cbdMD, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Since May 1, 2019, commensurate with our name change, our common stock has been listed on the NYSE American under the symbol “YCBD” and from November 17, 2017 through May 1, 2019 our common stock was listed on the NYSE American under the symbol “LEVB.” Our Series A Convertible Preferred Stock has been listed on the NYSE American since October 21, 2019 under the symbol “YCBDpA.” As of December 16, 2024, there were approximately 13,308 street owners of our common stock and 995 street holders of our Series A Convertible Preferred Stock. These amounts do not reflect persons or entities that hold our securities in nominee or “street” name through various brokerage firms. Dividend policy Common Stock We do not currently intend to pay dividends on our common stock. The declaration, amount and payment of any future dividends on shares of our common stock, if any, is subject to the designations, rights and preferences of the Series A Convertible Preferred Stock and will be at the sole discretion of our Board, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our shareholders or by our subsidiaries to us, and any other factors that our Board may deem relevant. Series A Convertible Preferred Stock As of the date of this filing, there are 5 million shares of our Series A Convertible Preferred Stock outstanding. The designations, rights and preferences of our Series A Convertible Preferred Stock provide that we will pay, when, as and if declared by our board of directors, monthly cumulative cash dividends at an annual rate of 8.0%, which is equivalent to $0.80 per annum per share, based on the $10.00 liquidation preference. Dividends on the Series A Convertible Preferred Stock will accrue daily and be cumulative from, and including, the first day of the calendar month in which the shares are issued and will be payable monthly in arrears approximately on the 15 th day of each calendar month. From November 1, 2019 until August 1, 2023 the Audit Committee of our board of directors declared a cash dividend of $0.0667 per share of Series A Convertible Preferred Stock payable on or around the 15th of each month to holders of record on the first of each month. On August 22, 2023 the Board of Directors suspended the monthly cash dividend payment on the Company’s 8.0% Series A Cumulative Convertible Preferred Stock beginning with the month ending August 31, 2023 as the Company conserves cash in order to continue its efforts to increase sales, develop additional products, continue research and development, reduce operating expenses and attempt to achieve profitability. See “Risk Factors”. Recent sales of unregistered securities In addition to those unregistered securities previously disclosed in reports filed with the SEC during the period covered by this report, we have sold the securities disclosed below without registration under the Securities Act of 1933, as amended, during the period covered by this report, except as provided below. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. The securities contain a legend restricting their transferability absent registration or applicable exemption. In November 2024, the Company issued 175,000 shares of common stock to a consultant for advisory services. Purchases of equity securities by the issuer and affiliated purchasers None. ITEM 6. [Reserved] 19 Table of Contents ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors, including those set forth under the Part I, Item 1A, Risk Factors and Business sections in this report, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report. Overview We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD as well as the functional mushroom brand ATRx Labs. We believe that we are an industry leader in producing and distributing broad spectrum and full spectrum CBD products. Our mission is to enhance our customer’s overall quality of life while bringing CBD education, awareness and accessibility of high quality and effective products to all. We source cannabinoids, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods. Our full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that fall within the limits set in the 2018 Farm Bill. In addition to our core brands, we also operate cbdMD Therapeutics, LLC to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications. During 2024 we continued to focus on our path to profitability by lowering our costs and focusing on the customer experience. We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter. While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2024 and we have successfully achieved 3 sequential years of Non-GAAP Adjusted Operating Income (Loss) improvement, although our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends. During fiscal 2024, we launched 2 important categories to the business (i) our line of ATRx functional mushroom supplements, that launched in GNC and Amazon and (ii) entered into the hemp derived beverage category starting with our Mixer line and followed up in November 2024 by our line of Herbal Oasis Social Tonics. With our leaner cost structure and some exciting new categories, we believe we are well positioned to start growing revenue during fiscal 2025. Results of operations The following tables provide certain selected consolidated financial information for the fiscal years ended September 30, 2024 and 2023: Fiscal Fiscal 2024 2023 Change Total net sales $ 19,482,167 $ 24,155,362 $ (4,673,195 ) Cost of sales 7,486,626 9,177,703 (1,691,077 ) Gross profit as a percentage of net sales 61.6 % 62.0 % -0.4 % Operating expenses 15,310,951 24,246,208 (8,935,257 ) Impairment of goodwill and other intangible assets - 13,219,000 (13,219,000 ) Operating loss from operations (3,315,410 ) (22,487,549 ) 19,172,139 (Increase) decrease on contingent liability 74,580 185,638 (111,058 ) Net loss before taxes (3,700,126 ) (22,938,209 ) 19,238,083 Net loss attributable to cbdMD Inc. common shareholders $ (7,704,127 ) $ (26,940,209 ) $ 19,236,082 The following tables provide certain selected unaudited consolidated financial information for the three months ended September 30, 2024 and 2023: September September 2024 2023 Change Total net sales $ 4,556,367 $ 5,710,745 $ (1,154,378 ) Cost of sales 2,102,564 2,161,900 (59,336 ) Gross profit as a percentage of net sales 53.9 % 62.1 % -8.3 % Operating expenses 2,770,356 5,546,915 (2,776,559 ) Impairment of goodwill and other intangible assets - 13,219,000 (13,219,000 ) Operating income from operations (316,553 ) (15,217,070 ) 14,900,517 (Increase) decrease on contingent liability 15,573 31,867 (16,294 ) Net loss before taxes (152,798 ) (15,874,941 ) 15,722,143 Net loss attributable to cbdMD Inc. common shareholders $ (1,155,298 ) $ (16,875,436 ) $ 15,720,138 20 Table of Contents Sales We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team. The following table provides information on the contribution of net sales by type of sale to our total net sales for the fiscal years ended September 30, 2024 and 2023. Fiscal 2024 % of total Fiscal 2023 % of total E-commerce sales $ 15,655,337 80.4 % $ 19,436,124 80.5 % Wholesale sales 3,826,830 19.6 % 4,719,238 19.5 % Total Net Sales $ 19,482,167 $ 24,155,362 In addition, the following table provides information on the contribution of net sales by type of sale to our total net sales for the three months ended September 30, 2024 and 2023 (unaudited): September 30, September 30, 2024 % of total 2023 % of total E-commerce sales $ 3,667,458 80.5 % $ 4,639,651 81.2 % Wholesale sales 888,908 19.5 % 1,070,946 18.8 % Total Net Sales $ 4,556,366 $ 5,710,597 Total net sales during the fiscal year ended September 30, 2024 decreased by approximately $4.7 million, or 19% as compared to fiscal year ended September 30, 2023. Wholesale sales decreased by approximately $0.9 million, or 19% year over year while E-commerce sales decreased by $3.7 million or 19%. The change in revenue was driven by a combination of broader CBD category softness which we believe is partially attributed to the macro inflationary environment in addition to lower marketing spend. Net sales for the fourth quarter declined 20% year over year. A few items that impacted the quarter include: (i) During the 2024 fiscal fourth quarter, one of our agencies made a recommendation which resulted in a sharp decline in emails delivered. We have reacted accordingly to address the issue and have seen deliverability and metrics rebound during early fiscal 2025, however we believe this had greater than $200,000 impact to our direct-to-consumer revenue during the quarter. (ii) We continued to face ongoing down time on various digital marketing platforms tied to our regulated category. To help offset this ongoing challenge, we made a change to our marketing resources during the summer of 2024. As a result, we have seen our SEO rankings jump significantly and we are now ranking atop a number of key high-traffic, strategic terms resulting in strong gains on high-intent traffic during the first quarter of fiscal 2025. (iii) A number of our larger international wholesale clients faced a new regulatory registration requirement which ultimately impacted sales for approximately 100 days, most of which overlapped the fourth quarter. The wholesale demand rebounded in late October and continues to strengthen. Un-audited revenues for October and November have rebounded, trending ahead of the fourth fiscal quarter of 2024 and management currently anticipates being able to recapture most of the revenue lost in the September 2024 quarter during the first quarter of fiscal 2025. Of our total net sales as indicated above, during the fiscal years ended September 30, 2024 and 2023 our Paw CBD line accounted for net sales of $1,445,644 and $2,404,787, respectively. The year over year decline in our Paw CBD brand is due to increasing competition in the pet product industry and a rationalization in marketing efforts specific to the brand. Cost of sales Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 38.4% and 38.0% for fiscal years ended September 30, 2024 and 2023, respectively. While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2024, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies and functional products. For the fourth quarter of fiscal 2024 our cost of sales as a percentage of net sales was 46.1% as compared to 37.9% in the prior year comparative period. The change reflects approximately $588,000 one-time non-cash inventory write down related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory, with most all of this inventory older than 2 years. Excluding this one-time write down, our non-GAAP adjusted cost of sales would have been 33% for the fourth quarter of fiscal 2024. Operating expenses Our principal operating expenses include staff related expenses, advertising (which includes expenses related to industry distribution and trade shows), sponsorships, affiliate commissions, merchant fees, technology, travel, rent, professional service fees, and business insurance expenses. Our operating expenses on a consolidated basis decreased approximately $8.9 million, excluding impairment charges, or 36.4% for the fiscal year ended September 30, 2024 versus the fiscal year ended September 30, 2023. The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $1.9 million reduction in payroll and a $2.8 million reduction of marketing expenses in fiscal 2024. All other expenses includes a $0.7 million gain related to the settlement of our former executive office (“HQ”) lease in 2024 while all other expenses in 2023 includes $0.7 million of impairment of the Steady State Holdings investment. Consolidated Operating Expenses The following tables provide information on our operating expenses for the fiscal years ended September 30, 2024 and 2023: Fiscal 2024 Fiscal 2023 Change Staff related expense $ 5,521,869 $ 7,440,687 $ (1,918,818 ) Accounting/Legal/Professional outside expense 1,527,456 1,832,770 (305,314 ) Marketing 4,181,026 6,950,340 (2,769,314 ) Merchant Fees 642,102 791,475 (149,373 ) R&D and regulatory 39,021 173,038 (134,017 ) Non-cash stock compensation 43,688 349,245 (305,557 ) Intangibles amortization 697,510 1,396,459 (698,949 ) Rent and Utilities 1,349,284 1,569,906 (220,622 ) Depreciation 452,326 404,280 48,046 All other expenses 856,669 3,338,008 (2,481,339 ) Totals $ 15,310,951 $ 24,246,208 $ (8,935,257 ) 21 Table of Contents Corporate overhead and allocation of management fees to our segments Included in our consolidated operating expenses are expenses associated with our corporate overhead which are not allocated to the operating business unit, including (i) staff related expenses; (ii) accounting and legal expenses; (iii) professional outside services; (iv) travel and entertainment expenses; (v) rent; (vi) business insurance; and (vii) non-cash stock compensation expense. The following tables provide information on our corporate overhead for the fiscal years ended September 30, 2024 and 2023: Fiscal 2024 Fiscal 2023 Change Staff related expense $ 288,602 $ 318,762 $ (30,160 ) Accounting/Legal expense 710,188 704,933 5,255 Professional outside services 310,448 428,923 (118,475 ) Business insurance 626,027 783,781 (157,754 ) Non-cash stock compensation 43,688 349,245 (305,557 ) Totals $ 1,978,953 $ 2,585,644 $ (606,691 ) The 23% decrease in corporate related expenses for the fiscal year ended September 30, 2024 over prior year is primarily due to the decreases in non-cash stock compensation to employees and directors tied to fewer shares issued under our equity incentive plans and at lower prices per share and, decreases in legal, accounting and insurance costs. The corporate operating expenses are primarily related to the ongoing public company related activities. Other income and other non-operating expenses We also record income and expenses associated with non-operating items. The material components of those are set forth below. Decrease in contingent liability As described in Note 6 to the notes to the consolidated financial statements appearing elsewhere in this report, the earn-out provision for the Earnout Shares is accounted for and recorded as a contingent liability with increases in the liability recorded as non-cash other expense and decreases in the liability recorded as non- cash other income. The earnout ended November 2023 and we recorded a final change in the non-cash contingent liability in the first quarter of fiscal 2024. For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million, primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share. Liquidity and Capital Resources We had cash and cash equivalents on hand of $2.4 million and working capital of negative $1.1 million at September 30, 2024. Our working capital is reduced by approximately $4.7 million of accrued Series A Preferred dividend payments. On September 30, 2023 we had cash and cash equivalents on hand of $1.8 million and working capital of $3.4 million, which was reduced by approximately $0.7 million for accrued Series A Preferred dividend payments. Our current assets decreased approximately 20% at September 30, 2024 from September 30, 2023, which is primarily attributable to reduction of inventory. Our current liabilities increase approximately 55% at September 30, 2024 from September 30, 2023. This increase is primarily attributable to a $4 million increase in dividend payable, partially offset by a $1.1 reduction in the current portion of rent as a result of the elimination the lease liability associated with the HQ lease. We entered into a securities Purchase Agreement dated January 30, 2024 with five accredited 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 (each a “Note” and collectively, the “Notes”), in the aggregate principal amount of $1,541,666. The Company has used the proceeds from the issuance of the Notes for working capital and general corporate purposes, including, but not limited to inventory investment to assist with orders and administrative and corporate governance costs. As of the filing date of this report, the principal balance of the Notes has been reduced to approximately $364,000 and $5,000 of accrued interest. During the three and twelve months ended September 30, 2024 we used cash primarily to fund our operations. We do not have any commitments for capital expenditures. We have a commitment for cumulative dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders. As of September 2023, we have stopped paying the dividends in cash monthly and are accruing this dividend instead. 22 Table of Contents While the Company is taking strong action and believes that it can execute its strategy and path to profitability within its balance sheet, 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 this report. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and cash flow 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 our 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. Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net generation of $0.2 million and use of $1.0 for the three months ended September 30, 2024 and 2023, respectively and a use of $0.6 (net of $1.25 million of proceeds from the Notes) and $4.3 million for the twelve months ended September 30, 2024 and 2023, respectively. Non-GAAP Adjusted Operating Income The non-GAAP Adjusted Income (loss) for the three and twelve months ended September 30, 2024 and September 30, 2023 is as follows: Three Months Year Ended September 30, September 30, September 30, September 30, 2024 2023 2024 2023 (Unaudited) GAAP (loss) from operations $ (316,553 ) $ (15,217,070 ) $ (3,315,410 ) $ (22,487,549 ) Adjustments: Depreciation & Amortization 287,783 667,950 1,149,836 1,800,739 Employee and director stock compensation (1) 5,881 33,263 43,688 349,245 Inventory adjustment(2) 588,160 70,000 588,160 70,000 Impairment of Goodwill and other intangible assets (3) - 13,219,000 - 13,219,000 Incremental bad debt - 45,000 - 45,000 Non-cash expense incurred as a credit (4) - - 439,926 - Non-cash accelerated amortization of expense related to terminated IT contracts - - 72,101 - Termination of HQ lease (696,280 ) - (696,280 ) - Mergers and acquisitions expense - - 125,838 - a360 non-cash trade credit - 609,732 - 1,476,967 Non-GAAP adjusted (loss) from operations $ (131,009 ) $ (572,125 ) $ (1,592,141 ) $ (5,526,598 ) (1) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period. (2) Represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory. (3) Represents non-cash impairment of the cbdMD, DCO and Technology Relief from Royalty trademarks of $13.21 million during the fourth quarter of fiscal 2023, non-cash impairment of the cbdMD trademark of $4.28 million during the first quarter of fiscal year 2022 and $56.67 million of goodwill impairment during the fiscal year ended 2022. (4) Represents non-cash expense incurred as a credit provided to GNC to replace expired product. 23 Table of Contents Earnout Shares As described in Note 6 in notes to our consolidated financial statements appearing elsewhere in this report, the Earnout Right ran through November 2023. The Earnout period has expired. Critical accounting policies The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to our consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. We believe that the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results. Management considers these policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer (“ASC 606”). The Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under the standard, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of revenue accounting, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 60-day, money back guarantee. Impairment of Long Lived Assets The Company reviews all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Long-lived assets, such as property and equipment and intangible assets subject to depreciation and amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than the Company had originally estimated. Recoverability of these assets is measured by comparison of the carrying amount of each asset or asset group to the future undiscounted cash flows the asset or asset group is expected to generate over their remaining lives. If the asset or asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset or asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. Impairment losses are recorded in selling, general, and administrative expense in the consolidated statements of operations. There was $0 and $13,219,000 of impairment losses recognized related to long-lived assets for the year ended September 30, 2024 and September 30, 2023, respectively. Fair Value of Convertible Notes 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 $1,021,935, of which $1,032,909 represents the total principal outstanding. 24 Table of Contents Recent accounting pronouncements Please see Note 1 – Organization and Summary of Significant Accounting Policies appearing in the consolidated financial statements included in this report for information on accounting pronouncements. Off balance sheet arrangements As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable for a smaller reporting company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Please see our Financial Statements beginning on page 32 of this annual report. The Auditor Firm ID for our external auditors, Cherry Bekaert LLP, is 677 . ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.