cbdMD, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including 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 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. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. 25 Table of Contents Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Our management, including our principal executive officer and principal accounting officer assessed the effectiveness of our internal control over financial reporting as of September 30, 2024. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the 2013 Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were effective. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, but for the additional review procedures renumerated above. ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. None. 26 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this Item will be contained in our proxy statement for our 2024 Annual Meeting of shareholders to be filed on or prior to January 28, 2025 (the “Proxy Statement”) and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference. 27 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) (1) Financial statements. The consolidated financial statements and Report of Independent Registered Accounting Firm begin on page 32. (2) Financial statement schedules All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the consolidated financial statements herein. (3) Exhibits. The exhibits that are required to be filed or incorporated by reference herein are listed in the Exhibit Index. ITEM 16. FORM 10-K SUMMARY. None 28 Table of Contents EXHIBIT INDEX Incorporated by Reference Filed or Furnished Herewith No. Exhibit Description Form Date Filed Number 1.1 Underwriting Agreement, dated as of April 30, 2023, between cbdMD, Inc. and Maxim Group LLC 8-K 5/3/23 1.1 2.1 Merger Agreement dated December 3, 2018 by and among Level Brands, Inc., AcqCo, LLC, cbdMD LLC and Cure Based Development, LLC 8-K 12/4/18 2.1 2.2 Articles of Merger dated December 20, 2018 as filed with the Secretary of State of Nevada merging AcqCo, LLC with and into Cure Based Development, LLC 10-Q 2/14/19 2.2 2.3 Articles of Merger dated December 20, 2018 as filed with the Secretary of State of North Carolina merging AcqCo, LLC with and into Cure Based Development, LLC 10-Q 2/14/19 2.3 2.4 Articles of Merger dated December 20, 2018 as filed with the Secretary of State of Nevada merging Cure Based Development, LLC with an into cbdMD LLC 10-Q 2/14/19 2.4 2.5 Articles of Merger dated December 20, 2018 as filed with the Secretary of State of North Carolina merging Cure Based Development, LLC with an into cbdMD LLC 10-Q 2/14/19 2.5 3.1 Articles of Incorporation 1-A 9/18/17 2.1 3.2 Articles of Amendment to the Articles of Incorporation filed April 22, 2015 1-A 9/18/17 2.2 3.3 Articles of Amendment to the Articles of Incorporation filed June 22, 2015 1-A 9/18/17 2.3 3.4 Articles of Amendment to the Articles of Incorporation filed November 17, 2016 1-A 9/18/17 2.4 3.5 Articles of Amendment to the Articles of Incorporation filed December 5, 2016 1-A 9/18/17 2.5 3.6 Bylaws, as amended 1-A 9/18/17 2.6 3.7 Articles of Amendment to Articles of Incorporation dated April 22, 2019 8-K 4/29/19 3.7 3.8 Articles of Amendment to the Articles of Incorporation including the Certificate of Designations, Rights and Preferences of the 8% Series A Cumulative Convertible Preferred Stock filed October 11, 2019 8-A 10/11/19 3.1(f) 4.1 Form of common stock certificate of the registrant 1-A 9/18/17 3.7 4.2 2015 Equity Compensation Plan+ 1-A 9/18/17 3.8 4.3 Form of stock option award under 2015 Equity Compensation Plan+ 1-A 9/18/17 3.9 4.4 2021 Equity Compensation Plan+ 8-K 1/14/21 10.1 4.5 Form of Representative’s Warrant dated May 15, 2019 8-K 5/14/19 4.1 4.6 Form of Representative’s Warrant dated October 16, 2019 8-K 10/16/19 4.1 4.7 Form of Representative’s Warrant dated January 9, 2020 8-K 1/10/20 4.1 4.8 Form of Representative’s Warrant dated December 11, 2020 8-K 12/9/20 4.1 4.9 Form of Representative’s Warrant dated June 28, 2021 8-K 6/30/21 4.1 4.10 Form of Representative’s Warrant dated May 3, 2023 8-K 5/3/23 4.1 4.11 Form of Senior Secured Convertible Promissory Note dated January 30, 2024 8-K 2/2/24 4.1 10.1 Form of Indemnification Agreement 1-A 9/18/17 6.21 10.2 Office Lease dated July 11, 2019 10-Q 8/14/19 10.1 10.3 Westinghouse Boulevard Lease dated August 27, 2019 10-Q 2/13/20 10.1 10.4 Amended and Restated Executive Employment Agreement dated April 19, 2021 by and between cbdMD, Inc. and Martin A. Sumichrast+ 8-K 4/21/21 10.1 10.5 Amended and Restated Executive Employment Agreement dated April 19, 2021 by and between CBD Industries LLC and R. Scott Coffman+ 8-K 4/21/21 10.2 10.6 Asset Purchase Agreement by and among Twenty Two Capital, LLC, cbdMD, Inc., John J. Wiesehan III, Vieo Design, LLC and Bradley D. Trawick dated June 22, 2021 8-K 7/27/21 10.1 29 Table of Contents 10.7 Executive Employment Agreement dated October 1, 2021 between cbdMD, Inc. and T. Ronan Kennedy+ 8-K 10/5/21 10.1 10.8 Amendment 1 to the Amended and Restated Executive Employment Agreement by and between cbd Industries, LLC and R. Scott Coffman Restated Agreement effective January 11, 2022+ 8-K 1/18/22 10.1 10.9 Equipment Purchase Agreement effective April 7, 2022 by and between cbd Industries, LLC and Old Belts Extracts LLC 10-Q 5/13/22 10.21 10.10 Separation Agreement by and between Martin A. Sumichrast and cbdMD, Inc., and its subsidiaries effective June 11, 2022+ 8-K 6/13/22 10.1 10.11 Membership Interest Transfer Agreement dated June 22, 2022 10-Q 8/11/22 10.22 10.12 Agreement for Advertising Placement dated February 1, 2023 S-1 3/13/23 10.17 10.13 Side Letter – Keystone Capital Partners, LLC S-1 3/13/23 10.20 10.14 Common Stock Purchase Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC 8-K 3/2/23 10.1 10.15 Registration Rights Agreement dated March 2, 2023 by and among cbdMD, Inc. and Keystone Capital Partners, LLC 8-K 3/2/23 10.2 10.16 Securities Purchase Agreement, dated as of January 30, 2024, by and between cbdMD, Inc. and the Investors* 8-K 2/2/24 10.1 10.17 Security Agreement, dated as of January 30, 2024, by and between cbdMD, Inc. and the Investors* 8-K 2/2/24 10.2 10.18 Registration Rights Agreement, dated January 30, 2024, by and between cbdMD, Inc. and the Investors 8-K 2/2/24 10.3 10.19 License Agreement, effective as of March 20, 2024, by and between cbdMD, Inc. and HSKL, Inc. 8-K 3/18/24 10.1 10.20 Lease Forbearance Agreement, dated as of March 14, 2024, by and between cbdMD, Inc. and HSKL, Inc. 8-K 3/18/24 10.2 10.21 Amendment to Extend Westinghouse Boulevard Lease dated November 26, 2024 8-K 11/26/24 10.1 14.1 Code of Business Conduct and Ethics 1-A 9/18/17 15.1 19.1 Insider Trading Policy 10-K 12/22/23 19.1 21.1 Subsidiaries of the Registrant 10-K 12/17/21 21.1 23.1 Consent of Cherry Bekaert LLP Filed 24.1 Power of attorney (included on signature page of this report) Filed 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Filed 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Filed 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer Filed 97.1 Clawback Policy 10-K 12/22/23 97.1 101 INS Inline XBRL Instance Document Filed 101 SCH Inline XBRL Taxonomy Extension Schema Filed 101 CAL Inline XBRL Taxonomy Extension Calculation Linkbase Filed 101 LAB Inline XBRL Taxonomy Extension Label Linkbase Filed 101 PRE Inline XBRL Taxonomy Extension Presentation Linkbase Filed 101 DEF Inline XBRL Taxonomy Extension Definition Linkbase 104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) + Indicates management contract or compensatory plan. * 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. 30 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 18, 2024 cbdMD, Inc. By: /s/ T. Ronan Kennedy T. Ronan Kennedy Chief Executive Officer (Principal Executive Officer) Date: December 18, 2024 cbdMD, Inc. By: /s/ T. Ronan Kennedy T. Ronan Kennedy Chief Financial Officer (Principal Financial Officer) Date: December 18, 2024 cbdMD, Inc. By: /s/ Brad Whitford Brad Whitford Chief Accounting Officer POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ronan Kennedy his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments and supplements to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Positions Date /s/ Scott Stephen Chairman of the Board of Directors December 18, 2024 Scott Stephen /s/ Bakari Sellers Director December 18, 2024 Bakari Sellers /s/ William Raines III Director December 18, 2024 William Raines III /s/ Sibyl Swift Director December 18, 2024 Sibyl Swift, PhD 31 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders cbdMD, Inc. and subsidiaries Charlotte, North Carolina Opinion on 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 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 $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 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 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 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 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 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 18, 2024 32 Table of Contents PART 1 – FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS. cbdMD, INC. CONSOLIDATED BALANCE SHEETS September 30, 2024 and 2023 September 30, September 30, 2024 2023 Assets Current assets: Cash and cash equivalents $ 2,452,553 $ 1,797,860 Accounts receivable 983,910 1,216,090 Inventory 2,365,187 4,052,972 Inventory prepaid 159,006 182,675 Prepaid sponsorship 21,754 70,061 Prepaid expenses and other current assets 406,674 750,383 Total current assets 6,389,084 8,070,041 Other assets: Property and equipment, net 454,268 716,579 Operating lease assets 85,817 3,350,865 Deposits for facilities 62,708 138,708 Intangible assets 2,889,580 3,219,090 Investment in other securities, noncurrent 700,000 700,000 Total other assets 4,192,373 8,125,242 Total assets $ 10,581,457 $ 16,195,283 See Notes to Consolidated Financial Statements 33 Table of Contents CONSOLIDATED BALANCE SHEETS September 30, 2024 and 2023 (continued) September 30, September 30, 2024 2023 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 1,541,108 $ 1,906,319 Accrued expenses 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 - Note payable - 2,492 Total current liabilities 8,618,040 4,670,341 Long term liabilities: Long term liabilities - 9 Operating leases - long term portion - 2,403,286 Contingent liability - 90,363 Total long term liabilities - 2,493,658 Total liabilities 8,618,040 7,163,999 Commitments and Contingencies (Note 11) cbdMD, Inc. shareholders' equity: Preferred stock, authorized 50,000,000 shares, $ 0.001 par value, 5,000,000 and 5,000,000 shares issued and outstanding, respectively 5,000 5,000 Common stock, authorized 150,000,000 shares, $ 0.001 par value, 3,939,057 and 2,960,573 shares issued and outstanding, respectively 3,939 2,961 Additional paid in capital 184,029,565 183,387,095 Comprehensive other expense ( 7,189 ) - Accumulated deficit ( 182,067,898 ) ( 174,363,772 ) Total cbdMD, Inc. shareholders' equity 1,963,417 9,031,284 Total liabilities and shareholders' equity $ 10,581,457 $ 16,195,283 See Notes to Consolidated Financial Statements 34 Table of Contents cbdMD, INC. CONSOLIDATED STATEMENTS OF OPERATIONS September 30, 2024 and 2023 2024 2023 Gross Sales $ 19,922,319 $ 25,053,857 Allowances ( 440,152 ) ( 898,495 ) Total Net Sales 19,482,167 24,155,362 Cost of sales 7,486,626 9,177,703 Gross Profit 11,995,541 14,977,659 Operating expenses 15,310,951 24,246,208 Impairment of goodwill and other intangible assets - 13,219,000 Loss from operations ( 3,315,410 ) ( 22,487,549 ) Realized and unrealized loss on marketable and other securities, including impairments - ( 700,000 ) Decrease of contingent liability 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 ( 3,700,126 ) ( 22,938,209 ) Benefit (expense) for income taxes - - Net Loss ( 3,700,126 ) ( 22,938,209 ) Preferred dividends 4,004,001 4,002,000 Net Loss attributable to common shareholders $ ( 7,704,127 ) $ ( 26,940,209 ) Net Loss per share: 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 35 Table of Contents cbdMD, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED September 30, 2024 and 2023 2024 2023 Net Loss $ ( 3,700,126 ) $ ( 22,938,209 ) Comprehensive Loss ( 3,700,126 ) ( 22,938,209 ) Preferred dividends ( 4,004,001 ) ( 4,002,000 ) Comprehensive Loss available to common shareholders $ ( 7,704,127 ) $ ( 26,940,209 ) See Notes to Consolidated Financial Statements 36 Table of Contents cbdMD, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED September 30, 2024 and 2023 2024 2023 Cash flows from operating activities: Net Loss $ ( 3,700,126 ) $ ( 22,938,209 ) Adjustments to reconcile net loss to net cash used by operating activities: Stock based compensation 5,015 233,666 Restricted stock expense 11,885 109,202 Write off of prepaid assets due to termination of contractual obligation - 884,892 Inventory and materials impairment 921,314 175,499 Intangibles amortization 697,510 1,396,459 Depreciation 452,326 404,280 Impairment of goodwill and other intangible assets - 13,219,000 Increase/(Decrease) in contingent liability ( 74,580 ) ( 185,638 ) Increase in fair value of convertible debt 429,789 - Other-than-temporary impairment on other investments - 700,000 Gain on termination of operating lease 696,280 - Amortization of operating lease asset 670,621 1,126,976 Changes in operating assets and liabilities: Accounts receivable 232,180 278,482 Deposits 76,000 105,898 Inventory 766,472 27,443 Prepaid inventory 23,670 328,784 Prepaid expenses and other current assets 396,311 2,095,323 Accounts payable and accrued expenses ( 1,124,141 ) ( 1,290,141 ) Operating lease liability ( 1,151,326 ) ( 1,178,683 ) Deferred revenue / customer deposits 318,008 203,341 Collection on discontinued operations accounts receivable - 1,375 Cash used by operating activities ( 352,792 ) ( 4,302,051 ) Cash flows from investing activities: Proceeds from sale of other investment securities - 1,000,000 Purchase of intangible assets ( 100,000 ) - Purchase of property and equipment ( 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 50,001 2,478,325 Note payable 1,247,499 ( 132,599 ) Preferred dividend distribution - ( 3,668,500 ) Cash provided (used) by financing activities 1,297,500 ( 1,322,774 ) Net increase (decrease) in cash 654,693 ( 4,922,374 ) Cash and cash equivalents, beginning of year 1,797,860 6,720,234 Cash and cash equivalents, end of year $ 2,452,553 $ 1,797,860 Supplemental Disclosures of Cash Flow Information: 2024 2023 Cash Payments for: Interest expense $ 74,638 $ 6,399 Non-cash financial/investing activities: Issuance of shares for conversion of debt and accrued interest $ 515,601 $ - Issuance of shares for intangible asset $ 40,725 $ - Preferred dividends accrued but not paid $ 4,004,001 $ 667,000 See Notes to Consolidated Financial Statements 37 Table of Contents cbdMD, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2024 and 2023 Other Additional Common Stock Preferred Stock Comprehensive Paid in Accumulated Shares Amount Shares Amount Income Capital Deficit Total Balance, September 30, 2023 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 - - - - - 1,772 - 1,772 Issuance of restricted stock for share based compensation - - - - - 689 - 689 Preferred dividend declared, not paid - - - - - - ( 1,000,501 ) ( 1,000,501 ) Net Loss - - - - - - ( 996,501 ) ( 996,501 ) Balance, December 31, 2023 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 - - - - - 1,080 - 1,080 Issuance of restricted stock for share based compensation - - - - - 303 - 303 Change in far value of debt related to credit risk - - - - ( 6,000 ) - - ( 6,000 ) Issuance of Common stock - Keystone 64,218 64 - - - 49,936 - 50,000 Preferred dividend declared, not paid - - - - - - ( 1,000,500 ) ( 1,000,500 ) Net Income (loss) - - - - - - ( 3,010,562 ) ( 3,010,562 ) Balance, March 31, 2024 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 - - - - - 5,376 - 5.376 Issuance of restricted stock for share based compensation, net - - - - - 7,167 - 7.167 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 ) Net Income - - - - - - 459,737 459,737 Balance, June 30, 2024 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 4,000 4 - - - ( 4 ) - - Issuance of options for share based compensation - - - - - 1,080 - 1.080 Issuance of restricted stock for share based compensation - - - - - 3,727 - 3.727 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 ) Net Loss - - - - - - ( 152,798 ) ( 152,798 ) Balance, Balance at September 30, 2024 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 38 Table of Contents cbdMD, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2024 and 2023 Other Additional Common Stock Preferred Stock Comprehensive Paid in Accumulated Shares Amount Shares Amount Income Capital Deficit Total Balance, September 30, 2022 1,348,125 $ 1,348 5,000,000 $ 5,000 $ - $ 178,841,646 $ ( 147,423,563 ) $ 31,424,431 Issuance of Common stock 1,038 1 - - - ( 1 ) - - Issuance of options for share based compensation - - - - - 79,446 - 79,446 Issuance of restricted stock for share based compensation - - - - - 43,449 - 43,449 Preferred dividend - - - - - - ( 1,000,502 ) ( 1,000,502 ) Net Income (loss) - - - - - - ( 3,956,062 ) ( 3,956,062 ) Balance, December 31, 2022 1,349,163 1,349 5,000,000 5,000 - 178,964,539 ( 152,380,127 ) 26,590,761 Issuance of Common stock 8,417 8 - - - ( 8 ) - - Issuance of options for share based compensation - - - - - 16,770 - 16,770 Issuance of restricted stock for share based compensation - - - - - 56,801 - 56,801 Issuance of Common stock - A360 94,277 94 - - - 1,399,906 - 1,400,000 Issuance of Common stock - DCO 2,223 2 - - - 29,998 - 30,000 Issuance of Common stock - Keystone 2,616 3 - - - 29,190 - 29,193 Roundup fractional shares resulting from reverse split - 1 - - - - - 1 Preferred dividend - - - - - - ( 1,000,500 ) ( 1,000,500 ) Net Income (loss) - - - - - - ( 1,336,802 ) ( 1,336,802 ) Balance, March 31, 2023 1,456,696 1,457 5,000,000 5,000 - 180,497,196 ( 154,717,429 ) 25,786,224 Issuance of Common stock 9,000 9 - - - 69,606 - 69,615 Issuance of options for share based compensation, net - - - - - 34,663 - 34,663 Issuance of restricted stock for share based compensation, net - - - - - 4,845 - 4,845 Issuance of Common stock - A360 - - - - - 133,200 - 133,200 Issuance of Common stock - Maxim 1,350,000 1,350 - - - 2,472,730 - 2,474,080 Fractional share true-up 39,533 39 - - - ( 39 ) - - Preferred dividend - - - - - - ( 1,000,501 ) ( 1,000,501 ) Net Income (loss) - - - - - - ( 1,770,404 ) ( 1,770,404 ) Balance, June 30, 2023 2,855,229 2,855 5,000,000 5,000 - 183,212,202 ( 157,488,334 ) 25,731,723 Issuance of Common stock 112 0 - - - ( 112 ) - ( 112 ) Issuance of options for share based compensation - - - - - 33,171 - 33,171 Issuance of restricted stock for share based compensation - - - - - 3,996 - 3,996 Issuance of Common stock - Keystone 105,232 105 - - - 97,338 - 97,443 Maxim transaction expenses - - - - - 40,500 - 40,500 Preferred dividend - - - - - - ( 1,000,497 ) ( 1,000,497 ) Net Income (loss) - - - - - - ( 15,874,941 ) ( 15,874,941 ) Balance, Balance at September 30, 2023 2,960,573 $ 2,961 5,000,000 $ 5,000 $ - $ 183,387,095 $ ( 174,363,772 ) $ 9,031,284 See Notes to Condensed Consolidated Financial Statements 39 Table of Contents cbdMD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED September 30, 2024 and 2023 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Business cbdMD, Inc. ("cbdMD", "we", "us", “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to cbdMD, Inc. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30. 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 On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023. Unless otherwise indicated, all share numbers in this filing, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the reverse stock split. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI, Paw CBD, Proline Global, and Therapeutics. All material intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The Company's consolidated financial statements have been prepared in accordance with US GAAP and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, certain assumptions related to the valuation of investments other securities, and acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets. Actual results could differ from these estimates. Cash and Cash Equivalents For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. Accounts Receivable Accounts receivables are stated at cost less an allowance for 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. 40 Table of Contents Merchant Receivable The Company primarily sells its products through the internet and has an arrangement to process customer payments with multiple third -party payment processors. The Company pays a fee between 2.5 % and 4.0 % of the transaction amounts processed. Pursuant to these agreements, there can be a waiting period between 2 to 5 days prior to reimbursement to the Company, as well as a calculated reserve which some payment processors hold back. Fees and reserves can change periodically with notice from the processors. At September 30, 2024, the receivable from payment processors included $ 621,678 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end. Customer Deposits Customer deposits consist of payments received in advance of revenue recognition. Revenue is recognized as revenue recognition criteria are met. Property and Equipment Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for manufacturing equipment and automobiles and three years for software, computer, and furniture and equipment. The useful life for leasehold improvements are over the term of the lease or expected life of the asset, whichever is less. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable. Fair Value Accounting The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When the Company records an investment in marketable securities the carrying value is recorded at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For 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. 41 Table of Contents Intangible Assets The Company's intangible assets consist of trademarks and other intellectual property, all of which were previously accounted for in accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other . The Company employed the non-amortization approach to account for purchased intangible assets having indefinite lives. Under the non-amortization approach, intangible assets having indefinite lives were not amortized into the results of operations, but instead were reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. We previously performed an annual impairment analysis each fiscal year on the indefinite-lived intangible assets following the steps laid out in ASC 350 - 30 - 35 - 18. Our annual impairment analysis included a qualitative assessment to determine if it was necessary to perform the quantitative impairment test. In performing a qualitative assessment, we reviewed events and circumstances that could affect the significant inputs used to determine if the fair value was less than the carrying value of the intangible assets. If a quantitative analysis was necessary, we would analyze various aspects including revenues from the business, associated with the intangible assets. In addition, intangible assets would be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The Company analyzed a variety of factors on its business to determine if a circumstance could trigger an impairment loss, and, at the time and based on the information then known, had determined that is it was more likely than not that an impairment loss had occurred. See Note 5 more further information on the impairment testing procedures performed at December 31, 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, 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 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. Revenue Recognition Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five -step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company meets that obligation when it has shipped products which have been ordered by the customer. The Company has reviewed its various revenue streams for its other contracts under the five -step approach. 42 Table of Contents Allocation of Transaction Price In the Company’s current business model, it does not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order-based product sales. Revenue Recognition The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (and is typically FOB shipping) which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 60 -day, money-back guarantee. Disaggregated Revenue The Company’s product revenue is generated primarily through two sales channels, E-commerce sales (formerly referred to as consumer sales) and wholesale sales. The Company believes that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors. A description of the Company’s principal revenue generating activities are as follows: - E-commerce sales - consumer products sold through the Company’s online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment; and - Wholesale sales - products sold to the Company’s wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer The following table represents a disaggregation of revenue by sales channel: Fiscal 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 Contract assets represent unbilled receivables and are presented within accounts receivable, net on the consolidated balance sheets. Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the consolidated balance sheets. The Company had no material contract assets or liabilities at the beginning or ending of September 30, 2024 and 2023 . 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 $ 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. We are constantly evaluating advertising methods and costs and working to drive down our cost of customer acquisition. Income Taxes The Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. As of October 1, 2019, CBDI and Paw CBD were wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Company and as of March 15, 2021, Therapeutics is also a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Company. The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the Financial Accounting Standards Board ("FASB") ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. 43 Table of Contents US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of September 30, 2024 and 2023 , there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements. Concentrations Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $ 1,893,606 uninsured balance at September 30, 2024 and a $ 1,163,360 uninsured balance at September 30, 2023 . Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the year ended September 30, 2024 . Stock-Based Compensation The Company accounts for its stock compensation under the ASC 718 - 10 - 30, Compensation - Stock Compensation using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The Company uses the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. The Company recognizes forfeitures when they occur. Liquidity and Going Concern Considerations The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company experienced a loss of $ 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. 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. 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 The Company uses ASC 260 - 10, Earnings Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders, after deducting preferred stock dividends, by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. On February 16, 2023, we held an annual meeting of stockholders. At the annual meeting, our stockholders approved an amendment to our articles of incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares of common stock by a ratio of between one -for- twenty to one -for-fifty, inclusive, with the exact ratio to be set at the discretion of our board of directors, at any time after approval of the amendment and prior to February 16, 2024. On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023 ( the "Reverse Stock Split"). Unless otherwise indicated, all share numbers in this report, including shares of common stock and all securities convertible into, or exercisable for, shares of common stock, give effect to the Reverse Stock Split. New Accounting Standards The Company 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 adoption of this standard had no material impact on the consolidated financial statements. 44 Table of Contents 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. The determination was based on a number of factors, including Steady State’s financial performance, our experience with production and cbdMD’s determination to re-source production to other suppliers. As such we believe it was prudent to reassess the carrying value of this non-liquid security. The 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 : In Active Markets for Significant Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs (Level 1) (Level 2) (Level 3) Balance at September 30, 2022 $ - $ - $ ( 276,000 ) Change in value of equities - - - Change in value of contingent liability - - - Additional Investment - - 185,638 Balance at September 30, 2023 - - ( 90,362 ) Change in value of contingent liability - - 90,362 Fair value of convertible notes 1,171,308 Balance at September 30, 2024 $ - $ - $ 1,171,308 NOTE 3 – INVENTORY Inventory at September 30, 2024 and 2023 consists of the following: September 30, September 30, 2024 2023 Finished Goods $ 1,534,718 $ 2,782,680 Inventory Components 830,469 1,397,034 Inventory Reserve - ( 126,742 ) Inventory prepaid 159,006 182,675 Total Inventory $ 2,524,193 $ 4,235,647 45 Table of Contents Abnormal amounts of idle facility expense, freight, handling costs, scrap, and wasted material (spoilage) are expensed in the period they are incurred and no material expenses related to these items occurred in the year ended September 30, 2024 . 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: September 30, September 30, 2024 2023 Computers, furniture and equipment $ 1,587,411 $ 1,392,776 Manufacturing equipment 284,275 284,275 Leasehold improvements 487,081 487,081 Automobiles - 11,087 2,358,767 2,175,219 Less accumulated depreciation ( 1,904,499 ) ( 1,458,640 ) Property and equipment, net $ 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 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 As of July 1, 2023 the Company determined that based on market forces and the Company’s outlook it was prudent to adjust the useful lives of cbdMD’s and DCO intangibles to 5 year useful lives and hempMD’s trademark to 10 year amortization to better reflect the outlook of the brands. This re-evaluation of the tradenames became a triggering event for a valuation test under ASC 360. As a result of a multi-step approach under ASC 360 we determined that the “cbdMD,” “DirectCBDOnline” tradenames and the technology relieve asset was impaired by $6,027,000, and as a result, the amortization was adjusted to account for any changes in the value and estimated useful life of each asset. Amortization expense for the year ended September 30, 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, 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: September 30, September 30, 2024 2023 Trademark related to cbdMD $ 21,585,000 $ 21,585,000 Trademark for HempMD 50,000 50,000 Technology Relief from Royalty related to DirectCBDOnline.com 667,844 667,844 Tradename related to CBD MD limited mark 368,000 - Tradename related to DirectCBDOnline.com 749,567 749,567 Impairment of definite lived intangible assets: ( 17,504,000 ) ( 17,504,000 ) Amortization of definite lived intangible assets: ( 3,026,831 ) ( 2,329,321 ) Total $ 2,889,580 $ 3,219,090 46 Table of Contents Future amortization of intangible assets as of September 30, 2024 is as follow: For the year ended September 30, 2025 $ 762,457 2026 733,740 2027 733,740 2028 569,923 Thereafter 89,720 Total future intangibles amortization $ 2,889,580 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 Shares Issued/ Each $ of Aggregate Net Revenue Ratio $ 1 - $ 20,000,000 0.004236111 $ 20,000,001 - $ 60,000,000 0.002118056 $ 60,000,001 - $ 140,000,000 0.001059028 $ 140,000,001 - $ 300,000,000 0.005295139 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. 47 Table of Contents NOTE 7 – RELATED PARTY TRANSACTIONS None. NOTE 8 – SHAREHOLDERS ’ EQUITY Preferred Stock – The Company is authorized to issue 50,000,000 shares of preferred stock, par value $ 0.001 per share. In October 2019, the Company designated 5,000,000 of these shares as 8.0 % Series A Cumulative Convertible Preferred Stock. Our 8.0% Series A Cumulative Convertible Preferred Stock ranks senior to our common stock for liquidation or dividend provisions and holders are entitled to receive cumulative cash dividends at an annual rate of 8.0% payable monthly in arrears for the prior month. The Company reviewed ASC 480 – Distinguishing Liabilities from Equity in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity. There were 5,000,000 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 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 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 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. 48 Table of Contents 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. 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. 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 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 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. The shares are 70 % fully vested; 15 % of the Shares shall vest upon each advertising placement accrue pro-rata as percentage of the total advertising placement; and 15 % of the shares shall vest provided there are no restrictions in product categories that the Company is able to market with a360 while the Company utilizes the advertising placement. Any shares which do not vest within the term of the agreement shall be forfeited. The Advertising Placement must be used by the Company prior to December 30, 2023, unless otherwise agreed in writing by both parties. In January of 2023, the Company issued 2,223 shares of common stock to Twenty Two Capital as the final obligation under the 2021 acquisition agreement upon the expiration of the indemnification period. 49 Table of Contents 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. The options vested immediately, have a strike price of $ 12.60 and a five -year term. The Company has recorded a total prepaid expense of $ 21,120 and intends to amortize the expense over the 12 -month board term. In January 2023, the Company issued 2,334 options to a group of employees. The stock options awards vested at issuance, had a strike price of $ 10.53 , five -year term and a fair market value upon issuance of $ 15,225 . In December 2022, the Company issued 2,223 options to an employee. 1,667 options vest equally at each anniversary for the next 3 years, have a strike price of $ 11.25 and a five year term. The total expense of these options is $ 13,150 and will be amortized over the term of the vesting periods. 556 options vest based on meeting certain direct to consumer revenue requirements by the end of December 2024. 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. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. The pre-vesting forfeiture rate of zero is based upon the experience of the Company. As required under ASC 718, the Company will adjust the estimated forfeiture rate to its actual experience. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination. The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the years ended September 30, 2024 and 2023 : 2024 2023 Weighted average exercise price $ 0.54 10.35 - 12.60 Risk free interest rate 4 % 3.93 % - 4.71 % Volatility 107 % 106.48 % - 106.51 % Expected term (in years) 2.5 2.5 - 4 Dividend yield None None 50 Table of Contents Warrant transactions: The Company had no warrant transactions during the twelve months ended September 30, 2024. NOTE 9 -STOCK-BASED COMPENSATION Equity Compensation Plan – On June 2, 2015, the Board of Directors of the Company approved the 2015 Equity Compensation Plan ( “2015 Plan”). The 2015 Plan made 26,112 common stock shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The number of shares of common stock available for issuance under the 2015 Plan shall automatically increase on the first trading day of our fiscal year during the term of the 2015 Plan, beginning with calendar year 2016, by an amount equal to one percent ( 1 %) of the total number of shares of common stock outstanding on the last trading day in September of the immediately preceding fiscal year, but in no event shall any such annual increase exceed 2,223 shares of common stock. On April 19, 2019, shareholders approved an amendment to the 2015 Plan and increased the number of shares available for issuance under the 2015 Plan to 45,445 and retained the annual evergreen increase provision of the plan. Subsequent thereto, on August 7, 2019 the Company’s Board of Directors approved an amendment to the 2015 Plan changing the date the automatic evergreen increase is determined to the first trading day of October each calendar year during the term of the 2015 Plan to coincide with the Company’s fiscal year. On January 8, 2021, the Company’s Board of Directors approved the 2021 Equity Compensation Plan (the “2021 Plan”) and it was subsequently ratified by its shareholders at its annual meeting held on March 12, 2021. The purpose of the 2021 Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to it and upon whose efforts and judgment the success of the Company is largely dependent. The 2021 Plan made 111,112 common shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The 2021 Plan also contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on October 1 of each calendar year during the term of the 2021 Plan, beginning with calendar year 2022, by an amount equal to 1.0 % of the total number of shares of common stock outstanding on September 30 of such calendar year, up to a maximum of 5,556 shares. The Company accounts for stock-based compensation using the provisions of ASC 718. ASC 718 codification requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. All options are approved by the Compensation, Corporate Governance and Nominating Committee of the Board of Directors. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of the Company’s stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model. Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. Options granted generally have a five -to- ten -year term and have vesting terms that cover one to three years from the date of grant. Certain of the stock options granted under the plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms. Stock Options: The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period. The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year. 51 Table of Contents The following table summarizes stock option activity under both plans for the fiscal years ended September 30, 2024 and 2023 : Weighted-average remaining Aggregate Weighted-average contractual term intrinsic value Number of shares exercise price (in years) (in thousands) Outstanding at September 30, 2022 55,656 $ 151.10 4.55 $ - Granted 7,233 11.51 - Exercised - - Forfeited ( 21,124 ) 88.12 Outstanding at September 30, 2023 41,765 144.43 3.65 - Granted 8,000 0.86 - Exercised - - Forfeited ( 5,730 ) 117.35 Outstanding at September 30, 2024 44,035 123.58 3.14 - Exercisable at September 30, 2024 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. The shares vest quarterly one fourth on June 30, 2023, one fourth, on September 30, 2023, one fourth on December 31, 2023, and one fourth on March 31, 2024. The stock awards were valued at the fair market price of $ 5,660 upon issuance and will amortize over the individual vesting periods. In January 2023, the Company issued 3,889 shares to a group of employees. The shares vested upon issuance, having a fair market value upon issuance of $ 40,950 . In December 2022, the Company issued 1,112 shares of restricted common stock to an employee. 556 shares vested upon issuance and the Company recorded a total expense of $ 6,250 . 556 shares vest based on meeting certain direct to consumer revenue performance hurdles prior to December 2024. 52 Table of Contents NOTE 10 – WARRANTS Transactions involving the Company equity-classified warrants for the fiscal years ended September 30, 2024 and 2023 are summarized as follows: Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2022 13,204 $ 210.45 2.30 $ - Granted 40,500 2.52 - Exercised - - Forfeited ( 3,395 ) 242.55 Outstanding at September 30, 2023 50,309 37.75 2.30 - Granted - - - Exercised - - Forfeited ( 1,352 ) 337.50 Outstanding at September 30, 2024 48,957 337.50 4.07 - Exercisable at September 30, 2024 48,957 $ 29.48 - $ - The following table summarizes outstanding common stock purchase warrants as of September 30, 2024 : Number of shares Weighted-average exercise price Expiration Exercisable at $176.06 per share 1,079 176.06 October 2024 Exercisable at $56.25 per share 822 56.25 January 2025 Exercisable at $168.30 per share 3,357 168.30 December 2025 Exercisable at $168.75 per share 3,199 168.75 June 2026 Exercisable at $2.52 per share 40,500 2.52 April 2028 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 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 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. 53 Table of Contents 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. 54 Table of Contents NOTE 13 – LEASES The Company has lease agreements for its corporate, warehouse and laboratory offices with lease periods expiring between 2024 and 2025. ASC 842 requires the recognition of leasing arrangements on the consolidated balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets. The Company determines whether an arrangement is a lease at inception and classify it as finance or operating. All of the Company’s leases are classified as operating leases. The Company’s leases do not contain any residual value guarantees. Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, the Company determined an incremental borrowing rate for each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date to determine the present value of future lease payments. The Company’s lease terms may include options to extend or terminate the lease. In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes, insurance and common area maintenance expenses during the lease terms. Lease costs on operating leases are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the consolidated statements of operations. Components of operating lease costs are summarized as follows: Year Ended September 30, 2024 Total Operating Lease Costs $ 1,328,497 Supplemental cash flow information related to operating leases is summarized as follows: Year Ended September 30, 2024 Cash paid for amounts included in the measurement of operating lease liabilities $ 1,421,610 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 %. Future minimum aggregate lease payments under operating leases as of September 30, 2024 are summarized as follows: For the year ended September 30, 2024 $ 99,467 Total future lease payments 99,467 Less interest 771 Total lease liabilities $ 98,696 55 Table of Contents NOTE 14 – LOSS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the following periods: Year Ended September 30, September 30, 2024 2023 Basic: Net loss $ ( 3,700,126 ) $ ( 22,938,209 ) Preferred dividends paid or accrued 4,004,001 4,002,000 Net income loss attributable to cbdMD Inc. common shareholders ( 7,704,127 ) ( 26,940,209 ) Shares used in computing basic earnings per share 4,312,546 2,022,320 Shares used in computing diluted earnings per share 4,312,546 2,022,320 Earnings per share Basic: - Basic earnings per share $ ( 1.79 ) $ ( 13.32 ) Earnings per share Diluted: Diluted earnings per share $ ( 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. 56 Table of Contents 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. The Company accounts for is state franchise and minimum taxes as a component of its general and administrative expenses. The following table presents the components of the provision for income taxes from continuing operations for the fiscal years ended September 30, 2024 and 2023 : Year Ended September 30, 2024 2023 Current Federal $ - $ - State - - Total current - - Deferred Federal - - State - - Total deferred - - Total provision $ - $ - A reconciliation for the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended September 30, 2024 2023 Federal statutory income tax rate 21.0 % 21.0 % State income taxes, net of federal benefit 2.1 1.4 Permanent differences 11.9 ( 1.5 ) Contingent derivative expense 0.5 0.2 Change in value of convertible debt ( 2.5 ) 0.0 Change in valuation allowance ( 33.0 ) ( 21.1 ) Provision for income taxes 0.0 % 0.0 % Significant components of the Company’s deferred income taxes are shown below: Year Ended September 30, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 15,478,000 $ 14,784,000 ROU - Liability 22,000 824,000 Capital loss carryforward 702,000 702,000 Allowance for doubtful accounts 77,000 9,000 Stock compensation 481,000 521,000 Intangibles 176,000 105,000 Investments 573,000 180,000 Accrued expenses 101,000 87,000 Fixed Assets 57,000 45,000 Inventory reserve 0 28,000 Capitalized expenses 146,000 43,000 Charitable contributions 13,000 39,000 Total deferred tax assets 17,826,000 17,367,000 Deferred tax liabilities: Prepaid Expenses ( 76,000 ) ( 107,000 ) ROU - Assets ( 19,000 ) ( 750,000 ) Intangibles - - Total deferred tax liabilities ( 95,000 ) ( 857,000 ) Net deferred tax assets 17,731,000 16,510,000 Valuation allowance ( 17,731,000 ) ( 16,510,000 ) Net deferred tax liability $ - $ - 57 Table of Contents Net deferred tax liability The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The deferred tax liabilities that result from indefinite life intangibles cannot be offset by deferred tax assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited if a change in ownership of a company occurs. During the year ending September 30, 2018, the company determined that a change of ownership under IRC Section 382 had occurred during the years ending September 30, 2017 and 2015. As a result of these ownership changes, the pre-ownership change NOL carryforwards would be limited and approximately $ 2.1 million of such NOLs will expire before being utilized. Therefore, at September 30, 2018 the Company reduced the deferred tax asset and related valuation allowance associated with these NOLs by approximately $ 0.5 million due to IRC Section 382. At September 30, 2024 , the Company has utilizable NOL carryforwards of approximately $ 69.1 million which for federal purposes will carryforward indefinitely. The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses. The Company files income tax returns in the United States, and various state jurisdictions. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 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 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. 58