,000,000 shares, $ 0.001 par value, 2,960,573 and 1,348,125 shares issued and outstanding, respectively

60,666  

57,783  

Additional paid in capital

14 unchanged sentences

September 30, 2023 and 2022

$ 25,053,857  

$ 37,122,215  

( 898,495 )  

( 1,718,991 )

Total Net Sales

24,155,362  

35,403,224  

Cost of sales

9,177,703  

13,066,639  

14,977,659  

22,336,585  

Operating expenses

24,246,208  

39,647,130  

Impairment of goodwill and other intangible assets

13,219,000  

60,955,970  

Loss from operations

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

Gain on extinguishment of debt

Gain on sale of assets

( 22,487,549 )  

( 78,266,515 )

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

( 700,000 )  

Gain (loss) on sale of assets

88,769  

Restructuring expense

Decrease (increase) of contingent liability

Interest expense

Decrease of contingent liability

185,638  

8,473,999  

239,250  

Interest income

63,702  

16,246  

Loss before provision for income taxes

Benefit for income taxes

( 22,938,209 )  

( 70,083,693 )

Benefit (expense) for income taxes

( 22,938,209 )  

( 70,083,693 )

Preferred dividends

Net Loss available to cbdMD, Inc.

common shareholders

4,002,000  

4,002,005  

Net Loss attributable to common shareholders

$ ( 26,940,209 )  

$ ( 74,085,698 )

Net Loss per share:

Basic earnings per share

Diluted earnings per share

Basic loss per share

( 13.32 )  

Diluted loss per share

( 13.32 )  

Weighted average number of shares Basic:

2,022,320  

1,327,784  

Weighted average number of shares Diluted:

2,022,320  

1,327,784  

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED September 30, 2023 and 2022

$ ( 22,938,209 )  

$ ( 70,083,693 )

Comprehensive Loss

( 22,938,209 )  

( 70,083,693 )

Preferred dividends

Comprehensive Loss available to cbdMD, inc.

common shareholders

( 4,002,000 )  

( 4,002,005 )

Comprehensive Loss available to common shareholders

$ ( 26,940,209 )  

$ ( 74,085,698 )

See Notes to Consolidated Financial Statements

2 unchanged sentences

Cash flows from operating activities:

$ ( 22,938,209 )  

$ ( 70,083,693 )

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

Stock based compensation

233,666  

555,215  

Restricted stock expense

109,202  

373,610  

Write off of prepaid assets due to termination of contractual obligation

884,892  

Marketing stock amortization

Issuance of stock / warrants for service

907,774  

Inventory and materials impairment

175,499  

878,142  

Intangibles amortization

1,396,459  

884,380  

404,280  

948,962  

Impairment of goodwill and other intangible assets

13,219,000  

60,955,970  

Gain on sale of fixed assets

Increase/(Decrease) in contingent liability

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

Termination benefit

Extinguishment of Paycheck Protection Program Loan

( 185,638 )  

( 8,473,999 )

Realized and unrealized gain of Marketable and other securities

33,350  

Other-than-temporary impairment on other investments

700,000  

Amortization of operating lease asset

1,126,976  

1,137,119  

Changes in operating assets and liabilities:

Accounts receivable

278,482  

65,541  

105,898  

284,977  

27,443  

Prepaid inventory

328,784  

40,060  

Prepaid expenses and other current assets

2,095,323  

Accounts payable and accrued expenses

( 1,290,141 )  

( 1,812,547 )

Operating lease liability

( 1,178,683 )  

( 1,151,152 )

Deferred revenue / customer deposits

203,341  

Collection on discontinued operations accounts receivable

Deferred tax liability

Cash used by operating activities

( 4,302,051 )  

( 14,967,150 )

Cash flows from investing activities:

Proceeds from sale of other investment securities

Purchase of other investment securities

Purchase of DirectCBDOnline.com

1,000,000  

Purchase of property and equipment

( 297,549 )  

Cash provided (used) by investing activities

702,451  

Cash flows from financing activities:

Proceeds from issuance of common stock

Proceeds from issuance of preferred stock

2,478,325  

( 132,599 )  

Preferred dividend distribution

Deferred Issuance costs

( 3,668,500 )  

( 4,002,005 )

Cash provided by financing activities

( 1,322,774 )  

( 4,035,360 )

Net increase (decrease) in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

( 4,922,374 )  

( 19,691,190 )

Cash and cash equivalents, beginning of year

6,720,234  

26,411,424  

Cash and cash equivalents, end of year

$ 1,797,860  

$ 6,720,234  

Supplemental Disclosures of Cash Flow Information:

1 unchanged sentence

Interest expense

$ 6,399  

$ 2,364  

Non-cash financial/investing activities:

Issuance of Contingent earnout shares:

Warrants issued to representative

$ 1,086,000  

Preferred dividends accrued but not paid

$ 667,000  

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED September 30, 2023 and 2022

1 unchanged sentence

Balance, September 30, 2022

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  

Preferred dividend

( 1,000,502 )  

Net Income (loss)

( 3,956,062 )  

Balance, December 31, 2022

1,349,163  

5,000,000  

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

29,190  

29,193  

Roundup fractional shares resulting from reverse split

Preferred dividend

( 1,000,500 )  

Net Income (loss)

( 1,336,802 )  

Balance, March 31, 2023

1,456,696  

5,000,000  

180,497,196  

( 154,717,429 )  

25,786,224  

Issuance of Common stock

69,606  

69,615  

Issuance of options for share based compensation, net

34,663  

Issuance of restricted stock for share based compensation, net

Issuance of Common stock - A360

133,200  

Issuance of Common stock - Maxim

1,350,000  

2,472,730  

2,474,080  

Fractional share true-up

39,533  

( 39 )  

Preferred dividend

( 1,000,501 )  

Net Income (loss)

Balance, June 30, 2022

( 1,770,404 )  

Balance, June 30, 2023

2,855,229  

5,000,000  

183,212,202  

( 157,488,334 )  

25,731,723  

Issuance of Common stock

( 112 )  

Issuance of options for share based compensation

33,171  

Issuance of restricted stock for share based compensation

Issuance of Common stock - Keystone

105,232  

97,338  

97,443  

Maxim transaction expenses

40,500  

Preferred dividend

( 1,000,497 )  

Net Income (loss)

Balance, Balance at September 30, 2022

( 15,874,941 )  

Balance, Balance at September 30, 2023

2,960,573  

$ 2,961  

5,000,000  

$ 5,000  

$ 183,387,095  

$ ( 174,363,772 )  

$ 9,031,284  

See Notes to Condensed Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

FOR THE YEARS ENDED

SEPTEMBER 30, 2021 AND 2020

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED September 30, 2023 and 2022

Preferred Stock

Balance, September 30, 2021

Issuance of Preferred Stock

1,284,075  

$ 1,285  

5,000,000  

$ 5,000  

$ 176,473,767  

$ ( 73,337,865 )  

$ 103,142,187  

Issuance of Common stock

10,992  

404,989  

405,000  

Issuance of options for share based compensation

Issuance of stock costs

505,466  

Issuance of restricted stock for share based compensation

508,754  

Preferred dividend

( 1,000,502 )  

Net Income (loss)

( 19,160,904 )  

Balance, December 31, 2021

1,295,067  

5,000,000  

177,892,975  

( 93,499,271 )  

84,400,000  

Issuance of Common stock

23,873  

660,976  

661,000  

Issuance of options for share based compensation

291,630  

Issuance of restricted stock for share based compensation

328,515  

Preferred dividend

( 1,000,500 )  

Net Income (loss)

( 4,657,215 )  

( 4,657,216 )

Balance, March 31, 2022

Issuance of Commom Stock

1,318,940  

5,000,000  

179,174,096  

( 99,156,986 )  

80,023,429  

Issuance of Common Stock

13,198  

177,987  

178,000  

Issuance of options for share based compensation

Issuance of retricted stock for share based compensation

( 373,168 )  

Issuance of restricted stock for share based compensation

( 593,617 )  

Preferred dividend

( 1,000,501 )  

Net Income (loss)

( 31,634,143 )  

Balance, June 30, 2022

1,332,138  

5,000,000  

178,385,298  

( 131,791,630 )  

46,600,000  

Issuance of Common stock

15,987  

197,986  

198,001  

Issuance of Preferred Stock

Issuance ofoptions for share based compensation

Issuance of restricted stock for share based compensation

Acquisition of DCO

128,404  

Issuance of options for share based compensation

129,959  

Preferred dividend

( 1,000,501 )  

Net Income (loss)

( 14,631,432 )  

Balance, September 30, 2022

1,348,125  

$ 1,348  

5,000,000  

$ 5,000  

$ 178,841,646  

$ ( 147,423,563 )  

$ 31,424,431  

See Notes to Condensed Consolidated Financial Statements

11 unchanged sentences

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 15,250,000 shares of our common stock to the members of Cure Based Development, of which unrestricted voting rights to 8,750,000 of the shares vested over a five -year period and 2,187,500 shares remain subject to a voting proxy agreement as of September 30, 2022, as well as to issue another 15,250,000 shares of our common stock (the “Earnout Shares”) in the future upon certain earnout goals (the “Earnout Rights”) being achieved within five years from the closing of the Mergers, and 3,928,792  

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

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

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 194,945 of the shares vested over a five -year period and 48,612 shares remain subject to a voting proxy agreement as of September 30, 2023, 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.

Up to 87,307 Earnout Shares remain subject to Earnout Rights at September 30, 2023.

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

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

5 unchanged sentences

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

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

The consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10 -K for the year ended 

September 30, 2022  (“

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

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

The Company also operates the subsidiary Proline Global, LLC ("Proline Global") where it operates some of its newer brand initiatives.

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.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI, Paw CBD and Therapeutics.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI, Paw CBD, Proline Global,and Therapeutics.

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

2 unchanged sentences

Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the valuation of investments other securities, acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities and contingent liability.

Actual results could differ from these estimates.

On March 11, 2020, the World Health Organization declared the COVID- 19 outbreak to be a global pandemic.

In response to this declaration and the rapid spread of COVID- 19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restriction on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

We continue to monitor the waning trends on infection rates and are cautiously optimistic future impacts to the business environment will be minimal.

Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, certain assumptions related to the valuation of investments other securities, and acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets. Actual results could differ from these estimates.

Cash and Cash Equivalents

For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents.

Accounts Receivable and Accounts Receivable Other

Accounts Receivable

Accounts receivables are stated at cost less an allowance for doubtful accounts, if applicable.

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

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

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

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

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For investment other securities without a readily determinable fair value, the Company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes.

Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

Identifiable intangible assets acquired in business combinations are recorded based on their fair values at the date of acquisition.

Goodwill is not subject to amortization but must be evaluated for impairment annually.

The Company tests for goodwill impairment annually or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In performing a goodwill test, the Company performs a qualitative evaluation and if necessary, a quantitative evaluation.

Factors considered in the qualitative test include specific operating results as well as new events and circumstances impacting the operations or cash flows of the business acquired.

For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of the business to the respective fair value.

The Company determines the fair value of its acquired business using a combination of income-based and market-based approaches and incorporates assumptions it believes market participants would utilize.

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

These approaches are dependent upon internally developed forecasts that are based upon annual budgets and longer-range strategic plans.

The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective acquired business and in the internally developed forecasts.

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

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

Intangible Assets

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Goodwill and Other .

The Company employs 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.

We perform an annual impairment analysis as of August 1 of each fiscal year on the indefinite-lived intangible assets following the steps laid out in ASC 350 - 30 - 35 - 18.

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

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

If a quantitative analysis is necessary, we would analyze various aspects including revenues from the business, associated with the intangible assets.

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

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

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 were not amortized into the results of operations, but instead were 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.

We previously performed an annual impairment analysis each fiscal year on the indefinite-lived intangible assets following the steps laid out in ASC 350 - 30 - 35 - 18.

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

In performing a qualitative assessment, we reviewed events and circumstances that could affect the significant inputs used to determine if the fair value was less than the carrying value of the intangible assets.

If a quantitative analysis was necessary, we would analyze various aspects including revenues from the business, associated with the intangible assets.

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

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

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

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

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

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

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

Step I of the impairment test, as per ASC 360, involves estimating the recoverable amount of the asset group and determining the potential for impairment.

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

As further outlined in Note 5, during the July of fiscal 2023, the Company determined that based on regulatory uncertainty and ongoing Company performance it was prudent to change the amortization of the “cbdMD”

and “directCBDonline”

trademarks to 5 years and “hempMD”

trademark to 10 years. 

This became a triggering event for an impairment test under ASC360 which resulted in an impairment of the intangibles in July 2023. 

As of the end of the fourth quarter and fiscal 2023, a significant decline in market capitalization of both classes of equity as a result of the proxy vote triggered a subsequent impairment test, resulting in additional impairment during the fourth quarter of 2023.

Contingent Liability

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The Company made a determination of the fair value of the contingent liabilities as part of the valuation of the assets acquired and liabilities assumed in the business combination.

Paycheck Protection Program Loan

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

Small Business Administration (the “SBA”).

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

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

Revenue Recognition

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

The Company has no material contract assets nor contract liabilities at September 30, 2022 .

The Company had no material contract assets or liabilities at the beginning or ending of September 30, 2023 and 2022.

Cost of Sales

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

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

The Company incurred $ 6.0 million and $ 14.3  million in advertising and marketing and promotional costs included in operating expenses during the years ended September 30, 2023 and 2022 respectively.

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

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

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

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

The Company experienced a loss of $ 23 million for the fiscal year ended September 30, 2023. 

Excluding the one time non-cash investment impairment charge of $ 0.7 million and intangible asset impairment charge of $ 13.2 million, the Company’s loss was $ 9.1 million, resulting in working capital of $ 3.4 million.

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 

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

Restructuring

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

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

Earnings (Loss) Per Share

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

Recently Adopted Accounting Standards

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

The ASU eliminates certain exceptions to the guidance in Accounting Standards Codification (ASC or Codification) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The guidance also clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so.

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

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

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.

New Accounting  

The Company will be adopting ASU 2016 - 13 Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments (ASC 326 ) effective October 1, 2023.

This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit.

Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The Company is still evaluating the impacts this standard may have on the consolidated financial statements.

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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 year ended September 30, 2023 and 

September 30, 2022 the Company recorded $( 700,000 ) and $( 33,350 ), respectively of realized and unrealized gain (loss) on marketable and other securities, including impairments.

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

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

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”).

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

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

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

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

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

and “ADRA WS”, respectively.

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

On January 13, 2021, the Company executed second tranche subscriptions agreements and funded the remaining $ 750,000 .

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

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

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

There are no assurances the business combination will be completed.

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

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

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

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 a trade credit for products to be provided to the Company under the manufacturing and supply agreement and $ 1.4 million of which the Company invested into Steady State in the form of an equity investment consistent with the terms of Steady State's recently completed Series C financing. 

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

In Active  

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

 The Company performed a valuation analysis and as of September 30, 2023 determined a $ 700,000 impairment was needed on the carrying value of this investment. 

The determination was based on a number of factors, including Steady State’s financial performance, our experience with production and cbdMD’s determination to re-source production to other suppliers. 

As such we believe it was prudent to reassess the carrying value of this non-liquid security.

The table below summarizes the assets and liabilities valued at fair value as of September 30, 2023 :

Markets for  

Significant Other

Identical Assets  

Observable  

Total Fair Value  

and Liabilities  

Inputs  

at September 30,  

Significant Other  

Significant  

Identical Assets

and Liabilities

Balance at September 30, 2021

$ 33,351  

$ 26,472  

$ ( 9,856,000 )

Change in value of equities

Additional Investment

Balance at September 30, 2021

( 33,351 )  

Change in value of contingent liability

9,580,000  

Change in value of equities

Additional Investment

Balance at September 30, 2022

Change in value of contingent liability

185,638  

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September 30,

Finished Goods

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Abnormal amounts of idle facility expense, freight, handling costs, scrap, and wasted material (spoilage) are expensed in the period they are incurred and no material expenses related to these items occurred in the year ended September 30, 2023.

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

The Company wrote down inventory of $ 175,499 during the fourth quarter of fiscal year ended September 30, 2023 primarily related to obsolete and expired stock keeping units (“SKU”s). 

We work hard to minimize inventory write-downs and slow moving and aging SKUs and work, as we work to streamline our offerings to higher velocity products and eliminate slow-moving and aging SKUs.

NOTE 4 –

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NOTE 5 –

 GOODWILL AND INTANGIBLE ASSETS

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

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

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

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

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

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

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

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

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

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

GOODWILL AND INTANGIBLE ASSETS

The Company had goodwill at September 30, 2023 and September 2022 of $ 0 . 

The Company performed multiple impairment analyses of their goodwill during FY2022 and, as a result, the entire $ 56.7 million balance was written off.

Intangible Assets

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and “hempMD”

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

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

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

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trademark was impaired by $ 4,285,000 .

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

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

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

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

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

As of July 1, 2023 the Company determined that based on market forces and the Company’s outlook it was prudent to adjust the useful lives of cbdMD’s and DCO intangibles to 5 year useful lives and hempMD’s trademark to 10 year amortization to better reflect the outlook of the brands.

This re-evaluation of the tradenames became a triggering event for a valuation test under ASC 360.

As a result of a multi-step approach under ASC 360 we determined that the “cbdMD,”

“DirectCBDOnline”

tradenames and the technology relieve asset was impaired by $6,027,000, and as a result, the amortization was adjusted to account for any changes in the value and estimated useful life of each asset. 

Amortization expense for the year ended September 30, 2023 was $ 1,396,459 and was recorded on the consolidated statements of operations.

At September 30, 2023 , the Company prepared a tradename impairment analysis in accordance with ASC 360 and has determined that based on market sentiment and the sharp decline in combined market capitalization of the common stock and Series A Preferred as a result of the ongoing proxy vote, a triggering event occurred. 

The Company prepared an impairment analysis and as a result of a multi-step approach under ASC 360 we determined that the “cbdMD”

DirectCBDOnline”

tradenames and technology relieve were further impaired by $ 7,192,000 in fiscal year 2023, resulting in a total impairment charge of $ 13,219,000 for the fiscal year ended September 30, 2023.

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

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749,567  

Impairment of definite lived intanigble assets:

Impairment of definite lived intangible assets:

( 17,504,000 )  

( 4,285,000 )

Amortization of definite lived intangible assets:

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$ 3,219,090  

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

Goodwill at September 30, 2021

$ 56,670,970  

Impairment of goodwill

( 56,670,970 )

Goodwill at September 30, 2022

NOTE 6 –

CONTINGENT LIABILITY

As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue 15,250,000 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 6,500,000 shares and 8,750,000 shares, both of which are subject to leak out provisions, and the unrestricted voting rights to 8,750,000 tranche of shares vesting 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 of 144,445 shares and 194,945 shares, both of which are subject to leak out provisions, and the unrestricted voting rights to 194,945 tranche of shares vesting over a five year period and are subject to a voting proxy agreement.

The Merger Agreement also provided that an additional 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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For clarification purposes, the Aggregate Net Revenues during a Marking Period shall be multiplied by the applicable Shares Issued/Each $ of Aggregate Net Revenue Ratio, minus, the number of shares issued as a result of Aggregate Net Revenues during the prior marking periods.

The issuance of the initial 15,250,000 shares and the 15,250,000 Earnout Shares were approved by the Company’s shareholders in April 2019.

The initial shares were issued upon shareholder approval on April 19, 2019 and had a carrying value of $ 53,215,163 .

Additionally, as the 15,250,000 initial shares were issued, the value of the shares in the amount of $ 53,215,163 was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet.

The third quarter of the third marketing period ended on September 30, 2021 and based on the measurement criteria an additional 10,372 Earnout Shares were earned and issued in December 2021.

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The value of the contingent liability was $ 90,362 and $ 276,000 at September 30, 2023 and September 30, 2022, respectively.

The fourth marketing period began on July 1, 2022 and ended during November 2023.

As of November 2023, the preliminary revenue for the fourth marking period totaled approximately $ 35.8 million. 

Based on the ratios, we estimate the final share obligation to fully satisfy the Earnout Shares to be approximately 20,500 .

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At September 30, 2022, the Company recorded a decrease in value of the contingent liability of $ 73,561 related to a decrease in the market price of our common stock, which adjusted the total contingent liability related to the Twenty Two Earnout Shares to $ 416,000 .

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

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

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

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

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

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

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

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

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

As such, this contractual obligation was terminated.

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

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

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

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 September 30, 2023.

NOTE 7 –

RELATED PARTY TRANSACTIONS

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

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

NOTE 8 –

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

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

The total amount of dividends declared were $ 4,002,000 for the year ended September 30, 2023.

The total amount of dividends declared and paid were $ 4,002,005 for the years ended September 30, 2022.

The company suspended payment of the dividend in August of 2023 and as such recorded an accrual of $ 667,000 for the dividends declared but not paid in August and September.

Common Stock –

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The Company has no preferred stock transactions in the year ended 

September 30, 2022 .

In the year ended September 30, 2021 :

On July 1, 2021, the Company completed a follow-on firm commitment underwritten public offer of 2,200,000 shares of its 8.0 % Series A Cumulative Convertible Preferred Stock for aggregate gross proceeds of $ 16.50 million.

The Company received approximately $ 15.3 million in net proceeds after deducting underwriting discounts and commissions.

The Company also issued to the representative of the underwriters warrants to purchase in aggregate 143,382 shares of common stock with an exercise price of $ 3.75 .

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

September 30, 2023 and 2022.

Common stock transactions:

In the year ended September 30, 2023:

In September of 2023, the company issued 102,616 shares under the Purchase Agreement to Keystone.

In July of 2023 the Company issued 2,616 shares to Keystone pertaining to the commitment shares under 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.

On April 24, 2023 the Company issued a total of 39,533  shares of common stock to account for rounding up of fractional shares related to the Reverse Stock Split.

In March 2, 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 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.

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, of which $ 514,904 remains unutilized as of September 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;

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 year ended September 30, 2022:

In August 2022, the Company issued 112 shares of restricted common stock to a newly appointed board member. 

11 unchanged sentences

In October 2021, the Company issued 556 shares of restricted common stock to an executive officer of the Company, subject to vesting on January 1, 2022.

In the year ended September 30, 2021 :

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

In fiscal year ending September 30, 2022 , 323,444 warrants issued in January 2020 to purchase shares of common stock at an exercise price of $ 1.25 were exercised.

On July 22, 2021, the company issued 300,000 shares of restricted common stock in conjunction with the Twenty Two asset acquisition.

On June 8, 2021, the Company issued 25,000 shares of restricted stock awards in connection with a consulting arrangement with an industry professional.

The Company recorded a total prepaid expense of $ 80,500 in conjunction with the issuance of shares and intends to amortize this over the term of the agreement.

On May 14, 2021, the Company issued 562,278 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.

On April 9, 2021, the Company entered into an endorsement agreement with a professional athlete.

A part of the endorsement agreement, the Company issued 40,000 shares of restricted common stock.

The Company recorded $ 143,600 prepaid expense and intends to amortize over the term of the agreement.

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

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

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

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

The stock awards were valued at the fair market price of $ 118,800 upon issuance and will amortize over the individual vesting periods.

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

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

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

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

Stock option transactions:

In the year ended September 30, 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.

1,667 options vest equally at each anniversary for the next 3 years, have a strike price of $ 11.25 and a five year term.

The total expense of these options is $ 13,150 and will be amortized over the term of the vesting periods.

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

In the year ended September 30, 2022:

In August 2022, the Company granted a new board member an aggregate of 667 common stock options.

1 unchanged sentence

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

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

The Company recognized contra-expense of 

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

In June 2022, a former executive officer of the company forfeited 16,667 common stock options. The forfeited options had an unrecognized value of 

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

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

17 unchanged sentences

The Company has recorded an expense for these options of $ 23,025 and $ 46,050 for the three and twelve months ended September 30, 2023.

In the year ended September 30, 2021 :

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

As part of the agreement, the Company issued 50,000 options and recorded total prepaid expense of $ 125,250 and intends to amortize over the 12 -month vesting term.

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

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

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

In March 2021, the Company granted its board of directors an aggregate of 150,000 common stock options.

The options vested immediately, have a strike price of $ 4.40 and a five -year term.

The Company has recorded a total prepaid expense of $ 395,850 and intends to amortize the expense over the 12 -month board term.

In January 2021, the Company granted an aggregate of 80,000 common stock options to three employees.

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

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

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

The options vest in three equal tranches, the first on October 1, 2021, the second on October 1, 2022 and the third on October 1, 2023, and have an exercise price of $3.50, $ 5.00 , and $ 6.50 per share and a term of 5 years.

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

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

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

Warrant transactions:

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

In the year ended September 30, 2021 :

In July 2021 in relation to the follow-on firm commitment underwritten public offering of the 8.0 % Series A Cumulative Convertible Preferred Stock, the Company issued to the representative of the underwriters warrants to purchase in aggregate 143,482 shares of common stock with an exercise price of $ 3.75 .

The warrants expire on December 8, 2025.

Weighted average exercise price

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3.93% -4.71 %  

0.16 % - 0.85 %  

101.23 % - 103.98 %  

2.56% - 2.97 %

106.48% - 106.51 %  

101.23% - 103.98 %

Expected term (in years)

1 unchanged sentence

2.5 - 5.5  

Divident yield

In December 2020 in relation to the follow-on firm commitment underwritten public offering of the 8.0 % Series A Cumulative Convertible Preferred Stock, the Company issued to the representative of the underwriters warrants to purchase in aggregate 150,502 shares of common stock with an exercise price of $ 3.74 .

The warrants expire on December 8, 2025.

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

Dividend yield

Warrant transactions:

As part of the public underwritten offer discussed earlier 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 Company had no warrant transactions during the twelve months ended September 30, 2022.

The following table summarizes the inputs used for the Black-Scholes pricing model on the warrants issued in the year ended September 30, 2023:

Weighted average exercise price

Risk free interest rate

$ 2.52  

0.39 % - 0.89 %  

0.00 %  

Risk free interest rate

Expected term (in years)

Divident yield

Dividend yield

NOTE 9 -STOCK-BASED COMPENSATION

44 unchanged sentences

41,765  

144.43  

Exercisable at September 30, 2023

4 unchanged sentences

In the twelve months ended September 30, 2023:

In February of 2023, the Company issued 448  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.

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.

In the twelve months ended September 30, 2022:

In August 2022, the Company issued 112 shares of restricted common stock to a newly appointed board member. 

21 unchanged sentences

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

In the twelve months ended September 30, 2021:

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

As part of the engagement, the Company issued 25,000 shares of restricted common stock, which vested on the issuance date.

The Company recorded $ 80,500 prepaid expense and intends to amortize over the term of the agreement.

In April 2021, the Company entered into an endorsement agreement with a professional athlete.

A part of the endorsement agreement, the Company issued 40,000 shares of restricted common stock.

The Company recorded $ 143,600 prepaid expense and intends to amortize over the term of the agreement.

In April 2021, the Company issued 750,000 RSUs to an executive officer.

The restricted stock vests in three equal tranches, the first of which vests on January 1, 2022, the second on January 1, 2023 and the third on January 1, 2024.

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

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

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

The stock awards were valued at the fair market price of $ 118,800 upon issuance and amortized over the individual vesting periods.

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

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

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

A majority vested upon issuance with the balance vesting by April 6, 2021.

The stock awards were valued at the fair market price of $ 494,125 upon issuance at and amortized over the individual vesting periods.

In October 2020, the Company issued 50,000 of restricted stock awards to an executive officer.

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

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

NOTE 10 –

12 unchanged sentences

242.55  

( 224,307 )  

Outstanding at September 30, 2022

1 unchanged sentence

210.45  

40,500  

( 3,395 )  

289.08  

Outstanding at September 30, 2023

2 unchanged sentences

$ 183.23  

$ 4.68  

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

6 unchanged sentences

176.06  

September 2023

Exercisable at $56.25 per share

60,000  

Exercisable at $168.30 per share

168.30  

3.9125  

Exercisable at $1.25 per share

36,682  

December 2025

Exercisable at $168.75 per share

168.75  

December 2025

Exercisable at $2.52 per share

5 unchanged sentences

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

The term of the agreement is through December 31, 2022 and is tied to performance of the athlete in so many professional events annually, and also includes promotion of the Company via social media, wearing of logo during competition, requirements to provide production days for advertising creation and attendance of meet and greets.

The potential payments, if all services are provided, in aggregate is $ 4,900,000 and is paid based on the services above for the period ending:

December 2019 - $ 400,000 , December 2020 - $ 800,000 , December 2021 - $ 1,800,000 , and December 2022 - $ 1,900,000 .

In light of the impact of COVID- 19 on events, the Company and professional athlete mutually agreed to suspend payments from March 2020 through June 2020.

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

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

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

The Company will make monthly cash payments as follows from:

July 2020 to December 2020 - $ 40,000 , from January 2021 to June 2021 - $ 50,000 , from July 2021 to December 2021 - $ 75,000 , from January 2022 to June 2022 - $ 85,000 , and from July 2022 to December 2022 - $ 100,000 .

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

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

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

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

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

No further obligations exist between the parties. 

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

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

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

No further obligations exist between the parties.

The Company recorded a one -time non-cash expense of approximately $ 885,000 associated with the outstanding un-expensed portion of stock compensation expense from previously issued stock at higher stock prices.

Effective February 2022, the Company entered into an endorsement agreement with a professional athlete.

The term of the agreement is through February 2025 and is tied to performance of the athlete in so many professional events annually, and also includes promotion of the Company via social media, wearing of logo during competition, requirement to provide production days for advertising creation and attendance at meet and greets.

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

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

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

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

NOTE 12 –

4 unchanged sentences

NOTE 13 –

PAYCHECK PROTECTION PROGRAM LOAN

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

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

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

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

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

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

NOTE 14 –

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

14 unchanged sentences

September 30,

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

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

$ 1,380,204  

9 unchanged sentences

Less interest

274,046  

Total lease liabilities

7 unchanged sentences

280,565  

1,372,862  

Total futrue lease payments

Total future lease payments

4,234,986  

Less interest

274,046  

Total lease liabilities

5 unchanged sentences

September 30,

Net income (loss)

$ ( 22,938,209 )  

$ ( 70,083,693 )

Preferred dividends paid

4,002,005  

Preferred dividends paid or accrued

4,002,000  

Net income (loss) continuing operations adjusted for preferred dividend

4,002,005  

( 25,949,498 )

Net income loss attributable to cbdMD Inc.

2 unchanged sentences

( 74,085,698 )

Net income (loss)

( 74,085,698 )  

( 25,949,498 )

Net income (loss)

( 74,085,698 )  

( 25,949,498 )

Shares used in computing basic earnings per share

1 unchanged sentence

1,327,784  

Effect of dilutive securities:

Convertible preferred shares

Shares used in computing diluted earnings per share

2 unchanged sentences

Earnings per share Basic:

Continued operations

( 1.24 )  

Discontinued operations

Basic earnings per share

( 13.32 )  

Earnings per share Dliuted:

Continued operations

( 1.24 )  

Discontinued operations

Earnings per share Diluted:

Diluted earnings per share

1 unchanged sentence

At the year ended 

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

September 30, 2023, 93,222 potential shares underlying options, unvested RSUs and warrants as well as 185,223 shares issuable upon conversion of our Series A Preferred stock and 40,404 a360 shares subject to certain vesting requirements, as well as a total 

872 remaining commitment shares under the Keystone Purchase Agreement were related to the a360 transaction which are excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share.

NOTE 15 –

6 unchanged sentences

Total provision

$ ( 895,000 )

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

6 unchanged sentences

Contingent derivative expense

Limitation on net operating losses

Change in valuation allowance

( 21.1 )  

Benefit from (provision for) income taxes

Provision for income taxes

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

16 unchanged sentences

180,000  

452,000  

Accrued expenses

2 unchanged sentences

45,000  

40,000  

Inventory reserve

15 unchanged sentences

( 1,002,000 )

( 3,426,000 )  

21 unchanged sentences

Therefore, at September 30, 2020 the Company reduced the deferred tax asset and related valuation allowance associated with these NOLs by approximately $ 2.7 million due to IRC Section 382.

The total valuation allowance increased by $ 4,758,000 and decreased by $ 3,351,000 as of September 30, 2022 and 2021 , respectively.

There have been issuances of stock since 2019 but the Company has not performed any analysis since then to determine if any additional ownership changes have occurred that would further limit the use of the NOLs to offset future income.

At September 30, 2023 , the Company has utilizable NOL carryforwards of approximately $ 65.9 million which for federal purposes will carryforward indefinitely.

3 unchanged sentences

At September 30, 2023 and 2022, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties.

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

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

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

As a result of the Mergers the Company established as part of the purchase price allocation a net deferred tax liability related to the book-tax basis of certain assets and liabilities of approximately $ 4.6 million.

The Company has had a valuation allowance against the net deferred tax assets, with the exception of the deferred tax liabilities that result from indefinite-life intangibles ("naked credits").

During the year ended September 30, 2021 , the Company generated enough indefinite life deferred tax assets from post-merger NOLs to reduce the naked credits to zero during the year and continue to record a valuation allowance on remaining deferred tax assets.

NOTE 17 –

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

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

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

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

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

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

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

The following table presents the final purchase price allocation:

Consideration

$ 3,552,529  

Assets Acquired:

Undeposited Funds

$ 18,155  

79,895  

Inventory - Prepaid Shipping

31,094  

Proerpty and equipment, net

Intangible Assets

3,418,383  

Total assets aquired

$ 3,552,529  

During the year ended September 30, 2021, 

the Company generated enough indefinite life deferred tax assets from post-merger NOLs to reduce the naked credits to zero during the year and continue to record a valuation allowance on remaining deferred tax assets.

NOTE 16 –

SUBSEQUENT EVENTS

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

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

What changed 10-K

Item 9A. Controls and Procedures