What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-12-18 compared with 2023-12-22 · 478 added, 892 removed, 663 unchanged (67% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

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

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting 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.

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 principal executive officer and our principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our principal executive officer and principal accounting officer concluded that our disclosure controls were effective at September 30, 2024.

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.

10 unchanged sentences

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

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

Our management, including our 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.

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

Our management, including our principal executive officer and principal accounting officer assessed the effectiveness of our internal control over financial reporting as of September 30, 2024.

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.

OTHER INFORMATION.

DISCLOSURE REGARIND FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

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.

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, 2025 (the “Proxy Statement”) and is incorporated herein by this reference.

EXECUTIVE COMPENSATION.

8 unchanged sentences

(1) Financial statements.

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

The consolidated financial statements and Report of Independent Registered Accounting Firm begin on page 32.

(2) Financial statement schedules

7 unchanged sentences

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

and Maxim Group LLC  

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

2 unchanged sentences

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

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

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

Articles of Incorporation

10 unchanged sentences

2021 Equity Compensation Plan+

Form of Representative’s Warrant dated November 16, 2018

Form of Representative’s Warrant dated May 15, 2019

Form of Representative’s Warrant dated October 16, 2019

Form of Representative’s Warrant dated January 9, 2020

Form of Representative’s Warrant dated December 11, 2020

Form of Representative’s Warrant dated June 28, 2021

Form of Representative’s Warrant dated May 3, 2023  

Form of Representative’s Warrant dated May 15, 2019

Form of Representative’s Warrant dated October 16, 2019

Form of Representative’s Warrant dated January 9, 2020

Form of Representative’s Warrant dated December 11, 2020

Form of Representative’s Warrant dated June 28, 2021

Form of Representative’s Warrant dated May 3, 2023

Form of Senior Secured Convertible Promissory Note dated January 30, 2024

Form of Indemnification Agreement

Office Lease dated July 11, 2019

Warehouse Lease dated August 27, 2019

Form of Distribution Agreement dated February 26, 2020 by and among cbdMD, Inc., CBD Holdings, LLC and the members of CBD Holdings, LLC

Endorsement Agreement effective July 1, 2020

Westinghouse Boulevard Lease dated August 27, 2019

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

5 unchanged sentences

Trawick dated June 22, 2021

Employment Agreement between cbdMD, Inc.

and John Wiesehan III dated July 22, 2021+

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

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

1 unchanged sentence

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

Scott Coffman Restated Agreement effective January 11, 2022+  

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

Scott Coffman Restated Agreement effective January 11, 2022+

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

Separation Agreement by and between Martin A.

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

Membership Interest Transfer Agreement dated June 22, 2022  

Agreement for Advertising Placement dated February 1, 2023  

Side Letter –

Keystone Capital Partners, LLC  

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

Membership Interest Transfer Agreement dated June 22, 2022

Agreement for Advertising Placement dated February 1, 2023

Side Letter – Keystone Capital Partners, LLC

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

and Keystone Capital Partners, LLC  

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

and Keystone Capital Partners, LLC  

Securities Purchase Agreement, dated as of January 30, 2024, by and between cbdMD, Inc.

and the Investors*

Security Agreement, dated as of January 30, 2024, by and between cbdMD, Inc.

and the Investors*

Registration Rights Agreement, dated January 30, 2024, by and between cbdMD, Inc.

and the Investors

License Agreement, effective as of March 20, 2024, by and between cbdMD, Inc.

and HSKL, Inc.

Lease Forbearance Agreement, dated as of March 14, 2024, by and between cbdMD, Inc.

and HSKL, Inc.

Amendment to Extend Westinghouse Boulevard Lease dated November 26, 2024

Code of Business Conduct and Ethics

Insider Trading Policy

Subsidiaries of the Registrant  

Consent of Cherry Bekaert LLP

12 unchanged sentences

Indicates management contract or compensatory plan.

Certain exhibits and schedules have been omitted in accordance with Item 601(a)(5) of Regulation S-K.

The registrant agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Commission upon its request.

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

December 18, 2024

Ronan Kennedy  

Interim Chief Executive Officer (Principal Executive Officer)

Ronan Kennedy

Chief Executive Officer (Principal Executive Officer)

December 18, 2024

1 unchanged sentence

Ronan Kennedy

Chief Financial Officer (Principal Accounting and Financial Officer)

Chief Financial Officer (Principal Financial Officer)

December 18, 2024

/s/ Brad Whitford

Brad Whitford

Chief Accounting Officer

POWER OF ATTORNEY

4 unchanged sentences

December 18, 2024

Scott Stephen  

/s/ Bakari Sellers

4 unchanged sentences

William Raines III

December 22, 2023

/s/ Sibyl Swift

Director, VP of Scientific and Regulatory Affairs

December 18, 2024

Sibyl Swift, PhD

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

To the Shareholders

and subsidiaries

1 unchanged sentence

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”).

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

and subsidiaries (the Company) as of September 20, 2024 and 2023, and the related statements of operations, comprehensive loss, stockholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended September 30, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2024, 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

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.

As discussed in Note 1 to the accompanying financial statements, the Company has historically incurred losses, including a net loss of approximately $3.7 million in the current year, resulting in an accumulated deficit of approximately $182 million as of September 30, 2024.

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

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

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

Basis for Opinion

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

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

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

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

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

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.

We conducted our audit 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.

Our audit 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.

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

We believe that our audit provide a reasonable basis for our opinion

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated to the audit committee and that:

(1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As disclosed in Note 12 to the financial statements, the Company has entered into convertible note agreements in which management evaluated required accounting considerations including, significant estimates, and judgements around certain assumptions associated with the convertible notes.

The transactions were deemed complex by management as they required valuation of the convertible notes and conversion feature in the debt instrument.

These notes were initially measured at fair value and have been subsequently remeasured to fair value each reporting period.

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.

Our audit procedures with respect to management’s assessment of certain fair value measurements included the following, among others:

We obtained a listing of all convertible notes elected to be carried at fair value and management’s accounting analysis supporting these transactions.

We evaluated the conclusions reached to ensure these were recorded in accordance with the relevant accounting guidance.

We identified and evaluated the considerations related to the determination of the fair value of the convertible notes and the conversion features that included valuation models and assumptions utilized by management.

We reviewed the fair value models used, significant assumptions, and underlying data used in the models and evaluated whether the estimates and assumptions were consistent with audit evidence obtained.

We evaluated the disclosures surrounding fair value measurements to ensure they are disclosed in accordance with relevant accounting guidance.

/s/ Cherry Bekaert LLP

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

Charlotte, North Carolina

December 22, 2023  

PART 1 –

FINANCIAL INFORMATION

December 18, 2024

PART 1 – FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS.

5 unchanged sentences

Cash and cash equivalents

$ 1,797,860  

$ 6,720,234  

$ 2,452,553 $ 1,797,860

Accounts receivable

1,216,090  

1,447,831  

Accounts receivable –

discontinued operations

Investment other securities

1,000,000  

4,052,972  

4,255,914  

983,910 1,216,090

2,365,187 4,052,972

Inventory prepaid

182,675  

511,459  

159,006 182,675

Prepaid sponsorship

70,061  

1,372,845  

21,754 70,061

Prepaid expenses and other current assets

750,383  

701,945  

406,674 750,383

Total current assets

8,070,041  

16,011,603  

6,389,084 8,070,041

Other assets:

Property and equipment, net

716,579  

823,310  

454,268 716,579

Operating lease assets

3,350,865  

4,477,841  

85,817 3,350,865

Deposits for facilities

138,708  

244,606  

62,708 138,708

Intangible assets

3,219,090  

17,834,549  

2,889,580 3,219,090

Investment in other securities, noncurrent

700,000  

1,400,000  

700,000 700,000

Total other assets

8,125,242  

24,780,306  

$ 16,195,283  

$ 40,791,909  

4,192,373 8,125,242

$ 10,581,457 $ 16,195,283

See Notes to Consolidated Financial Statements

6 unchanged sentences

Accounts payable

$ 1,906,319  

$ 2,036,558  

$ 1,541,108 $ 1,906,319

Accrued expenses

1,484,441  

2,060,762  

Operating leases –

current portion

1,277,089  

1,178,683  

632,674 632,195

Accrued dividends

4,671,000 667,000

Deferred Revenue

503,254 185,246

Operating leases – current portion

98,696 1,277,089

Convertible notes, at fair value 1,171,308 -

Total current liabilities

4,670,341  

5,285,612  

8,618,040 4,670,341

Long term liabilities:

Long term liabilities

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  

8,618,040 7,163,999

Commitments and Contingencies (Note 11)

3 unchanged sentences

Additional paid in capital

183,387,095  

178,841,646  

184,029,565 183,387,095

Comprehensive other expense ( 7,189 ) -

Accumulated deficit

( 174,363,772 )  

( 182,067,898 ) ( 174,363,772 )

1 unchanged sentence

shareholders' equity

9,031,284  

31,424,431  

1,963,417 9,031,284

Total liabilities and shareholders' equity

$ 16,195,283  

$ 40,791,909  

$ 10,581,457 $ 16,195,283

See Notes to Consolidated Financial Statements

1 unchanged sentence

September 30, 2024 and 2023

$ 25,053,857  

$ 37,122,215  

( 898,495 )  

$ 19,922,319 $ 25,053,857

( 440,152 ) ( 898,495 )

Total Net Sales

24,155,362  

35,403,224  

19,482,167 24,155,362

Cost of sales

9,177,703  

13,066,639  

14,977,659  

22,336,585  

7,486,626 9,177,703

11,995,541 14,977,659

Operating expenses

24,246,208  

39,647,130  

15,310,951 24,246,208

Impairment of goodwill and other intangible assets

13,219,000  

60,955,970  

Loss from operations

( 22,487,549 )  

( 3,315,410 ) ( 22,487,549 )

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

( 700,000 )  

Gain (loss) on sale of assets

88,769  

Restructuring expense

- ( 700,000 )

Decrease of contingent liability

185,638  

8,473,999  

239,250  

Interest income

63,702  

16,246  

74,580 185,638

Increase in fair value of convertible debt

( 429,789 ) -

Interest (expense) income

( 29,507 ) 63,702

Loss before provision for income taxes

( 22,938,209 )  

( 3,700,126 ) ( 22,938,209 )

Benefit (expense) for income taxes

( 22,938,209 )  

( 3,700,126 ) ( 22,938,209 )

Preferred dividends

4,002,000  

4,002,005  

4,004,001 4,002,000

Net Loss attributable to common shareholders

$ ( 26,940,209 )  

$ ( 7,704,127 ) $ ( 26,940,209 )

Net Loss per share:

Basic loss per share

( 13.32 )  

Diluted loss per share

( 13.32 )  

Weighted average number of shares Basic:

2,022,320  

1,327,784  

Weighted average number of shares Diluted:

2,022,320  

1,327,784  

Basic and Diluted loss per share

( 1.79 ) ( 13.32 )

Weighted average number of shares Basic and Diluted:

4,312,546 2,022,320

See Notes to Consolidated Financial Statements

1 unchanged sentence

FOR THE YEARS ENDED September 30, 2024 and 2023

$ ( 22,938,209 )  

$ ( 3,700,126 ) $ ( 22,938,209 )

Comprehensive Loss

( 22,938,209 )  

( 3,700,126 ) ( 22,938,209 )

Preferred dividends

( 4,002,000 )  

( 4,004,001 ) ( 4,002,000 )

Comprehensive Loss available to common shareholders

$ ( 26,940,209 )  

$ ( 7,704,127 ) $ ( 26,940,209 )

3 unchanged sentences

Cash flows from operating activities:

$ ( 22,938,209 )  

$ ( 3,700,126 ) $ ( 22,938,209 )

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

Adjustments to reconcile net loss to net cash used by operating activities:

Stock based compensation

233,666  

555,215  

5,015 233,666

Restricted stock expense

109,202  

373,610  

11,885 109,202

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  

921,314 175,499

Intangibles amortization

1,396,459  

884,380  

404,280  

948,962  

697,510 1,396,459

452,326 404,280

Impairment of goodwill and other intangible assets

13,219,000  

60,955,970  

Gain on sale of fixed assets

Increase/(Decrease) in contingent liability

( 185,638 )  

( 74,580 ) ( 185,638 )

Realized and unrealized gain of Marketable and other securities

33,350  

Increase in fair value of convertible debt

Other-than-temporary impairment on other investments

700,000  

Gain on termination of operating lease 696,280 -

Amortization of operating lease asset

1,126,976  

1,137,119  

670,621 1,126,976

Changes in operating assets and liabilities:

Accounts receivable

278,482  

65,541  

105,898  

284,977  

27,443  

232,180 278,482

76,000 105,898

766,472 27,443

Prepaid inventory

328,784  

40,060  

23,670 328,784

Prepaid expenses and other current assets

2,095,323  

396,311 2,095,323

Accounts payable and accrued expenses

( 1,290,141 )  

( 1,124,141 ) ( 1,290,141 )

Operating lease liability

( 1,178,683 )  

( 1,151,326 ) ( 1,178,683 )

Deferred revenue / customer deposits

203,341  

318,008 203,341

Collection on discontinued operations accounts receivable

Cash used by operating activities

( 4,302,051 )  

( 352,792 ) ( 4,302,051 )

1 unchanged sentence

Proceeds from sale of other investment securities

1,000,000  

Purchase of intangible assets

( 100,000 ) -

Purchase of property and equipment

( 297,549 )  

Cash provided (used) by investing activities

702,451  

( 190,015 ) ( 297,549 )

Cash (used) provided by investing activities

( 290,015 ) 702,451

Cash flows from financing activities:

Proceeds from issuance of common stock

2,478,325  

( 132,599 )  

50,001 2,478,325

1,247,499 ( 132,599 )

Preferred dividend distribution

( 3,668,500 )  

- ( 3,668,500 )

Cash provided by financing activities

( 1,322,774 )  

Cash provided (used) by financing activities

1,297,500 ( 1,322,774 )

Net increase (decrease) in cash

( 4,922,374 )  

654,693 ( 4,922,374 )

Cash and cash equivalents, beginning of year

6,720,234  

26,411,424  

1,797,860 6,720,234

Cash and cash equivalents, end of year

$ 1,797,860  

$ 6,720,234  

$ 2,452,553 $ 1,797,860

Supplemental Disclosures of Cash Flow Information:

1 unchanged sentence

Interest expense

$ 6,399  

$ 2,364  

Non-cash financial/investing activities:

Issuance of Contingent earnout shares:

$ 1,086,000  

Issuance of shares for conversion of debt and accrued interest

Issuance of shares for intangible asset

Preferred dividends accrued but not paid

$ 667,000  

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED September 30, 2024 and 2023

Preferred Stock

Comprehensive

Balance, September 30, 2023

1,348,125  

$ 1,348  

5,000,000  

$ 5,000  

$ 178,841,646  

$ ( 147,423,563 )  

$ 31,424,431  

2,960,573 $ 2,961 5,000,000 $ 5,000 $ - $ 183,387,095 $ ( 174,363,772 ) $ 9,031,284

Issuance of Common stock

483 - - - - - - -

Issuance of options for share based compensation

79,446  

- - - - - 1,772 - 1,772

Issuance of restricted stock for share based compensation

43,449  

Preferred dividend

( 1,000,502 )  

- - - - - 689 - 689

Net Income (loss)

( 3,956,062 )  

Preferred dividend declared, not paid

- - - - - - ( 1,000,501 ) ( 1,000,501 )

- - - - - - ( 996,501 ) ( 996,501 )

Balance, December 31, 2023

1,349,163  

5,000,000  

178,964,539  

( 152,380,127 )  

26,590,761  

2,961,056 2,961 5,000,000 5,000 - 183,389,556 ( 176,360,774 ) 7,036,743

Issuance of Common stock

19,930 20 - - - 15,763 - 15,783

Issuance of options for share based compensation

16,770  

- - - - - 1,080 - 1,080

Issuance of restricted stock for share based compensation

56,801  

Issuance of Common stock - A360

94,277  

1,399,906  

1,400,000  

Issuance of Common stock - DCO

29,998  

30,000  

- - - - - 303 - 303

Change in far value of debt related to credit risk

- - - - ( 6,000 ) - - ( 6,000 )

Issuance of Common stock - Keystone

29,190  

29,193  

Roundup fractional shares resulting from reverse split

Preferred dividend

( 1,000,500 )  

64,218 64 - - - 49,936 - 50,000

Preferred dividend declared, not paid

- - - - - - ( 1,000,500 ) ( 1,000,500 )

Net Income (loss)

( 1,336,802 )  

- - - - - - ( 3,010,562 ) ( 3,010,562 )

Balance, March 31, 2024

1,456,696  

5,000,000  

180,497,196  

( 154,717,429 )  

25,786,224  

Issuance of Common stock

69,606  

69,615  

3,045,204 3,045 5,000,000 5,000 ( 6,000 ) 183,456,639 ( 180,371,836 ) 3,086,847

Issuance of options for share based compensation, net

34,663  

- - - - - 5,376 - 5.376

Issuance of restricted stock for share based compensation, net

Issuance of Common stock - A360

133,200  

Issuance of Common stock - Maxim

1,350,000  

2,472,730  

2,474,080  

Fractional share true-up

39,533  

( 39 )  

Preferred dividend

( 1,000,501 )  

- - - - - 7,167 - 7.167

Net Income (loss)

( 1,770,404 )  

Change in far value of debt related to credit risk

- - - - 4,800 - - 4,800

Issuance of Common Stock, Convertible Notes

714,229 714 - - - 463,980 - 464,694

Preferred dividend declared, not paid

- - - - - - ( 1,000,500 ) ( 1,000,500 )

- - - - - - 459,737 459,737

Balance, June 30, 2024

2,855,229  

5,000,000  

183,212,202  

( 157,488,334 )  

25,731,723  

3,759,433 3,759 5,000,000 5,000 ( 1,200 ) 183,933,162 ( 180,912,600 ) 3,028,121

Issuance of Common stock

( 112 )  

4,000 4 - - - ( 4 ) - -

Issuance of options for share based compensation

33,171  

- - - - - 1,080 - 1.080

Issuance of restricted stock for share based compensation

Issuance of Common stock - Keystone

105,232  

97,338  

97,443  

Maxim transaction expenses

40,500  

Preferred dividend

( 1,000,497 )  

- - - - - 3,727

Net Income (loss)

( 15,874,941 )  

Change in far value of debt related to credit risk

- - - - ( 5,989 ) - - ( 5,989 )

Issuance of Common Stock, Majik Settlement

75,000 75 40,725 40,800

Issuance of Common Stock, Convertible Notes

100,624 101 - - - 50,875 - 50,976

Preferred dividend declared, not paid

- - - - - - ( 1,002,500 ) ( 1,002,500 )

- - - - - - ( 152,798 ) ( 152,798 )

Balance, Balance at September 30, 2024

2,960,573  

$ 2,961  

5,000,000  

$ 5,000  

$ 183,387,095  

$ ( 174,363,772 )  

$ 9,031,284  

3,939,057 $ 3,939 5,000,000 $ 5,000 $ ( 7,189 ) $ 184,029,565 $ ( 182,067,898 ) $ 1,963,417

See Notes to Condensed Consolidated Financial Statements

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Preferred Stock

Comprehensive

Balance, September 30, 2022

1,284,075  

$ 1,285  

5,000,000  

$ 5,000  

$ 176,473,767  

$ ( 73,337,865 )  

$ 103,142,187  

( 147,423,563

Issuance of Common stock

10,992  

404,989  

405,000  

Issuance of options for share based compensation

505,466  

Issuance of restricted stock for share based compensation

508,754  

Preferred dividend

( 1,000,502 )  

Net Income (loss)

( 19,160,904 )  

Balance, December 31, 2022

1,295,067  

5,000,000  

177,892,975  

( 93,499,271 )  

84,400,000  

( 152,380,127

Issuance of Common stock

23,873  

660,976  

661,000  

Issuance of options for share based compensation

291,630  

Issuance of restricted stock for share based compensation

328,515  

Issuance of Common stock - A360

Issuance of Common stock - DCO

Issuance of Common stock - Keystone

Roundup fractional shares resulting from reverse split

Preferred dividend

( 1,000,500 )  

Net Income (loss)

( 4,657,215 )  

( 4,657,216 )

Balance, March 31, 2023

1,318,940  

5,000,000  

179,174,096  

( 99,156,986 )  

80,023,429  

( 154,717,429

Issuance of Common stock

13,198  

177,987  

178,000  

Issuance of options for share based compensation

( 373,168 )  

Issuance of restricted stock for share based compensation

( 593,617 )  

Issuance of options for share based compensation, net

Issuance of restricted stock for share based compensation, net

Issuance of Common stock - A360

Issuance of Common stock - Maxim

Fractional share true-up

Preferred dividend

( 1,000,501 )  

Net Income (loss)

( 31,634,143 )  

Balance, June 30, 2023

1,332,138  

5,000,000  

178,385,298  

( 131,791,630 )  

46,600,000  

( 157,488,334

Issuance of Common stock

15,987  

197,986  

198,001  

Issuance of Preferred Stock

128,404  

Issuance of options for share based compensation

129,959  

Issuance of restricted stock for share based compensation

Issuance of Common stock - Keystone

Maxim transaction expenses

Preferred dividend

( 1,000,501 )  

Net Income (loss)

( 14,631,432 )  

Balance, Balance at September 30, 2023

( 174,363,772

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

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FOR THE YEAR ENDED September 30, 2024 and 2023

NOTE 1 –

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

("cbdMD", "we", "us", “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc.

In November 2016 we changed the name of the Company to Level Brands, Inc.

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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.

There have been no material changes in the Company's significant accounting policies from those previously disclosed in the 2023 10 -K.

The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the 2024 10 -K.

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

Reverse Stock Split

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

Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, 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.

Actual results could differ from these estimates.

Cash and Cash Equivalents

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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.

Accounts receivables are stated at cost less an allowance for credit losses, 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 credit losses 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, 2024 and September 30, 2023 , we had an allowance for credit losses of $ 346,197 and $ 42,180 , respectively.

Merchant Receivable

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The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers).

Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products.

We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end.

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Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

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Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability.

Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity.

In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

When the Company records an investment in marketable securities the carrying value is recorded at fair value.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

When the Company records an investment in marketable securities the carrying value is recorded at fair value.

Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations.

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.

For investments 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.

The Company has elected the fair value method and will make individual determinations on and instrument by instrument basis.

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.

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.

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.

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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.

See Note 5 more further information on the impairment testing procedures performed at December 31, 2022 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.

The Company began amortizing its trademarks over 20 years beginning January 1, 2023 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 further outlined in Note 5, during July of fiscal 2023, the Company determined that based on regulatory uncertainty and ongoing Company performance it was prudent to change the amortization of the “cbdMD” and “directCBDonline” trademarks to 5 years and “hempMD” trademark to 10 years.

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

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

Contingent Liability

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.

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

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

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

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

Allocation of Transaction Price

In the Company’s current business model, it does not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order-based product sales.

Revenue Recognition

4 unchanged sentences

Disaggregated Revenue

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

The Company believes that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.

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

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

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

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

Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment.

Payment is typically due prior to the date of shipment;

Wholesale sales - products sold to the Company’s wholesale customers for subsequent resale.

Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement.

2 unchanged sentences

E-commerce sales

$ 19,436,124  

80.5 %  

$ 26,435,203  

$ 15,655,337 80.4 % $ 19,436,124 80.5 %

Wholesale sales

$ 4,719,238  

19.5 %  

$ 8,968,021  

$ 3,826,830 19.6 % $ 4,719,238 19.5 %

Total Net Sales

$ 24,155,362  

$ 35,403,224  

$ 19,482,167 $ 24,155,362

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

2 unchanged sentences

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 incurred $ 4.2 million and $ 6.0 million in advertising and marketing and promotional costs included in operating expenses during the years ended September 30, 2024 and 2023 respectively.

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

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

The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the Financial Accounting Standards Board  ("FASB") ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes.

The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the Financial Accounting Standards Board ("FASB") ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes.

The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

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The Company places its cash and cash equivalents on deposit with financial institutions in the United States.

The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts.

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

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The 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.

The Company experienced a loss of $ 3.7 million for the fiscal year ended September 30, 2024 , resulting in a working capital deficit of $ 1.1 million at September 30, 2024.

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.

Convertible Notes

Effective February 1, 2024 ( the “Effective Date”), the Company entered into a Securities Purchase Agreement dated January 30, 2024 ( the “Purchase Agreement”) with five institutional investors (the “Investors”) whereby the Investors advanced the Company an aggregate of $ 1,250,000 gross proceeds and the Company issued each Investor an 8 % Senior Secured Original Issue 20 % Discount Convertible Promissory Note, in the aggregate principal amount of $ 1,541,666 (the “Notes”).

The Company is using the proceeds from the issuance of the Notes for working capital and general corporate purposes.

The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes.

The Notes were initially recognized at fair value on the balance sheet.

All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income.

The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

See Note 12 for more information related to the Notes.

Earnings (Loss) Per Share

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

New Accounting  

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

Credit Losses (Topic 326 ):

New Accounting Standards

The Company adopted 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.

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. 

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 adoption of this standard had no material impact on the consolidated financial statements.

NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES

On April 7, 2022, the Company 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.

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

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

Markets for  

Significant Other  

Significant  

The Company performed an additional valuation analysis as of September 30, 2024 and determined that no further impairment was needed based on factors such as Steady State's financial performance and re-alignment of the business.

For the year ended September 30, 2024 and September 30, 2023 the Company recorded $ 0 and an unrealized loss of $ 700,000 , respectively of realized and unrealized loss on marketable and other securities, including impairments.

The table below summarizes the assets and liabilities related to marketable and other securities valued at fair value as of September 30, 2024 :

Markets for Significant Other Significant

Identical Assets

1 unchanged sentence

Balance at September 30, 2022

$ 33,351  

$ - $ - $ ( 276,000 )

Change in value of equities

( 33,351 )  

Change in value of contingent liability

9,580,000  

Additional Investment

Balance at September 30, 2023

- - ( 90,362 )

Change in value of contingent liability

185,638  

Additional Investment

Fair value of convertible notes 1,171,308

Balance at September 30, 2024

NOTE 3 –

$ - $ - $ 1,171,308

NOTE 3 – INVENTORY

Inventory at September 30, 2024 and 2023 consists of the following:

2 unchanged sentences

Finished Goods

$ 2,782,680  

$ 3,198,488  

$ 1,534,718 $ 2,782,680

Inventory Components

1,397,034  

1,213,724  

830,469 1,397,034

Inventory Reserve

( 126,742 )  

- ( 126,742 )

Inventory prepaid

182,675  

511,459  

159,006 182,675

Total Inventory

$ 4,235,647  

$ 4,767,373  

$ 2,524,193 $ 4,235,647

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, 2024 .

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

The Company wrote down inventory of $ 921,314 during the fourth quarter of fiscal year ended September 30, 2024 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, 2024 and 2023 consist of the following:

2 unchanged sentences

Computers, furniture and equipment

$ 1,392,776  

$ 1,095,228  

$ 1,587,411 $ 1,392,776

Manufacturing equipment

284,275  

284,275 284,275

Leasehold improvements

487,081  

11,087  

2,175,219  

1,877,671  

487,081 487,081

2,358,767 2,175,219

Less accumulated depreciation

( 1,458,640 )  

( 1,904,499 ) ( 1,458,640 )

Property and equipment, net

$ 716,579  

$ 823,310  

$ 454,268 $ 716,579

Depreciation expense related to property and equipment was $ 452,326 and $ 404,280 for the year ended September 30, 2024 and 2023 , 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

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.

During the third quarter of fiscal year 2023, 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 – INTANGIBLE ASSETS

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. 

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, 2024 was $ 697,510 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.

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.

At September 30, 2024, the Company prepared a tradename impairment analysis in accordance with ASC 360 and has determined that no impairment existed.

In 2019, Company’s subsidiary, CBD Industries, LLC, initiated a trademark cancellation proceeding against Majik Medicine, LLC (“Majik”) regarding Majik’s “CBD MD” trademark.

In a Settlement, Purchase, and Release Agreement that occurred in August of 2024, the Company acquired the trademark, resolving all related legal claims.

The agreement included a $ 100,000 initial payment, four additional annual payments of $ 50,000 , the issuance of 75,000 shares of common stock (the “Initial Shares”), and 50,000 more shares on the one -year anniversary.

Failure to make the additional payments would reassign the trademark to Majik.

Additionally, the Company entered a five -year consulting agreement with Majik, granting a 15 % commission on increased sales from Licensed Practitioners, a new customer base.

This acquisition strengthens the Company’s IP portfolio, avoids litigation costs, and expedites trademark issuance.

Majik also appointed board member William Raines III as a proxy for the Initial Shares for 12 months.

The Company used the Black Scholes method to determine the fair value of the remaining shares to be paid on the one -year anniversary.

At September 30, 2024, the Company prepared a tradename impairment analysis in accordance with ASC 360 and has determined that no impairment existed.

Intangible assets as of September 30, 2024 and 2023 consisted of the following:

2 unchanged sentences

Trademark related to cbdMD

$ 21,585,000  

$ 21,585,000 $ 21,585,000

Trademark for HempMD

50,000  

50,000 50,000

Technology Relief from Royalty related to DirectCBDOnline.com

667,844  

667,844 667,844

Tradename related to CBD MD limited mark

Tradename related to DirectCBDOnline.com

749,567  

749,567 749,567

Impairment of definite lived intangible assets:

( 17,504,000 )  

( 17,504,000 ) ( 17,504,000 )

Amortization of definite lived intangible assets:

( 2,329,321 )  

$ 3,219,090  

$ 17,834,549  

( 3,026,831 ) ( 2,329,321 )

$ 2,889,580 $ 3,219,090

Future amortization of intangible assets as of September 30, 2024 is as follow:

For the year ended September 30,

$ 691,368  

688,757  

660,040  

496,223  

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:

NOTE 6 – CONTINGENT LIABILITY

Pursuant to a merger agreement entered into in 2018, the Company had a contractual obligation to issue 338,889 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 144,445 shares and 194,945 shares, both of which were subject to leak out provisions, and the unrestricted voting rights to 194,445 tranche of shares which vested over a five year period and were subject to a voting proxy agreement.

The contractual obligations and earn out provision were accounted for as a contingent liability and fair value was 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 agreement also provided that an additional 338,889 Earnout Shares would be issued as part of the consideration, upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the closing date of the merger

Aggregate Net Revenues

1 unchanged sentence

$ 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.

) 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;

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.

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 .

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

NOTE 8 –

SHAREHOLDERS ’

Preferred Stock –

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

The Company determined the final Earnout shares to be issued were 19,818 and were issued on January 11, 2024.

There is no further Earnout obligation.

NOTE 7 – RELATED PARTY TRANSACTIONS

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.

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 shares of 8.0 % Series A Cumulative Convertible Preferred Stock issued and outstanding at September 30, 2024 and September 30, 2023 .

The total amount of dividends declared were $ 4,004,001 and $ 4,002,005 for the years ended September 30, 2024 and September 30, 2023.

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 as of September 30, 2023.

As of September 30, 2024, the Accrued liability for the dividends declared but not paid totaled $ 4,669,000 and continues to grow at approximately $ 1 million per quarter.

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

There were 3,939,057 and 2,960,573 shares of common stock issued and outstanding at September 30, 2024 and 2023, respectively.

On March 2, 2023 Company entered into a purchase agreement (the "ELOC") with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone committed to purchase up to 281,934 of shares of our common stock.

Upon the execution of the ELOC, 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 ELOC.

An additional 6,104 Commitment Shares were issued 180 days after the date of the ELOC.

The 281,934 shares of the Company's common stock were registered for resale and may be issued under the ELOC or sold by us to Keystone at our discretion from time to time over a 12 month period commencing April 1, 2023.

The purchase price for the shares that the Company sold to Keystone under the ELOC fluctuated based on the price of the Company's common stock.

Keystone purchased an aggregate of 180,955 shares ( 64,218 of which were purchased during the year ended September 30, 2024) under the ELOC, which expired in the first half of fiscal 2024.

Preferred stock transactions:

The Company has no preferred stock transactions in the year ended 

September 30, 2023 and 2022.

The Company had no preferred stock transactions in the year ended September 30, 2024 and 2023 .

Common stock transactions:

In the year ended September 30, 2024 :

In September 2024, the Company issued 100,624 shares of common stock pursuant to the partial conversion of certain principal and interest related to the Notes.

In August 2024, the Company issued 75,000 shares of common stock pursuant to the settlement agreement with Majik Medicine.

In April 2024, the Company issued an aggregate of 714,229 shares of common stock pursuant to the partial conversion of certain principal and interest related to the Notes.

In March 2024, the company issued 16,000 of restricted stock awards to the Company’s board of directors.

The shares vest quarterly on June 30, 2024, September 30, 2024, December 31, 2024, and March 31, 2025.

The stock awards were valued at the fair market price of $ 13,760 and will amortize over the individual vesting periods.

In January 2024, the Company issued 64,218 shares under our ELOC.

In January 2024, the Company issued 19,818 shares as part of the final Earnout.

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.

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

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.

Under the terms of an 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.

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 the ELOC with Keystone, pursuant to which Keystone has committed to purchase up to 281,934 of shares of our common stock.

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.

The 281,934 shares of the Company's common stock were registered for resale and may be issued under the ELOC 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 ELOC 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.

In April 2023, the Company issued 8,889 shares to Keystone under the ELOC 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.

5 unchanged sentences

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

In the 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.

Stock option transactions:

In the year ended September 30, 2024 :

The Company granted its board of directors an aggregate of 8,000 common stock options in April 2024.

The options vested immediately, have a strike price of $ 0.86 and a five -year term.

The Company has recorded a total prepaid expense of approximately $ 4,300 and intends to amortize the expense over the 12 -month board term.

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.

7 unchanged sentences

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 

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 Company has recorded an expense for these options of $ 11,974 for the twelve months ended September 30, 2024 .

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.

7 unchanged sentences

Weighted average exercise price

10.355 -12.6060  

$ 44.55  

$ 0.54 10.35 - 12.60

Risk free interest rate

3.93% -4.71 %  

4 % 3.93 % - 4.71 %

106.48% - 106.51 %  

107 % 106.48 % - 106.51 %

Expected term (in years)

2.5 -4  

2.5 - 5.5  

Dividend yield

Warrant transactions:

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

The Company had no warrant transactions during the twelve months ended September 30, 2024.

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

Weighted average exercise price

$ 2.52  

Risk free interest rate

Expected term (in years)

Dividend yield

NOTE 9 -STOCK-BASED COMPENSATION

Equity Compensation Plan –

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

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

The 2015 Plan made 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.

1 unchanged sentence

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 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.

2 unchanged sentences

Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method.

The fair value of the Company’s stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model.

Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company.

16 unchanged sentences

Outstanding at September 30, 2022

60,101  

$ 198.90  

23,556  

( 28,000 )  

163.35  

55,656 $ 151.10 4.55 $ -

7,233 11.51 -

( 21,124 ) 88.12

Outstanding at September 30, 2023

55,656  

151.10  

( 21,124 )  

41,765 144.43 3.65 -

( 5,730 ) 117.35

Outstanding at September 30, 2024

41,765  

144.43  

44,035 123.58 3.14 -

Exercisable at September 30, 2024

39,542  

$ 151.92  

44,035 $ 123.58 3.14 $ -

As of September 30, 2024 , 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:

The Company issued 16,000 of restricted stock awards to the Company’s board of directors.

The shares vest quarterly on June 30, 2024, September 30, 2024, December 31, 2024, and March 31, 2025.

The stock awards were valued at the fair market price of $4,296 upon issuance and will amortize over the individual vesting periods.

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.

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.

5 unchanged sentences

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.

NOTE 10 –

NOTE 10 – WARRANTS

Transactions involving the Company equity-classified warrants for the fiscal years ended September 30, 2024 and 2023 are summarized as follows:

Weighted-average

contractual term

intrinsic value

Number of shares

exercise price

(in thousands)

Weighted-average exercise price

Weighted-average remaining contractual term (in years)

Aggregate intrinsic value (in thousands)

Outstanding at September 30, 2022

14,771  

$ 174.60  

( 1,567 )  

242.55  

13,204 $ 210.45 2.30 $ -

40,500 2.52 -

( 3,395 ) 242.55

Outstanding at September 30, 2023

13,204  

210.45  

40,500  

( 3,395 )  

289.08  

50,309 37.75 2.30 -

( 1,352 ) 337.50

Outstanding at September 30, 2024

50,309  

48,957 337.50 4.07 -

Exercisable at September 30, 2024

$ 183.23  

48,957 $ 29.48 - $ -

The following table summarizes outstanding common stock purchase warrants as of September 30, 2024 :

Weighted-average

Number of shares

exercise price

Exercisable at $337.5 per share

$ 337.50  

Weighted-average exercise price

Exercisable at $176.06 per share

176.06  

1,079 176.06 October 2024

Exercisable at $56.25 per share

822 56.25 January 2025

Exercisable at $168.30 per share

168.30  

3,357 168.30 December 2025

Exercisable at $168.75 per share

168.75  

3,199 168.75 June 2026

Exercisable at $2.52 per share

40,500  

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 –

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 .

NOTE 13 –

40,500 2.52 April 2028

48,957 $ 37.75

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Commencing August 2019, the Company’s executive offices were located at 8845 Red Oak Blvd, Charlotte, NC (the “Red Oak Facilities”) which we sub-leased under a sublease agreement dated July 11, 2019 which expires December 2026 ( the “Red Oak Sublease”).

We received a default notice from HSKL, Inc., the sub landlord, in September 2023.

Effective March 20, 2024 we entered into a License Agreement, dated as of March 14, 2024, by and between cbdMD, Inc.

and HSKL (the “License Agreement”) and Lease Forbearance Agreement, dated as of March 14, 2024, by and between cbdMD, Inc.

and HSKL (the “Forbearance Agreement”).

Under the License Agreement we have granted HSKL a license to possess and use a portion of the Red Oak Facilities until the earlier of (i) the termination of the Forbearance Agreement and (ii) July 31, 2024 ( the “Termination Date”).

The termination of the License Agreement will result in termination of the Red Oak Sublease.

Pursuant to the Forbearance Agreement HSKL has agreed to forbear from proceeding to exercise its remedies against us under the Red Oak Sublease, and the declaration of default related to past due rent in consideration of the following payments to HSKL:

$ 80,000 upon the execution of the Forbearance Agreement, followed by four monthly payments of $ 40,000 .

HSKL’s forbearance shall extend to the Termination Date and HSKL shall dismiss (without prejudice) a Complaint in Summary Ejectment filed in Mecklenburg County, North Carolina on February 27, 2024.

In the event of our breach of any of the conditions of the Forbearance Agreement, HSKL’s obligation to forbear shall cease, and HSKL may immediately exercise any and all of its rights or remedies at law, in equity or under the Red Oak Sublease.

The Company made all payments required under the Forbearance Agreement and License Agreement and ultimately made a final settlement payment to completely exit all liability associated with the Red Oak Sublease.

NOTE 12 – NOTE PAYABLE

The Company intends to use the proceeds from the issuance of the Notes for working capital and general corporate purposes.

Each Note bears interest of 8 % per annum and matures on July 30, 2025.

The Note is convertible into shares of common stock at any time following the date of issuance at the Investor’s option at an initial conversion price of $ 0.684 per share (the “Conversion Price”), subject to certain adjustments.

If 30 calendar days, 60 calendar days, 90 calendar days, 120 calendar days, or 180 calendar days after the effective date of the Registration Statement (as defined below) (the “Adjustment Dates”), the Conversion Price then in effect is higher than the Market Conversion Price then in effect on the Adjustment Date, the Conversion Price shall automatically decrease to the Market Conversion Price (as defined under the Note).

The Conversion Price is subject to a $ 0.30 floor price.

As of the filing date of this report, and after the final 180 -day adjustment, the effective Conversion Price is $ 0.5066 .

Furthermore, at any time after the issuance of the Note, the Company may, after written notice to the Investor, prepay any portion or all outstanding Principal Amount by paying an amount equal to 125% of the Principal Amount then being prepaid (representing a 25 % prepayment premium payable to the Investor which shall not constitute a principal repayment);

provided that a Registration Statement registering all of the Conversion Shares issuable under the Note shall have been declared effective.

If the Company elects to prepay the Note, the Investor shall have the right, upon written notice to the Company within five trading days of the Investor’s receipt of a Prepayment Notice, to convert into common stock, up to 100% of the Prepayment Amount at the Conversion Price, upon the terms provided in the Note.

Upon the occurrence of any Event of Default (as defined in the Note), the Interest rate shall automatically be increased to the lesser of 22 % per annum or the highest amount permitted by law.

In the event that such Event of Default is subsequently cured (and no other Event of Default then exists), the adjustment shall cease to be effective as of the day immediately following the date of such cure;

provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default.

In addition, upon the occurrence of Event of Default, which has not been cured within any applicable cure period, the Company shall be obligated to pay to the Investor the Mandatory Default Amount, which Mandatory Default Amount shall be payable to the Investor on the date the Event of Default giving rise thereto occurs.

In the event the Note shall be converted following the occurrence of an Event of Default, the Investor shall have the option to convert the Mandatory Default Amount, upon the terms provided in the Note.

The Notes are secured by a first priority security interest as evidenced by and to the extent set forth in a Security Agreement, by and between the Company and the Investors.

The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes.

The Notes were initially recognized at a fair value of $ 2,702,000 on the balance sheet as of March 31,2024.

All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income.

The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

The overall change in fair value of the Notes during the year ended September 30, 2024 was a decrease of $ 1,357,096 .

The overall change in principal value related to the conversion of Notes to commons stock during the year ended September 30,2024 was a decrease of $ 508,757 .

As of September 30, 2024, total fair value of the Notes is $ 1,171,308 , of which $ 1,032,909 represents the total principal outstanding.

NOTE 13 – LEASES

The Company has lease agreements for its corporate, warehouse and laboratory offices with lease periods expiring between 2024 and 2025.

1 unchanged sentence

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

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

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

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

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

Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term.

Since the interest rate implicit in our lease arrangements is not readily determinable, the Company determined an incremental borrowing rate for each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date to determine the present value of future lease payments.

The Company’s lease terms may include options to extend or terminate the lease.

In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes, insurance and common area maintenance expenses during the lease terms.

3 unchanged sentences

Total Operating Lease Costs

$ 1,328,497  

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

1 unchanged sentence

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

$ 1,380,204  

As of September 30, 2024 , our operating leases had a weighted average remaining lease term of 2.99 years and a weighted average discount rate of 4.66 %.

1 unchanged sentence

For the year ended September 30,

$ 1,421,610  

1,159,949  

1,372,862  

280,565  

Total future lease payments

4,234,986  

Less interest

274,046  

Total lease liabilities

$ 3,960,940  

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,

$ 1,421,610  

1,159,949  

1,372,862  

280,565  

Total future lease payments

4,234,986  

Less interest

274,046  

Total lease liabilities

$ 3,960,940  

NOTE 14 –

LOSS PER SHARE

NOTE 14 – LOSS PER SHARE

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

1 unchanged sentence

September 30,

$ ( 22,938,209 )  

$ ( 3,700,126 ) $ ( 22,938,209 )

Preferred dividends paid or accrued

4,002,000  

4,002,005  

4,004,001 4,002,000

Net income loss attributable to cbdMD Inc.

common shareholders

( 26,940,209 )  

( 7,704,127 ) ( 26,940,209 )

Shares used in computing basic earnings per share

2,022,320  

1,327,784  

4,312,546 2,022,320

Shares used in computing diluted earnings per share

2,022,320  

1,327,784  

4,312,546 2,022,320

Earnings per share Basic:

Basic earnings per share

( 13.32 )  

$ ( 1.79 ) $ ( 13.32 )

Earnings per share Diluted:

Diluted earnings per share

( 13.32 )  

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.

NOTE 15 –

$ ( 1.79 ) $ ( 13.32 )

At the year ended September 30, 2024 , 100,993 potential shares underlying options, unvested RSUs and warrants as well as 185,223 shares issuable upon conversion of our Series A Preferred stock which are excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share.

NOTE 15 – INCOME TAXES

The Company generated operating losses for the years ended September 30, 2024 and 2023 on which it has recognized a full valuation allowance.

5 unchanged sentences

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,

Federal statutory income tax rate

21.0 %  

21.0 % 21.0 %

State income taxes, net of federal benefit

Permanent differences

( 1.5 )  

Contingent derivative expense

Change in value of convertible debt ( 2.5 ) 0.0

Change in valuation allowance

( 21.1 )  

( 33.0 ) ( 21.1 )

Provision for income taxes

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

Year Ended September 30,

1 unchanged sentence

Net operating loss carryforwards

$ 14,784,000  

$ 12,909,000  

$ 15,478,000 $ 14,784,000

ROU - Liability

824,000  

1,087,000  

22,000 824,000

Capital loss carryforward

702,000  

702,000 702,000

Allowance for doubtful accounts

Stock compensation

521,000  

833,000  

105,000  

180,000  

452,000  

481,000 521,000

176,000 105,000

573,000 180,000

Accrued expenses

87,000  

214,000  

45,000  

40,000  

101,000 87,000

57,000 45,000

Inventory reserve

28,000  

35,000  

Capitalized expenses

43,000  

48,000  

146,000 43,000

Charitable contributions

39,000  

45,000  

13,000 39,000

Total deferred tax assets

17,367,000  

16,373,000  

17,826,000 17,367,000

Deferred tax liabilities:

Prepaid Expenses

( 107,000 )  

( 750,000 )  

( 76,000 ) ( 107,000 )

1 unchanged sentence

Total deferred tax liabilities

( 857,000 )  

( 95,000 ) ( 857,000 )

Net deferred tax assets

16,510,000  

11,688,000  

17,731,000 16,510,000

Valuation allowance

( 16,510,000 )  

( 17,731,000 ) ( 16,510,000 )

5 unchanged sentences

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

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

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

1 unchanged sentence

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, 2024 , the Company has utilizable NOL carryforwards of approximately $ 69.1 million which for federal purposes will carryforward indefinitely.

1 unchanged sentence

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, 2024 and 2023 , 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

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

During the first quarter of fiscal 2025, the Company issued an aggregate of 1,421,067 shares of common stock pursuant to the partial conversion of certain principal and interest related to the Notes.

As of the filing date of this report, the Notes have a principal balance of approximately $ 364,000 .

Effective November 26, 2024, cbdMD, Inc.

entered into a Second Amendment to Lease (the “Amendment”) to extend the Warehouse Lease entered into on August 27, 2019 ( the “Lease”) for approximately 80,000 square feet of space located at 2101 Westinghouse Boulevard, Suite A, Charlotte, North Carolina 28273, which facility also serves as the Company’s executive offices.

The Amendment extends the term of the Lease for a period of nineteen months beginning on March 1, 2025 with a new expiration date of September 30, 2026.

The Company has no further rights to extend or renew the terms of the Lease.

The Amendment provides for the monthly base rent of $ 65,000 , with an annual base rent of $ 9.75 per square feet from March 1, 2025 through February 28, 2026, and $ 67,600 with an annual base rent of $ 10.14 per square feet from March 1, 2026 through September 30, 2026.

The Company shall also continue to pay Additional Rent and all other amounts (other than “Monthly Base Rent”) in accordance with the terms of the Lease, except the “Controllable CAM Charges provision in Section 3 of Exhibit C to the Lease shall be deemed deleted from the Lease.

Furthermore, as set forth under the Amendment the landlord has approved certain subleases entered into by and between the Company and sub tenants for portions of the facility.

During November 2024, the Company engaged a consultant and issued 175,000 shares of restricted common stock for advisory services.

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

What changed 10-K

Item 9A. Controls and Procedures