cbdMD, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES.   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 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 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 ’ s Report on Internal Control over Financial Reporting.   Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:     ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;         ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and         ● 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.   24 Table of Contents   Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.    Our management, including our 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. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were effective.   Changes in Internal Control over Financial Reporting                 There have been no changes in our internal control over financial reporting during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, but for the additional review procedures renumerated above.   ITEM 9B. OTHER INFORMATION.   None.   ITEM 9C. DISCLOSURE REGARIND FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.   None.   25 Table of Contents   PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.   The information required by this Item will be contained in our proxy statement for our 2024 Annual Meeting of shareholders to be filed on or prior to January 28, 2024 (the “Proxy Statement”) and is incorporated herein by this reference.   ITEM 11. EXECUTIVE COMPENSATION.   The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.   The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.   The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.   The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.   26 Table of Contents   PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.   (a) (1) Financial statements.   The consolidated financial statements and Report of Independent Registered Accounting Firm begin on page 31.   (2) Financial statement schedules   All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the consolidated financial statements herein.   (3) Exhibits.   The exhibits that are required to be filed or incorporated by reference herein are listed in the Exhibit Index.   ITEM 16. FORM 10-K SUMMARY.   None   27 Table of Contents   EXHIBIT INDEX           Incorporated by Reference   Filed or Furnished Herewith No.   Exhibit Description   Form   Date Filed   Number                           1.1   Underwriting Agreement, dated as of April 30, 2023, between cbdMD, Inc. and Maxim Group LLC   8-K   5/3/23   1.1     2.1   Merger Agreement dated December 3, 2018 by and among Level Brands, Inc., AcqCo, LLC, cbdMD LLC and Cure Based Development, LLC   8-K   12/4/18   2.1     2.2   Articles of Merger dated December 20, 2018 as filed with the Secretary of State of Nevada merging AcqCo, LLC with and into Cure Based Development, LLC   10-Q   2/14/19   2.2     2.3   Articles of Merger dated December 20, 2018 as filed with the Secretary of State of North Carolina merging AcqCo, LLC with and into Cure Based Development, LLC   10-Q   2/14/19   2.3     2.4   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   10-Q   2/14/19   2.4     2.5   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   10-Q   2/14/19   2.5     3.1   Articles of Incorporation   1-A   9/18/17   2.1     3.2   Articles of Amendment to the Articles of Incorporation filed April 22, 2015   1-A   9/18/17   2.2     3.3   Articles of Amendment to the Articles of Incorporation filed June 22, 2015   1-A   9/18/17   2.3     3.4   Articles of Amendment to the Articles of Incorporation filed November 17, 2016   1-A   9/18/17   2.4     3.5   Articles of Amendment to the Articles of Incorporation filed December 5, 2016   1-A   9/18/17   2.5     3.6   Bylaws, as amended   1-A   9/18/17   2.6     3.7   Articles of Amendment to Articles of Incorporation dated April 22, 2019   8-K   4/29/19   3.7     3.8   Articles of Amendment to the Articles of Incorporation including the Certificate of Designations, Rights and Preferences of the 8% Series A Cumulative Convertible Preferred Stock filed October 11, 2019   8-A   10/11/19   3.1(f)     4.1   Form of common stock certificate of the registrant   1-A   9/18/17   3.7     4.2   2015 Equity Compensation Plan+   1-A   9/18/17   3.8     4.3   Form of stock option award under 2015 Equity Compensation Plan+   1-A   9/18/17   3.9     4.4   2021 Equity Compensation Plan+   8-K   1/14/21   10.1     4.5   Form of Representative’s Warrant dated November 16, 2018   S-1   9/26/18   4.10     4.6   Form of Representative’s Warrant dated May 15, 2019   8-K   5/14/19   4.1     4.7   Form of Representative’s Warrant dated October 16, 2019   8-K   10/16/19   4.1     4.8   Form of Representative’s Warrant dated January 9, 2020   8-K   1/10/20   4.1     4.9   Form of Representative’s Warrant dated December 11, 2020   8-K   12/9/20   4.1     4.10   Form of Representative’s Warrant dated June 28, 2021   8-K   6/30/21   4.1     4.11   Form of Representative’s Warrant dated May 3, 2023   8-K   5/3/23   4.1     10.1   Form of Indemnification Agreement   1-A   9/18/17   6.21     10.2   Office Lease dated July 11, 2019   10-Q   8/14/19   10.1     10.3   Warehouse Lease dated August 27, 2019   10-Q   2/13/20   10.1     10.4   Form of Distribution Agreement dated February 26, 2020 by and among cbdMD, Inc., CBD Holdings, LLC and the members of CBD Holdings, LLC   8-K   2/28/20   10.1     10.5   Endorsement Agreement effective July 1, 2020   10-Q   8/21/20   10.1     10.6   Amended and Restated Executive Employment Agreement dated April 19, 2021 by and between cbdMD, Inc. and Martin A. Sumichrast+   8-K   4/21/21   10.1     10.7   Amended and Restated Executive Employment Agreement dated April 19, 2021 by and between CBD Industries LLC and R. Scott Coffman+   8-K   4/21/21   10.2     10.8   Asset Purchase Agreement by and among Twenty Two Capital, LLC, cbdMD, Inc., John J. Wiesehan III, Vieo Design, LLC and Bradley D. Trawick dated June 22, 2021   8-K   7/27/21   10.1     10.9   Employment Agreement between cbdMD, Inc. and John Wiesehan III dated July 22, 2021+   8-K   7/27/21   10.2       28 Table of Contents   10.10   John Wiesehan Separation Agreement and General Release dated December 1, 2021+   8-K   12/3/21   10.1     10.11   Executive Employment Agreement dated October 1, 2021 between cbdMD, Inc. and T. Ronan Kennedy+   8-K   10/5/21   10.1     10.12   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+   8-K   1/18/22   10.1     10.13   Equipment Purchase Agreement effective April 7, 2022 by and between cbd Industries, LLC and Old Belts Extracts LLC   10-Q   5/13/22   10.21     10.14   Separation Agreement by and between Martin A. Sumchrast and cbdMD, Inc., and its subsidiaries effective June 11, 2022+   8-K   6/13/22   10.1     10.15   Membership Interest Transfer Agreement dated June 22, 2022   10-Q   8/11/22   10.22     10.16   Agreement for Advertising Placement dated February 1, 2023   S-1   3/13/23   10.17     10.17   Side Letter –   Keystone Capital Partners, LLC   S-1   3/13/23   10.20     10.18   Common Stock Purchase Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC   8-K   3/2/23   10.1     10.19   Registration Rights Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC   8-K   3/2/23   10.2     14.1   Code of Business Conduct and Ethics   1-A   9/18/17   15.1     19.1   Insider Trading Policy               Filed 21.1   Subsidiaries of the Registrant   10-K   12/17/21   21.1     23.1   Consent of Cherry Bekaert LLP               Filed 24.1   Power of attorney (included on signature page of this report)               Filed 31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer               Filed 31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer               Filed 32.1   Section 1350 Certification of Chief Executive Officer and Chief Financial Officer               Filed 97.1   Clawback Policy               Filed 101 INS   Inline XBRL Instance Document               Filed 101 SCH   Inline XBRL Taxonomy Extension Schema               Filed 101 CAL   Inline XBRL Taxonomy Extension Calculation Linkbase               Filed 101 LAB   Inline XBRL Taxonomy Extension Label Linkbase               Filed 101 PRE   Inline XBRL Taxonomy Extension Presentation Linkbase               Filed 101 DEF   Inline XBRL Taxonomy Extension Definition Linkbase   104   Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)     +Indicates management contract or compensatory plan.   29 Table of Contents   SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.   Date: December 22, 2023 cbdMD, Inc.           By: /s/ T. Ronan Kennedy       T. Ronan Kennedy       Interim Chief Executive Officer (Principal Executive Officer)           Date: December 22, 2023 cbdMD, Inc.           By: /s/ T. Ronan Kennedy       T. Ronan Kennedy       Chief Financial Officer (Principal Accounting and Financial Officer)     POWER OF ATTORNEY   KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ronan Kennedy his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments and supplements to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Name   Positions   Date           /s/ Scott Stephen   Chairman of the Board of Directors   December 22, 2023 Scott Stephen                   /s/ Bakari Sellers   Director   December 22, 2023 Bakari Sellers                   /s/ William Raines III   Director   December 22, 2023 William Raines III                 December 22, 2023 /s/ Sibyl Swift   Director, VP of Scientific and Regulatory Affairs     Sibyl Swift, PhD           30 Table of Contents   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Shareholders of cbdMD, Inc. and subsidiaries Charlotte, North Carolina   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of cbdMD, Inc. and subsidiaries (the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ 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.   Substantial Doubt about the Company ’ s Ability to Continue as a Going Concern   The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the accompanying financial statements, the Company has historically incurred losses, including a 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.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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 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.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. 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 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     We have served as the Company’s auditor since 2016.     Charlotte, North Carolina December 22, 2023       31 Table of Contents       PART 1 – FINANCIAL INFORMATION   ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.   cbdMD, INC. CONSOLIDATED BALANCE SHEETS September 30, 2023 and 2022       September 30,     September 30,       2023     2022   Assets                                   Current assets:                 Cash and cash equivalents   $ 1,797,860     $ 6,720,234   Accounts receivable     1,216,090       1,447,831   Accounts receivable – discontinued operations     -       1,375   Investment other securities     -       1,000,000   Inventory     4,052,972       4,255,914   Inventory prepaid     182,675       511,459   Prepaid sponsorship     70,061       1,372,845   Prepaid expenses and other current assets     750,383       701,945   Total current assets     8,070,041       16,011,603                     Other assets:                 Property and equipment, net     716,579       823,310   Operating lease assets     3,350,865       4,477,841   Deposits for facilities     138,708       244,606   Intangible assets     3,219,090       17,834,549   Investment in other securities, noncurrent     700,000       1,400,000   Total other assets     8,125,242       24,780,306                     Total assets   $ 16,195,283     $ 40,791,909     See Notes to Consolidated Financial Statements   32 Table of Contents   CONSOLIDATED BALANCE SHEETS September 30, 2023 and 2022 (continued)       September 30,     September 30,       2023     2022   Liabilities and shareholders' equity                                   Current liabilities:                 Accounts payable   $ 1,906,319     $ 2,036,558   Accrued expenses     1,484,441       2,060,762   Operating leases – current portion     1,277,089       1,178,683   Note payable     2,492       9,609   Total current liabilities     4,670,341       5,285,612                     Long term liabilities:                 Long term liabilities     9       125,491   Operating leases - long term portion     2,403,286       3,680,375   Contingent liability     90,363       276,000   Total long term liabilities     2,493,658       4,081,866                     Total liabilities     7,163,999       9,367,478                     Commitments and Contingencies (Note 11)                                       cbdMD, Inc. shareholders' equity:                 Preferred stock, authorized 50,000,000 shares, $ 0.001 par value, 5,000,000 and 500,000 shares issued and outstanding, respectively     5,000       5,000   Common stock, authorized 150,000,000 shares, $ 0.001 par value, 2,960,573 and 1,348,125 shares issued and outstanding, respectively     2,961       1,348   Additional paid in capital     183,387,095       178,841,646   Accumulated deficit     ( 174,363,772 )     ( 147,423,563 ) Total cbdMD, Inc. shareholders' equity     9,031,284       31,424,431                     Total liabilities and shareholders' equity   $ 16,195,283     $ 40,791,909     See Notes to Consolidated Financial Statements   33 Table of Contents      cbdMD, INC. CONSOLIDATED STATEMENTS OF OPERATIONS September 30, 2023 and 2022       2023     2022                     Gross Sales   $ 25,053,857     $ 37,122,215   Allowances     ( 898,495 )     ( 1,718,991 ) Total Net Sales     24,155,362       35,403,224   Cost of sales     9,177,703       13,066,639   Gross Profit     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     ( 22,487,549 )     ( 78,266,515 ) Realized and unrealized loss on marketable and other securities, including impairments     ( 700,000 )     ( 33,350 ) Gain (loss) on sale of assets     -       88,769   Restructuring expense     -       ( 602,092 ) Decrease of contingent liability     185,638       8,473,999   Other income     -       239,250   Interest income     63,702       16,246   Loss before provision for income taxes     ( 22,938,209 )     ( 70,083,693 )                   Benefit (expense) for income taxes     -       -   Net Loss     ( 22,938,209 )     ( 70,083,693 ) Preferred dividends     4,002,000       4,002,005                     Net Loss attributable to common shareholders   $ ( 26,940,209 )   $ ( 74,085,698 )                   Net Loss per share:                 Basic loss per share     ( 13.32 )     ( 55.80 ) Diluted loss per share     ( 13.32 )     ( 55.80 ) 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   34 Table of Contents      cbdMD, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED September 30, 2023 and 2022       2023     2022                     Net Loss   $ ( 22,938,209 )   $ ( 70,083,693 ) Comprehensive Loss     ( 22,938,209 )     ( 70,083,693 )                   Preferred dividends     ( 4,002,000 )     ( 4,002,005 ) Comprehensive Loss available to common shareholders   $ ( 26,940,209 )   $ ( 74,085,698 )   See Notes to Consolidated Financial Statements   35 Table of Contents      cbdMD, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED September 30, 2023 and 2022       2023     2022   Cash flows from operating activities:                 Net Loss   $ ( 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     -       907,774   Inventory and materials impairment     175,499       878,142   Intangibles amortization     1,396,459       884,380   Depreciation     404,280       948,962   Impairment of goodwill and other intangible assets     13,219,000       60,955,970   Gain on sale of fixed assets     -       ( 322,017 ) Increase/(Decrease) in contingent liability     ( 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   Deposits     105,898       284,977   Inventory     27,443       ( 112,189 ) Prepaid inventory     328,784       40,060   Prepaid expenses and other current assets     2,095,323       ( 289,586 ) 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       203,341   Collection on discontinued operations accounts receivable     1,375       9,592   Cash used by operating activities     ( 4,302,051 )     ( 14,967,150 ) Cash flows from investing activities:                 Proceeds from sale of other investment securities     1,000,000       -   Purchase of property and equipment     ( 297,549 )     ( 688,680 ) Cash provided (used) by investing activities     702,451       ( 688,680 ) Cash flows from financing activities:                 Proceeds from issuance of common stock     2,478,325       -   Note payable     ( 132,599 )     ( 33,355 ) Preferred dividend distribution     ( 3,668,500 )     ( 4,002,005 ) Cash provided by financing activities     ( 1,322,774 )     ( 4,035,360 ) Net increase (decrease) in cash     ( 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:       2023     2022                     Cash Payments for:                 Interest expense   $ 6,399     $ 2,364                     Non-cash financial/investing activities:                 Issuance of Contingent earnout shares:   $ -     $ 1,086,000   Preferred dividends accrued but not paid   $ 667,000     $ -     See Notes to Consolidated Financial Statements   36 Table of Contents      cbdMD, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2023 and 2022                                       Additional                       Common Stock     Preferred Stock     Paid in     Accumulated               Shares     Amount     Shares     Amount     Capital     Deficit     Total   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     1,038       1       -       -       ( 1 )     -       -   Issuance of options for share based compensation     -       -       -       -       79,446       -       79,446   Issuance of restricted stock for share based compensation     -       -       -       -       43,449       -       43,449   Preferred dividend     -       -       -       -       -       ( 1,000,502 )     ( 1,000,502 ) Net Income (loss)     -       -       -       -       -       ( 3,956,062 )     ( 3,956,062 ) Balance, December 31, 2022     1,349,163       1,349       5,000,000       5,000       178,964,539       ( 152,380,127 )     26,590,761   Issuance of Common stock     8,417       8       -       -       ( 8 )     -       -   Issuance of options for share based compensation     -       -       -       -       16,770       -       16,770   Issuance of restricted stock for share based compensation     -       -       -       -       56,801       -       56,801   Issuance of Common stock - A360     94,277       94       -       -       1,399,906       -       1,400,000   Issuance of Common stock - DCO     2,223       2       -       -       29,998       -       30,000   Issuance of Common stock - Keystone     2,616       3       -       -       29,190       -       29,193   Roundup fractional shares resulting from reverse split     -       1       -       -       -       -       1   Preferred dividend     -       -       -       -       -       ( 1,000,500 )     ( 1,000,500 ) Net Income (loss)     -       -       -       -       -       ( 1,336,802 )     ( 1,336,802 ) Balance, March 31, 2023     1,456,696       1,457       5,000,000       5,000       180,497,196       ( 154,717,429 )     25,786,224   Issuance of Common stock     9,000       9       -       -       69,606       -       69,615   Issuance of options for share based compensation, net     -       -       -       -       34,663       -       34,663   Issuance of restricted stock for share based compensation, net     -       -       -       -       4,845       -       4,845   Issuance of Common stock - A360     -       -       -       -       133,200       -       133,200   Issuance of Common stock - Maxim     1,350,000       1,350       -       -       2,472,730       -       2,474,080   Fractional share true-up     39,533       39       -       -       ( 39 )     -       -   Preferred dividend     -       -       -       -       -       ( 1,000,501 )     ( 1,000,501 ) Net Income (loss)     -       -       -       -       -       ( 1,770,404 )     ( 1,770,404 ) Balance, June 30, 2023     2,855,229       2,855       5,000,000       5,000       183,212,202       ( 157,488,334 )     25,731,723   Issuance of Common stock     112       0       -       -       ( 112 )     -       ( 112 ) Issuance of options for share based compensation     -       -       -       -       33,171       -       33,171   Issuance of restricted stock for share based compensation     -       -       -       -       3,996       -       3,996   Issuance of Common stock - Keystone     105,232       105       -       -       97,338       -       97,443   Maxim transaction expenses     -       -       -       -       40,500       -       40,500   Preferred dividend     -       -       -       -       -       ( 1,000,497 )     ( 1,000,497 ) Net Income (loss)     -       -       -       -       -       ( 15,874,941 )     ( 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   37 Table of Contents    cbdMD, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2023 and 2022                                       Additional                       Common Stock     Preferred Stock     Paid in     Accumulated               Shares     Amount     Shares     Amount     Capital     Deficit     Total   Balance, September 30, 2021     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       11       -       -       404,989       -       405,000   Issuance of options for share based compensation     -       -       -       -       505,466       -       505,466   Issuance of restricted stock for share based compensation     -       -       -       -       508,754       -       508,754   Preferred dividend     -       -       -       -       -       ( 1,000,502 )     ( 1,000,502 ) Net Income (loss)     -       -       -       -       -       ( 19,160,904 )     ( 19,160,904 ) Balance, December 31, 2021     1,295,067       1,296       5,000,000       5,000       177,892,975       ( 93,499,271 )     84,400,000   Issuance of Common stock     23,873       24       -       -       660,976       -       661,000   Issuance of options for share based compensation     -       -       -       -       291,630       -       291,630   Issuance of restricted stock for share based compensation     -       -       -       -       328,515       -       328,515   Preferred dividend     -       -       -       -       -       ( 1,000,500 )     ( 1,000,500 ) Net Income (loss)     -       -       -       -       -       ( 4,657,215 )     ( 4,657,216 ) Balance, March 31, 2022     1,318,940       1,320       5,000,000       5,000       179,174,096       ( 99,156,986 )     80,023,429   Issuance of Common Stock     13,198       13       -       -       177,987       -       178,000   Issuance of options for share based compensation     -       -       -       -       ( 373,168 )     -       ( 373,168 ) Issuance of restricted stock for share based compensation     -       -       -       -       ( 593,617 )     -       ( 593,617 ) Preferred dividend     -       -       -       -       -       ( 1,000,501 )     ( 1,000,501 ) Net Income (loss)     -       -       -       -       -       ( 31,634,143 )     ( 31,634,143 ) Balance, June 30, 2022     1,332,138       1,333       5,000,000       5,000       178,385,298       ( 131,791,630 )     46,600,000   Issuance of Common stock     15,987       15       -       -       197,986       -       198,001   Issuance of Preferred Stock     -       -       -       -       128,404       -       128,404   Issuance of options for share based compensation     -       -       -       -       129,959       -       129,959   Preferred dividend     -       -       -       -       -       ( 1,000,501 )     ( 1,000,501 ) Net Income (loss)                                       ( 14,631,432 )     ( 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   38 Table of Contents    cbdMD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED September 30, 2023 and 2022     NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Organization and Nature of Business   cbdMD, Inc. ("cbdMD", "we", "us", “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to cbdMD, Inc. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30.   On December 20, 2018 ( the “Closing Date”), the Company, and its newly organized wholly owned subsidiaries AcqCo, LLC and cbdMD LLC (“CBDI”), completed a two -step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). Upon completion of the Mergers, CBDI survived and operates the prior business of Cure Based Development. As consideration for the Mergers in April of 2019, the Company issued 338,889 shares of our common stock to the members of Cure Based Development, of which unrestricted voting rights to 194,945 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. CBD and other hemp-derived cannabinoids are natural substances produced from the hemp plant. The products manufactured by and for the Company comply with the 2018 Farm Bill - our full spectrum products contain trace amounts of THC under the 0.3% by dry weight limit in the 2018 Farm Act while our broad spectrum products are non-psychoactive as they do not contain detectable levels of tetrahydrocannabinol (THC).   In the third quarter of fiscal 2019 cbdMD launched its new CBD pet brand, Paw CBD. Following the initial positive response to the brand from retailers and consumers, cbdMD, Inc. organized Paw CBD, Inc. (“Paw CBD”) as a separate wholly owned subsidiary on October 22, 2019, to take advantage of its early mover status in the CBD animal health industry. On March 15, 2021 cbdMD formed a new wholly owned subsidiary, cbdMD Therapeutics, LLC (“Therapeutics”) for the purposes of isolating and quantifying the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications.  The 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, Proline Global,and Therapeutics. All material intercompany transactions and balances have been eliminated in consolidation.   Use of Estimates   The Company's consolidated financial statements have been prepared in accordance with US GAAP and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. 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, 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   Accounts receivables are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. As of September 30, 2023 and September 30, 2022 , we had an allowance for doubtful accounts of $ 42,180 and $ 36,980 , respectively.   39 Table of Contents   Merchant Receivable   The Company primarily sells its products through the internet and has an arrangement to process customer payments with multiple third -party payment processors. The Company 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. Fees and reserves can change periodically with notice from the processors. At September 30, 2023 , the receivable from payment processors included $ 585,345 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet.   Inventory   Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end.   Customer Deposits   Customer deposits consist of payments received in advance of revenue recognition. Revenue is recognized as revenue recognition criteria are met.   Property and Equipment   Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for manufacturing equipment and automobiles and three years for software, computer, and furniture and equipment. The useful life for leasehold improvements are over the term of the lease or expected life of the asset, whichever is less. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable.   Fair Value Accounting   The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).   Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.   When the Company records an investment in marketable securities the carrying value is recorded at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. 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.   Intangible Assets   The Company's intangible assets consist of trademarks and other intellectual property, all of which were previously accounted for in accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other . The Company 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 group's carrying value may not be recoverable. 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.   40 Table of Contents   Contingent Liability   A significant component of the purchase price consideration for the Company’s acquisition of Cure Based Development includes a fixed number of future shares to be issued as well as a variable number of future shares to be issued based upon the post-acquisition entity reaching certain specified future revenue targets, as further described in Note 6. The Company made a determination of the fair value of the contingent liabilities as part of the valuation of the assets acquired and liabilities assumed in the business combination.   Revenue Recognition   Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five -step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.   Performance Obligations   A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company meets that obligation when it has shipped products which have been ordered by the customer. The Company has reviewed its various revenue streams for its other contracts under the five -step approach.   41 Table of Contents   Allocation of Transaction Price   In the Company’s current business model, it does not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order-based product sales.   Revenue Recognition   The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 60 -day, money back guarantee.   Disaggregated Revenue   The Company’s product revenue is generated primarily through two sales channels, E-commerce sales (formerly referred to as consumer sales) and wholesale sales. The Company believes that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.   A description of the Company’s principal revenue generating activities are as follows:     - E-commerce sales - consumer products sold through the Company’s online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment; and         - Wholesale sales - products sold to the Company’s wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer   The following table represents a disaggregation of revenue by sales channel:       Fiscal 2023     % of total     Fiscal 2022     % of total                                     E-commerce sales   $ 19,436,124       80.5 %   $ 26,435,203       74.7 % Wholesale sales   $ 4,719,238       19.5 %   $ 8,968,021       25.3 % Total Net Sales   $ 24,155,362           $ 35,403,224           Contract assets represent unbilled receivables and are presented within accounts receivable, net on the consolidated balance sheets. Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the consolidated balance sheets. The Company had no material contract assets or liabilities at the beginning or ending of September 30, 2023 and 2022.   Cost of Sales   The Company’s cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third -party providers, and outbound freight for the Company’s products sales. For the Company’s product sales, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale, if any, and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value.   Advertising Costs   The Company expenses all costs of advertising and related marketing and promotional costs as incurred. 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. We are constantly evaluating advertising methods and costs and working to drive down our cost of customer acquisition.   Income Taxes   The Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. As of October 1, 2019, CBDI and Paw CBD were wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Company and as of March 15, 2021, Therapeutics is also a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Company.   The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the Financial Accounting Standards Board  ("FASB") ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.   42 Table of Contents   US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of September 30, 2023 and 2022 , there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements.   Concentrations   Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities.   The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $ 1,163,360 uninsured balance at September 30, 2023 and a $ 5,752,550 uninsured balance at September 30, 2022.   Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the year ended September 30, 2023 .   Stock-Based Compensation   The Company accounts for its stock compensation under the ASC 718 - 10 - 30, Compensation - Stock Compensation using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments.   The Company uses the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. The Company recognizes forfeitures when they occur.   Liquidity and Going Concern Considerations   The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company experienced a loss of $ 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  no  assurances to that effect.  The Company’s working capital position may not  be sufficient to support the Company’s daily operations for the twelve  months subsequent to the issuance of these annual financial statements. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and the ability to acquire additional funding. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the annual financial statements are issued. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may  result in the Company not being able to continue as a going concern.   Earnings (Loss) Per Share   The Company uses ASC 260 - 10, Earnings Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders, after deducting preferred stock dividends, by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.   On February 16, 2023, we held an annual meeting of stockholders. At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one -for- twenty to one -for-fifty, inclusive, with the exact ratio to be set at the discretion of our board of directors, at any time after approval of the amendment and prior to February 16, 2024. On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023 ( the "Reverse Stock Split"). Unless otherwise indicated, all share numbers in this report, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the Reverse Stock Split.   New Accounting   Standards   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.       NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES   The Company has, from time to time, entered into contracts where a portion of the consideration provided by the customer in exchange for the Company's services was common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company recorded the receivable as accounts receivable other, and used the value of the stock or other instrument upon invoicing to determine the value. If there is insufficient data to support the valuation of the security directly, the Company will value it, and the underlying revenue, on the estimated fair value of the services provided. In determining fair value of marketable securities and investment other securities, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. The Company determines the fair value of marketable securities and investment other securities based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:     ● Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.         ● Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.         ● Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.   43 Table of Contents     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.   In September 2020, the Company purchased a membership interest in Adara Sponsor LLC for $ 250,000 , which along with proceeds from other investors was utilized as an investment in Adara Acquisition Corporation (“Adara”), a newly organized blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination (a “SPAC”). On January 13, 2021, the Company executed second tranche subscriptions agreements and funded the remaining $ 750,000 . On June 22, 2022, the Company executed a transfer agreement with affiliates of Adara Sponsor, LLC whereby the Company's interest would be transferred to the affiliates of Adara Sponsor, LLC upon Adara's acquisition of Allliance Entertainment, Inc. (the "Target") in consideration of the Company's original purchase price. As a result of the SEC litigation against our former CEO, the Target provided a demand to Adara that it required cbdMD and Mr. Sumichrast to dispose of our interests in Adara Sponsor, LLC as a condition of proceeding with any business combination. 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 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 :        In Active                       Markets for     Significant Other     Significant       Identical Assets     Observable     Unobservable       and Liabilities     Inputs     Inputs       (Level 1)     (Level 2)     (Level 3)   Balance at September 30, 2021   $ 33,351     $ -     $ ( 9,856,000 ) Change in value of equities     ( 33,351 )     -       -   Change in value of contingent liability     -       -       9,580,000   Additional Investment     -       -       -   Balance at September 30, 2022     -       -       ( 276,000 ) Change in value of contingent liability     -       -       185,638   Additional Investment     -       -       -   Balance at September 30, 2023   $ -     $ -     $ ( 90,362 )   NOTE 3 – INVENTORY   Inventory at September 30, 2023 and 2022 consists of the following:       September 30,     September 30,       2023     2022   Finished Goods   $ 2,782,680     $ 3,198,488   Inventory Components     1,397,034       1,213,724   Inventory Reserve     ( 126,742 )     ( 156,298 ) Inventory prepaid     182,675       511,459   Total Inventory   $ 4,235,647     $ 4,767,373     44 Table of Contents   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 $ 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 – PROPERTY AND EQUIPMENT   Major classes of property and equipment at September 30, 2023 and 2022 consist of the following:       September 30,     September 30,       2023     2022   Computers, furniture and equipment   $ 1,392,776     $ 1,095,228   Manufacturing equipment     284,275       284,275   Leasehold improvements     487,081       487,081   Automobiles     11,087       11,087         2,175,219       1,877,671   Less accumulated depreciation     ( 1,458,640 )     ( 1,054,361 ) Property and equipment, net   $ 716,579     $ 823,310     Depreciation expense related to property and equipment was $ 404,280 and $ 948,962 for the year ended September 30, 2023 and 2022, respectively. During the third quarter, the Company sold substantially all the assets of its manufacturing facility and as a result the gross investment and accumulated depreciation was removed from the balance sheet, reducing net PP&E     NOTE 5 – GOODWILL AND INTANGIBLE ASSETS   Goodwill   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   On December 20, 2018, the Company completed the Mergers with Cure Based Development and acquired certain assets, including the trademark “cbdMD” and its variants and certain other intellectual property. The trademark is the cornerstone of this subsidiary and is key as the Company creates and distributes products and continue to build this brand. The Company believed the trademark did not have limits on the time it would contribute to the generation of cash flows and therefore identified these as indefinite lived intangible assets.   In September 2019, the Company purchased the rights to the trademark name hempMD for $ 50,000 . This trademark will be used in the marketing and branding of certain products to be released under this brand name. At the time of acquisition, the Company believed the trademark did not have limits on the time it would contribute to the generation of cash flows and therefore had identified these as indefinite-lived intangible assets.   In July 2021, the Company completed the acquisition of DCO and acquired certain assets, including the trade name, domains and certain other intellectual property. The tradename will be used in marketing and branding of the website. The Company believes the trade name has a 10 year life. In addition to the trade name, DCO has a technology platform used to market to its customer and the Company believes it has a 4 year life.   As of December 31, 2021, the Company has re-assessed the “cbdMD” and “hempMD” 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. As of December 31, 2021, the Company has prepared a tradename impairment analysis in accordance with ASC 350 and has determined that the “cbdMD” trademark was impaired by $ 4,285,000 . The Company has recorded this impairment charge as a reduction in the carrying value of the intangible assets on its 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.   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:       September 30,     September 30,       2023     2022   Trademark related to cbdMD   $ 21,585,000     $ 21,585,000   Trademark for HempMD     50,000       50,000   Technology Relief from Royalty related to DirectCBDOnline.com     667,844       667,844   Tradename related to DirectCBDOnline.com     749,567       749,567   Impairment of definite lived intangible assets:     ( 17,504,000 )     ( 4,285,000 ) Amortization of definite lived intangible assets:     ( 2,329,321 )     ( 932,862 ) Total   $ 3,219,090     $ 17,834,549     45 Table of Contents   Future amortization of intangible assets as of September 30, 2023 is as follow:   For the year ended September 30,         2024   $ 691,368   2025     688,757   2026     660,040   2027     660,040   2028     496,223   Thereafter     22,662   Total future intangibles amortization   $ 3,219,090          NOTE 6 – CONTINGENT LIABILITY   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.   The contractual obligations and earn out provision are accounted for as a contingent liability and fair value is determined using Level 3 inputs, as estimating the fair value of these contingent liabilities require the use of significant and subjective inputs that may and are likely to change over the duration of the liabilities with related changes in internal and external market factors.   The initial two tranches totaling 338,889 shares have been valued using a market approach method and included the use of the following inputs: share price upon contractual obligation, discount for lack of marketability to address leak out restrictions, and probability of shareholder disapproval. In addition, the 194,945 shares in the second tranche also included an input for a discount for lack of voting rights during the vest periods.   The Merger Agreement provides that an additional 338,889 Earnout Shares would be issued as part of the consideration for the Mergers, upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the Closing Date as follows, as measured at four intervals (each a “marking period”): the completion of 12, 24, 42, and 59 calendar months from the Closing Date, and based upon the ratios set forth below:   Aggregate Net Revenues   Shares Issued/ Each $ of Aggregate Net Revenue Ratio             $1 - $20,000,000     0.004236111   $20,000,001 - $60,000,000     0.002118056   $60,000,001 - $140,000,000     0.001059028   $140,000,001 - $300,000,000     0.005295139     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 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. These shares decreased in value by $ 366,841 during the quarter through the time of issuance and had a value of $ 405,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet. The fourth quarter of the third marketing period ended on December 31, 2021 and based on the measurement criteria an additional 9,873 Earnout Shares were earned and issued in March 2022. These shares increased in value by $ 41,914 during the quarter through the time of issuance and had a value of $ 325,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet. The fifth quarter of the third marketing period ended on March 31, 2022 and based on the measurement criteria an additional 10,198 Earnout Shares were earned and issued in May 2022. These shares decreased in value by $ 90,792 during the quarter through the time of issuance and had a value of $ 178,000 , which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet. The sixth quarter of the third marketing period ended on June 30, 2022 and based on the measurement criteria an additional 9,101 Earnout Shares were earned and issued in August 2022. These shares increased in value by $ 17,718 during the quarter through the time of issuance and had a value of $ 198,000 at the time of issuance, which was reclassified from the contingent liability to additional paid in capital on the consolidated balance sheet. At September 30, 2023, up to 87,307 remaining Earnout Shares are subject to issuance by the Company.   The third marking period was originally an 18 month period commencing on January 1, 2021 and ending on June 30, 2022 ( the “Third Marking Period End Date”), after which time the determination of the issuance of any remaining Earnout Shares would be made pursuant to the terms of the Merger Agreement. On March 31, 2021 the Company entered into Addendum No. 1 to the Merger Agreement (“Addendum No. 1” ) with the holders of the remaining Earnout Rights which amended the measurement periods within the third marking period to change the determination of the aggregate net revenues within the third marking period to a quarterly basis for each of the six fiscal quarters within the third marking period, beginning with the quarter ended March 31, 2021, instead of following Third Marking Period End Date. This change in the measurement date, however, has no effect on the number of remaining Earnout Shares issuable under the Earnout Rights and no effect on the earnout targets; Addendum No. 1 simply changes the physical issuance date(s) of the remaining Earnout Shares, if in fact, such shares are earned pursuant to the terms of the Merger Agreement. Addendum No. 1 did not change any of the terms of the fourth marking period (as that term is defined in the Merger Agreement). This change did not impact the fair value of the contingent liability. 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 .     46 Table of Contents   As part of the Twenty Two acquisition in July 2021, the Company has a contractual obligation to issue up to an additional 4,445 shares of its common stock as additional consideration, dependent upon the acquisition entity meeting future revenue targets. Under GAAP the Company is required to record a non-cash contingent liability associated with the Twenty Two Earnout Shares and at the date of the acquisition, recorded a total contingent liability of $ 488,561 . Under GAAP the Company is obligated to reassess the obligations associated with the Twenty Two Earnout Shares on a quarterly basis and, in the event its estimate of the fair value of the contingent consideration changes, the Company will record increases or decreases in the fair value as an adjustment to earnings. In particular, changes in the market price of the Company’s common stock, which is one of the inputs used in determining the amount of the non-cash contingent liability, will result in increases or decreases in this liability and positively or negatively impact the Company’s net loss or profit for the period. At September 30, 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 . As of September 2022 the measurement period has ended and there is no further obligation with respect to this earnout.   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   None.      NOTE 8 – SHAREHOLDERS ’ EQUITY   Preferred Stock – The Company is authorized to issue 50,000,000 shares of preferred stock, par value $ 0.001 per share. In October 2019, the Company designated 5,000,000 of these shares as 8.0 % Series A Cumulative Convertible Preferred Stock. Our 8.0% Series A Cumulative Convertible Preferred Stock ranks senior to our common stock for liquidation or dividend provisions and holders are entitled to receive cumulative cash dividends at an annual rate of 8.0% payable monthly in arrears for the prior month. The Company reviewed ASC 480 – Distinguishing Liabilities from Equity in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity. 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 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 – The Company is authorized to issue 150,000,000 shares of common stock, par value $ 0.001 per share. There were 2,960,573 and 1,348,125 shares of common stock issued and outstanding at September 30, 2023 and 2022, respectively.   Preferred stock transactions:   The Company has no preferred stock transactions in the year ended  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.  The stock award was valued at the fair market price of $ 2,854 and vested at the grant date.   In August 2022, the Company issued 2,223 of restricted common stock to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan. The stock awards were valued at the fair market price of $ 41,000 and vested at the grant date.   In August 2022, the Company issued 9,101 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.   In May 2022, the Company issued 10,198 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.   In March 2022 the Company issued 9,873 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.   In January 2022, the Company issued 667 shares of restricted stock awards to six employees. The stock awards were valued at the fair market price of $ 29,250 and vested at the grant date.   In January 2022, the Company issued 7,112 shares to a professional athlete in conjunction with an amendment to the athlete’s sponsorship agreement as referenced in Note 11. The stock grant was valuated at the fair market price of $ 336,000 upon issuance and will be amortized over the remaining term of the agreement.   On December 28, 2021, the Company issued 10,372 shares of restricted common stock in connection with the Earnout Shares as referenced in Note 6.   In October 2021, the Company issued 556 shares of restricted common stock to an executive officer of the Company, subject to vesting on January 1, 2022.   47 Table of Contents   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. The options vested immediately, have a strike price of $ 25.56 and a five -year term. The Company has recorded a total prepaid expense of $ 10,290 and were expensed at the issuance date.   In June 2022, a former executive officer of the company forfeited 16,667 common stock options. The forfeited options had an unrecognized value of  $ 555,286 . 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. The options vest equally over 1, 2, and 3 years from the grant date. The options have a strike price $ 38 and a five -year term. The total expense of these options totaled $ 176,985 and will be amortized over the term of the vesting periods.   In April 2022, the Company issued 4,445 options to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan. Fifty thousand of the shares vested upon the grant, 50,000 vest and 6 months from the effective date and 2,223 upon renewal of the consulting agreement in March 2023. The options have a strike price of $ 45 and five -year term. The total expense of these options totaled $ 131,300 and will be amortized over the term of the vesting periods.   In April 2022, the Company issued 2,223 common stock options to an employee that vest upon the Company achieving certain direct to consumer revenue growth targets for the quarter ended December 2022. The options have a $ 45 strike price. The Company performs analysis on these options and as of September 30, 2023 no expense was ascribed to these options.   In March 2022, the Company granted its board of directors an aggregate of 2,667 common stock options. The options vested immediately, have a strike price of $ 36.81 and a five -year term. The Company has recorded a total prepaid expense of $ 57,000 and intends to amortize the expense over the 12 -month board term.   In January 2022, the Company granted an aggregate of 2,889 common stock options to a group of 9 employees. These options vest upon grant and the Company has recorded an expense for these options of $ 79,500 for the three months ended June 30, 2022   In October 2021, the Company granted an aggregate of 1,667 common stock options to an executive officer. These options vest on October 1, 2022.   The Company has recorded an expense for these options of $ 23,025 and $ 46,050 for the three and twelve months ended September 30, 2023.   The expected volatility rate was estimated based on comparison to the volatility of a blend of the Company's own stock and a peer group of companies in similar industries. The expected term used was the full term of the contract for the issuances. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. The pre-vesting forfeiture rate of zero is based upon the experience of the Company. As required under ASC 718, the Company will adjust the estimated forfeiture rate to its actual experience. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.   The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the years ended September 30, 2023 and 2022:       2023     2022   Weighted average exercise price     10.355 -12.6060     $ 44.55   Risk free interest rate     3.93% -4.71 %     2.56% - 2.97 % Volatility     106.48% - 106.51 %     101.23% - 103.98 % Expected term (in years)     2.5 -4       2.5 - 5.5   Dividend yield   None     None     48 Table of Contents   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:       2023   Weighted average exercise price   $ 2.52   Risk free interest rate     3.37 % Volatility     113.12 % Expected term (in years)     2.75   Dividend yield   None        NOTE 9 -STOCK-BASED COMPENSATION   Equity Compensation Plan – On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan ( “2015 Plan”). The 2015 Plan made 26,112 common stock shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The number of shares of common stock available for issuance under the 2015 Plan shall automatically increase on the first trading day of our fiscal year during the term of the 2015 Plan, beginning with calendar year 2016, by an amount equal to one percent ( 1 %) of the total number of shares of common stock outstanding on the last trading day in September of the immediately preceding fiscal year, but in no event shall any such annual increase exceed 2,223 shares of common stock. On April 19, 2019, shareholders approved an amendment to the 2015 Plan and increased the number of shares available for issuance under the 2015 Plan to 45,445 and retained the annual evergreen increase provision of the plan. Subsequent thereto, on August 7, 2019 the Company’s Board of Directors approved an amendment to the 2015 Plan changing the date the automatic evergreen increase is determined to the first trading day of October each calendar year during the term of the 2015 Plan to coincide with the Company’s fiscal year.   On January 8, 2021, the Company’s Board of Directors approved the 2021 Equity Compensation Plan (the “2021 Plan”) and it was subsequently ratified by its shareholders at its annual meeting held on March 12, 2021. The purpose of the 2021 Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to it and upon whose efforts and judgment the success of the Company is largely dependent. The 2021 Plan made 111,112 common shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The 2021 Plan also contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on October 1 of each calendar year during the term of the 2021 Plan, beginning with calendar year 2022, by an amount equal to 1.0 % of the total number of shares of common stock outstanding on September 30 of such calendar year, up to a maximum of 5,556 shares.   The Company accounts for stock-based compensation using the provisions of ASC 718. ASC 718 codification requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. All options are approved by the Compensation, Corporate Governance and Nominating Committee of the Board of Directors. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of the Company’s stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model.   Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. Options granted generally have a five -to- ten -year term and have vesting terms that cover one to three years from the date of grant. Certain of the stock options granted under the plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms.   Stock Options:   The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period.   The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year.   49 Table of Contents   The following table summarizes stock option activity under both plans for the fiscal years ended September 30, 2023 and 2022 :                       Weighted-average                               remaining     Aggregate               Weighted-average     contractual term     intrinsic value       Number of shares     exercise price     (in years)     (in thousands)   Outstanding at September 30, 2021     60,101     $ 198.90       5.13     $ -   Granted     23,556       43.65               -   Exercised     -       -               -   Forfeited     ( 28,000 )     163.35               -   Outstanding at September 30, 2022     55,656       151.10       4.55       -   Granted     7,233       11.51               -   Exercised     -       -               -   Forfeited     ( 21,124 )     88.12               -   Outstanding at September 30, 2023     41,765       144.43       3.65       -                                     Exercisable at September 30, 2023     39,542     $ 151.92       3.67     $ -     As of September 30, 2023 , there was approximately $ 7,858 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 2.3 years.   Restricted Stock Award transactions:   In the twelve months ended September 30, 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.  The stock award was valued at the fair market price of $ 2,854 and vested at the grant date.   In August 2022, the Company issued 2,223 of restricted common stock to a consultant as part of an advisory agreement under the Company's Equity Compensation Plan. The stock awards were valued at the fair market price of $ 41,000 and vested at the grant date.   In June 2022, the Company issued 8,889 shares of restricted common stock in connection with the Separation Agreement with a former executive officer in which the former employee forfeited 11,112 shares of unvested restricted stock awards and 11,112 unvested options. These shares are subject to vest one -half on July 1, 2022 and the balance January 1, 2023. The fair market value of these shares totaled $ 172,000 and will be amortized over the vesting periods. The forfeited RSUs and options had an unrecognized value of $ 799,572 and $ 555,286 , respectively. The Company recognized contra-expense of $ 880,428 and $ 604,714 for the forfeited RSUs and options, respectively, related to the previously amortized expense for these RSUs and options.   In May 2022 the Company issued 2,778 shares of restricted common stock to an executive office of the Company as part of a new hire compensation package.   In May 2022 the Company issued 112 of restricted common stock to an employee of the Company. The stock award was valued at the fair market price $ 3,350 of and expensed upon issuance.   In March 2022, the Company issued 448 of restricted stock awards to the Company’s board of directors. The shares vest quarterly one fourth on June 30, 2022, one fourth, on September 30, 2022, one fourth on December 31, 2022, and one fourth on March 31, 2023. The stock awards were valued at the fair market price of $ 16,360 upon issuance and will amortize over the individual vesting periods.   In January 2022, the Company issued 667 shares of restricted stock awards to six employees. The stock awards were valued at the fair market price of $ 29,250 and vested at the grant date.   In January 2022, the Company issued 7,112 shares to a professional athlete in conjunction with an amendment to the athlete’s sponsorship agreement as referenced in Note 11. The stock grant was valuated at the fair market price of $ 336,000 upon issuance and will be amortized over the remaining term of the agreement.   In November 2021, the Company issued 2,667 shares of restricted stock awards to an employee, subject to certain revenue performances metrics through December 2022, as referenced in Note 6. These shares were forfeited during January 2022.   In October 2021 the Company issued 112 shares of restricted stock awards to an employee, which vested immediately upon issuance.   In October 2021 the Company issued 556 shares of restricted stock awards to an executive officer, subject to a four -month vesting schedule.   50 Table of Contents      NOTE 10 – WARRANTS   Transactions involving the Company equity-classified warrants for the fiscal years ended September 30, 2023 and 2022 are summarized as follows:                       Weighted-average                               remaining     Aggregate               Weighted-average     contractual term     intrinsic value       Number of shares     exercise price     (in years)     (in thousands)   Outstanding at September 30, 2021     14,771     $ 174.60       3.23     $ -   Granted     -       -               -   Exercised     -       -               -   Forfeited     ( 1,567 )     242.55               -   Outstanding at September 30, 2022     13,204       210.45       2.30       -   Granted     40,500       2.52               -   Exercised     -       -               -   Forfeited     ( 3,395 )     289.08               -   Outstanding at September 30, 2023     50,309       37.75       4.07       -                                     Exercisable at September 30, 2023     9,809     $ 183.23       -     $ -     The following table summarizes outstanding common stock purchase warrants as of September 30, 2023 :               Weighted-average         Number of shares     exercise price   Expiration Exercisable at $337.5 per share     1,352     $ 337.50   May 2024 Exercisable at $176.06 per share     1,079       176.06   October 2024 Exercisable at $56.25 per share     822       56.25   January 2025 Exercisable at $168.30 per share     3,357       168.30   December 2025 Exercisable at $168.75 per share     3,199       168.75   June 2026 Exercisable at $2.52 per share     40,500       2.52   April 2028       50,309     $ 37.75          NOTE 11 – COMMITMENTS AND CONTINGENCIES   In May 2019, 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. 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 – NOTE PAYABLE   In July 2019, the Company entered into a loan arrangement in the amount of $ 249,100 for a line of equipment as part of the sale of manufacturing equipment during April 2022, the balance of this loan was paid off resulting in a balance of $ 0 as of September 30, 2022.  In January 2020, the Company entered into a loan arrangement for $ 35,660 for equipment, of which $ 3,000 is a long term note payable at  September 30, 2023. Payments are for 48 months and have a financing rate of 6.2 %, which requires a monthly payment of $ 841 .   51 Table of Contents      NOTE 13 – LEASES   The Company has lease agreements for its corporate, warehouse and laboratory offices with lease periods expiring between 2024 and 2026. ASC 842 requires the recognition of leasing arrangements on the consolidated balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets. The Company determines whether an arrangement is a lease at inception and classify it as finance or operating. All of the Company’s leases are classified as operating leases. The Company’s leases do not contain any residual value guarantees.   Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, the Company determined an incremental borrowing rate for each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date to determine the present value of future lease payments. The Company’s lease terms may include options to extend or terminate the lease.   In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes, insurance and common area maintenance expenses during the lease terms.   Lease costs on operating leases are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the consolidated statements of operations.   Components of operating lease costs are summarized as follows:       Year Ended       September 30,       2023   Total Operating Lease Costs   $ 1,328,497     Supplemental cash flow information related to operating leases is summarized as follows:       Year Ended       September 30,       2023   Cash paid for amounts included in the measurement of operating lease liabilities   $ 1,380,204     As of September 30, 2023 , our operating leases had a weighted average remaining lease term of 2.99 years and a weighted average discount rate of 4.66 %. Future minimum aggregate lease payments under operating leases as of September 30, 2023 are summarized as follows:   For the year ended September 30,         2024   $ 1,421,610   2025     1,159,949   2026     1,372,862   2027     280,565   Total future lease payments     4,234,986   Less interest     274,046   Total lease liabilities   $ 3,960,940     52 Table of Contents   Future minimum lease payments (including interest) under non-cancelable operating leases as of  September 30, 2022 are summarized as follows:   For the year ended September 30,         2024   $ 1,421,610   2025     1,159,949   2026     1,372,862   2027     280,565   Total future lease payments     4,234,986   Less interest     274,046   Total lease liabilities   $ 3,960,940        NOTE 14 – LOSS PER SHARE   The following table sets forth the computation of basic and diluted earnings per share for the following periods:       Year Ended       September 30,     September 30,       2023     2022   Basic:                 Net loss   $ ( 22,938,209 )   $ ( 70,083,693 ) Preferred dividends paid or accrued     4,002,000       4,002,005   Net income loss attributable to cbdMD Inc. common shareholders     ( 26,940,209 )     ( 74,085,698 )                   Shares used in computing basic earnings per share     2,022,320       1,327,784   Shares used in computing diluted earnings per share     2,022,320       1,327,784                     Earnings per share Basic:                 Basic earnings per share     ( 13.32 )     ( 55.80 )                   Earnings per share Diluted:                 Diluted earnings per share     ( 13.32 )     ( 55.80 )   At the year ended  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.   53 Table of Contents      NOTE 15 – INCOME TAXES   The Company generated operating losses for the years ended September 30, 2023 and 2022 on which it has recognized a full valuation allowance. The Company accounts for is state franchise and minimum taxes as a component of its general and administrative expenses.   The following table presents the components of the provision for income taxes from continuing operations for the fiscal years ended September 30, 2023 and 2022 :       Year Ended September 30,       2023     2022   Current                 Federal   $ -     $ -   State     -       -   Total current     -       -   Deferred                 Federal     -       -   State     -       -   Total deferred     -       -   Total provision   $ -     $ -     A reconciliation for the federal statutory income tax rate to the Company’s effective income tax rate is as follows:       Year Ended September 30,       2023     2022   Federal statutory income tax rate     21.0 %     21.0 % State income taxes, net of federal benefit     1.4       0.4   Permanent differences     ( 1.5 )     ( 17.1 ) Contingent derivative expense     0.2       2.5   Change in valuation allowance     ( 21.1 )     ( 6.8 ) Provision for income taxes     0.0 %     0.0 %   Significant components of the Company’s deferred income taxes are shown below:       Year Ended September 30,       2023     2022   Deferred tax assets:                 Net operating loss carryforwards   $ 14,784,000     $ 12,909,000   ROU - Liability     824,000       1,087,000   Capital loss carryforward     702,000       702,000   Allowance for doubtful accounts     9,000       8,000   Stock compensation     521,000       833,000   Intangibles     105,000       -   Investments     180,000       452,000   Accrued expenses     87,000       214,000   Fixed Assets     45,000       40,000   Inventory reserve     28,000       35,000   Capitalized expenses     43,000       48,000   Charitable contributions     39,000       45,000   Total deferred tax assets     17,367,000       16,373,000                     Deferred tax liabilities:                 Prepaid Expenses     ( 107,000 )     ( 257,000 ) ROU - Assets     ( 750,000 )     ( 1,002,000 ) Intangibles     -       ( 3,426,000 ) Total deferred tax liabilities     ( 857,000 )     ( 4,685,000 ) Net deferred tax assets     16,510,000       11,688,000   Valuation allowance     ( 16,510,000 )     ( 11,688,000 )                   Net deferred tax liability   $ -     $ -     54 Table of Contents   Net deferred tax liability   The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The deferred tax liabilities that result from indefinite life intangibles cannot be offset by deferred tax assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited if a change in ownership of a company occurs. During the year ending September 30, 2018, the company determined that a change of ownership under IRC Section 382 had occurred during the years ending September 30, 2017 and 2015. As a result of these ownership changes, the pre-ownership change NOL carryforwards would be limited and approximately $ 2.1 million of such NOLs will expire before being utilized. Therefore, at September 30, 2018 the Company reduced the deferred tax asset and related valuation allowance associated with these NOLs by approximately $ 0.5 million due to IRC Section 382.   During the year ended September 30, 2020, the Company determined that a change in ownership under IRC had occurred during the year ending September 30, 2019. As a result of these ownership changes, the pre-ownership change NOL carryforwards would be limited and approximately $ 11.4 million of such NOLs will expire before being utilized. 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.   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.   The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses.   The Company files income tax returns in the United States, and various state jurisdictions. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 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 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 16 – SUBSEQUENT EVENTS   None. 55