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What changed in cbdMD, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of cbdMD, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+278 added−257 removedSource: 10-K (2024-12-18) vs 10-K (2023-12-22)

Top changes in cbdMD, Inc.'s 2024 10-K

278 paragraphs added · 257 removed · 143 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

76 edited+45 added−86 removed92 unchanged
Biggest changeCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED September 30, 2023 and 2022 2023 2022 Cash flows from operating activities: Net Loss $ (22,938,209 ) $ (70,083,693 ) Adjustments to reconcile net (income) loss to net cash used by operating activities: Stock based compensation 233,666 555,215 Restricted stock expense 109,202 373,610 Write off of prepaid assets due to termination of contractual obligation 884,892 - Marketing stock amortization - 907,774 Inventory and materials impairment 175,499 878,142 Intangibles amortization 1,396,459 884,380 Depreciation 404,280 948,962 Impairment of goodwill and other intangible assets 13,219,000 60,955,970 Gain on sale of fixed assets - (322,017 ) Increase/(Decrease) in contingent liability (185,638 ) (8,473,999 ) Realized and unrealized gain of Marketable and other securities - 33,350 Other-than-temporary impairment on other investments 700,000 - Amortization of operating lease asset 1,126,976 1,137,119 Changes in operating assets and liabilities: Accounts receivable 278,482 65,541 Deposits 105,898 284,977 Inventory 27,443 (112,189 ) Prepaid inventory 328,784 40,060 Prepaid expenses and other current assets 2,095,323 (289,586 ) Accounts payable and accrued expenses (1,290,141 ) (1,812,547 ) Operating lease liability (1,178,683 ) (1,151,152 ) Deferred revenue / customer deposits 203,341 203,341 Collection on discontinued operations accounts receivable 1,375 9,592 Cash used by operating activities (4,302,051 ) (14,967,150 ) Cash flows from investing activities: Proceeds from sale of other investment securities 1,000,000 - Purchase of property and equipment (297,549 ) (688,680 ) Cash provided (used) by investing activities 702,451 (688,680 ) Cash flows from financing activities: Proceeds from issuance of common stock 2,478,325 - Note payable (132,599 ) (33,355 ) Preferred dividend distribution (3,668,500 ) (4,002,005 ) Cash provided by financing activities (1,322,774 ) (4,035,360 ) Net increase (decrease) in cash (4,922,374 ) (19,691,190 ) Cash and cash equivalents, beginning of year 6,720,234 26,411,424 Cash and cash equivalents, end of year $ 1,797,860 $ 6,720,234 Supplemental Disclosures of Cash Flow Information: 2023 2022 Cash Payments for: Interest expense $ 6,399 $ 2,364 Non-cash financial/investing activities: Issuance of Contingent earnout shares: $ - $ 1,086,000 Preferred dividends accrued but not paid $ 667,000 $ - See Notes to Consolidated Financial Statements 36 Table of Contents cbdMD, INC.
Biggest changeCONSOLIDATED 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.
As further outlined in Note 5, during the July of fiscal 2023, the Company determined that based on regulatory uncertainty and ongoing Company performance it was prudent to change the amortization of the “cbdMD” and “directCBDonline” trademarks to 5 years and “hempMD” trademark to 10 years.
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.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2023 and 2022 Additional Common Stock Preferred Stock Paid in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance, September 30, 2022 1,348,125 $ 1,348 5,000,000 $ 5,000 $ 178,841,646 $ (147,423,563 ) $ 31,424,431 Issuance of Common stock 1,038 1 - - (1 ) - - Issuance of options for share based compensation - - - - 79,446 - 79,446 Issuance of restricted stock for share based compensation - - - - 43,449 - 43,449 Preferred dividend - - - - - (1,000,502 ) (1,000,502 ) Net Income (loss) - - - - - (3,956,062 ) (3,956,062 ) Balance, December 31, 2022 1,349,163 1,349 5,000,000 5,000 178,964,539 (152,380,127 ) 26,590,761 Issuance of Common stock 8,417 8 - - (8 ) - - Issuance of options for share based compensation - - - - 16,770 - 16,770 Issuance of restricted stock for share based compensation - - - - 56,801 - 56,801 Issuance of Common stock - A360 94,277 94 - - 1,399,906 - 1,400,000 Issuance of Common stock - DCO 2,223 2 - - 29,998 - 30,000 Issuance of Common stock - Keystone 2,616 3 - - 29,190 - 29,193 Roundup fractional shares resulting from reverse split - 1 - - - - 1 Preferred dividend - - - - - (1,000,500 ) (1,000,500 ) Net Income (loss) - - - - - (1,336,802 ) (1,336,802 ) Balance, March 31, 2023 1,456,696 1,457 5,000,000 5,000 180,497,196 (154,717,429 ) 25,786,224 Issuance of Common stock 9,000 9 - - 69,606 - 69,615 Issuance of options for share based compensation, net - - - - 34,663 - 34,663 Issuance of restricted stock for share based compensation, net - - - - 4,845 - 4,845 Issuance of Common stock - A360 - - - - 133,200 - 133,200 Issuance of Common stock - Maxim 1,350,000 1,350 - - 2,472,730 - 2,474,080 Fractional share true-up 39,533 39 - - (39 ) - - Preferred dividend - - - - - (1,000,501 ) (1,000,501 ) Net Income (loss) - - - - - (1,770,404 ) (1,770,404 ) Balance, June 30, 2023 2,855,229 2,855 5,000,000 5,000 183,212,202 (157,488,334 ) 25,731,723 Issuance of Common stock 112 0 - - (112 ) - (112 ) Issuance of options for share based compensation - - - - 33,171 - 33,171 Issuance of restricted stock for share based compensation - - - - 3,996 - 3,996 Issuance of Common stock - Keystone 105,232 105 - - 97,338 - 97,443 Maxim transaction expenses - - - - 40,500 - 40,500 Preferred dividend - - - - - (1,000,497 ) (1,000,497 ) Net Income (loss) - - - - - (15,874,941 ) (15,874,941 ) Balance, Balance at September 30, 2023 2,960,573 $ 2,961 5,000,000 $ 5,000 $ 183,387,095 $ (174,363,772 ) $ 9,031,284 See Notes to Condensed Consolidated Financial Statements 37 Table of Contents cbdMD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 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.
The Company pays a fee between 2.5% and 5.0% of the transaction amounts processed. Pursuant to these agreements, there can be a waiting period between 2 to 5 days prior to reimbursement to the Company, as well as a calculated reserve which some payment processors hold back. Fees and reserves can change periodically with notice from the processors.
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.
A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. 42 Table of Contents US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service.
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.
The Company has reviewed its various revenue streams for its other contracts under the five -step approach. 41 Table of Contents Allocation of Transaction Price In the Company’s current business model, it does not have contracts with customers which have multiple elements as revenue is driven purely by online product sales or purchase order-based product sales.
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.
Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For investment other securities without a readily determinable fair value, the Company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED September 30, 2023 and 2022 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Business cbdMD, Inc. ("cbdMD", "we", "us", “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc.
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.
See Note 5 more further information on the impairment testing procedures performed at December 31, 2021 and the Company’s decision to change from indefinite to definite lived status for its trademarks. The Company now accounts for its trademarks in accordance with Accounting Standards Codification (ASC) Topic 360, Property, Plant and Equipment.
See Note 5 more further information on the impairment testing procedures performed at December 31, 2022 and the Company’s decision to change from indefinite to definite lived status for its trademarks. The Company now accounts for its trademarks in accordance with Accounting Standards Codification (ASC) Topic 360, Property, Plant and Equipment.
The Company began amortizing its trademarks over 20 years beginning January 1, 2022 and will perform impairment tests as prescribed by ASC 360, which states that impairment testing should be completed whenever events or changes in circumstances indicate that the asset group's carrying value may not be recoverable.
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.
Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the year ended September 30, 2023 . Stock-Based Compensation The Company accounts for its stock compensation under the ASC 718 - 10 - 30, Compensation - Stock Compensation using the fair value-based method.
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.
Management has analyzed the tax positions taken by the Company, and has concluded that as of September 30, 2023 and 2022 , there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements.
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.
Upon the execution of the Purchase Agreement, The Company issued 2,616 shares of common stock as "Commitment Shares" to Keystone as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement. Additional Commitment Shares (6,104) will be issued over 180 days from March 2, 2023.
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.
Restricted Stock Award transactions: In the twelve months ended September 30, 2023: In February of 2023, the Company issued 448 restricted stock awards to the Company’s board of directors. The shares vest quarterly one fourth on June 30, 2023, one fourth, on September 30, 2023, one fourth on December 31, 2023, and one fourth on March 31, 2024.
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.
Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the consolidated balance sheets. The Company had no material contract assets or liabilities at the beginning or ending of September 30, 2023 and 2022.
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 .
The purchase price for the shares that the Company may sell to Keystone under the Purchase Agreement will fluctuate based on the price of the Company's common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
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.
The contractual obligations and earn out provision are accounted for as a contingent liability and fair value is determined using Level 3 inputs, as estimating the fair value of these contingent liabilities require the use of significant and subjective inputs that may and are likely to change over the duration of the liabilities with related changes in internal and external market factors.
The 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 Company reviewed ASC 480 – Distinguishing Liabilities from Equity in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity. There were 5,000,000 and 5,000,000 shares of 8.0% Series A Cumulative Convertible Preferred Stock issued and outstanding at September 30, 2023 and September 30, 2022 , respectively.
The 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 281,934 shares of the Company's common stock were registered for resale and may be issued under the Purchase Agreement or sold by us to Keystone at our discretion from time to time over a 12 -month period commencing April 1, 2023, subject to a 75 day blackout period commencing April 30, 2023.
The 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 Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 2023 and 2022, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties.
The Company’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.
Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio.
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.
Cash and Cash Equivalents For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. Accounts Receivable Accounts receivables are stated at cost less an allowance for doubtful accounts, if applicable.
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.
The Company also issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $2.52 per share. On April 24, 2023 the Company issued a total of 39,533 shares of common stock to account for rounding up of fractional shares related to the Reverse Stock Split.
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.
New Accounting Standards The Company will be adopting ASU 2016 - 13 Financial Instruments – Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments (ASC 326 ) effective October 1, 2023. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
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.
Components of operating lease costs are summarized as follows: Year Ended September 30, 2023 Total Operating Lease Costs $ 1,328,497 Supplemental cash flow information related to operating leases is summarized as follows: Year Ended September 30, 2023 Cash paid for amounts included in the measurement of operating lease liabilities $ 1,380,204 As of September 30, 2023 , our operating leases had a weighted average remaining lease term of 2.99 years and a weighted average discount rate of 4.66%.
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%.
The Company wrote down inventory of $175,499 during the fourth quarter of fiscal year ended September 30, 2023 primarily related to obsolete and expired stock keeping units (“SKU”s). We work hard to minimize inventory write-downs and slow moving and aging SKUs and work, as we work to streamline our offerings to higher velocity products and eliminate slow-moving and aging SKUs.
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.
At September 30, 2023 , the Company has utilizable NOL carryforwards of approximately $65.9 million which for federal purposes will carryforward indefinitely. The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses. The Company files income tax returns in the United States, and various state jurisdictions.
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.
At September 30, 2023 , the receivable from payment processors included $585,345 for the waiting period amount and is recorded as accounts receivable in the accompanying consolidated balance sheet. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis.
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 Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $1,163,360 uninsured balance at September 30, 2023 and a $5,752,550 uninsured balance at September 30, 2022. Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies.
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.
In April 2023, the Company issued 8,889 shares to Keystone under the Purchase Agreement entered into in March of 2023.
In April 2023, the Company issued 8,889 shares to Keystone under the ELOC entered into in March of 2023.
During the year ended September 30, 2021, the Company generated enough indefinite life deferred tax assets from post-merger NOLs to reduce the naked credits to zero during the year and continue to record a valuation allowance on remaining deferred tax assets. NOTE 16 – SUBSEQUENT EVENTS None. 55
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.
Advertising Costs The Company expenses all costs of advertising and related marketing and promotional costs as incurred. The Company incurred $6.0 million and $14.3 million in advertising and marketing and promotional costs included in operating expenses during the years ended September 30, 2023 and 2022 respectively.
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.
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.
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.
Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year. 49 Table of Contents The following table summarizes stock option activity under both plans for the fiscal years ended September 30, 2023 and 2022 : Weighted-average remaining Aggregate Weighted-average contractual term intrinsic value Number of shares exercise price (in years) (in thousands) Outstanding at September 30, 2021 60,101 $ 198.90 5.13 $ - Granted 23,556 43.65 - Exercised - - - Forfeited (28,000 ) 163.35 - Outstanding at September 30, 2022 55,656 151.10 4.55 - Granted 7,233 11.51 - Exercised - - - Forfeited (21,124 ) 88.12 - Outstanding at September 30, 2023 41,765 144.43 3.65 - Exercisable at September 30, 2023 39,542 $ 151.92 3.67 $ - As of September 30, 2023 , there was approximately $7,858 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 2.3 years.
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.
In March 2, 2023, the Company entered into a Purchase Agreement (the "Purchase Agreement") with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone has committed to purchase up to 281,934 of shares of our common stock.
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.
As of September 30, 2023 and September 30, 2022 , we had an allowance for doubtful accounts of $42,180 and $36,980, respectively. 39 Table of Contents Merchant Receivable The Company primarily sells its products through the internet and has an arrangement to process customer payments with multiple third -party payment processors.
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 following table presents the components of the provision for income taxes from continuing operations for the fiscal years ended September 30, 2023 and 2022 : Year Ended September 30, 2023 2022 Current Federal $ - $ - State - - Total current - - Deferred Federal - - State - - Total deferred - - Total provision $ - $ - A reconciliation for the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended September 30, 2023 2022 Federal statutory income tax rate 21.0 % 21.0 % State income taxes, net of federal benefit 1.4 0.4 Permanent differences (1.5 ) (17.1 ) Contingent derivative expense 0.2 2.5 Change in valuation allowance (21.1 ) (6.8 ) Provision for income taxes 0.0 % 0.0 % Significant components of the Company’s deferred income taxes are shown below: Year Ended September 30, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 14,784,000 $ 12,909,000 ROU - Liability 824,000 1,087,000 Capital loss carryforward 702,000 702,000 Allowance for doubtful accounts 9,000 8,000 Stock compensation 521,000 833,000 Intangibles 105,000 - Investments 180,000 452,000 Accrued expenses 87,000 214,000 Fixed Assets 45,000 40,000 Inventory reserve 28,000 35,000 Capitalized expenses 43,000 48,000 Charitable contributions 39,000 45,000 Total deferred tax assets 17,367,000 16,373,000 Deferred tax liabilities: Prepaid Expenses (107,000 ) (257,000 ) ROU - Assets (750,000 ) (1,002,000 ) Intangibles - (3,426,000 ) Total deferred tax liabilities (857,000 ) (4,685,000 ) Net deferred tax assets 16,510,000 11,688,000 Valuation allowance (16,510,000 ) (11,688,000 ) Net deferred tax liability $ - $ - 54 Table of Contents Net deferred tax liability The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized.
The 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.
Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer The following table represents a disaggregation of revenue by sales channel: Fiscal 2023 % of total Fiscal 2022 % of total E-commerce sales $ 19,436,124 80.5 % $ 26,435,203 74.7 % Wholesale sales $ 4,719,238 19.5 % $ 8,968,021 25.3 % Total Net Sales $ 24,155,362 $ 35,403,224 Contract assets represent unbilled receivables and are presented within accounts receivable, net on the consolidated balance sheets.
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.
The table below summarizes the assets and liabilities valued at fair value as of September 30, 2023 : In Active Markets for Significant Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs (Level 1) (Level 2) (Level 3) Balance at September 30, 2021 $ 33,351 $ - $ (9,856,000 ) Change in value of equities (33,351 ) - - Change in value of contingent liability - - 9,580,000 Additional Investment - - - Balance at September 30, 2022 - - (276,000 ) Change in value of contingent liability - - 185,638 Additional Investment - - - Balance at September 30, 2023 $ - $ - $ (90,362 ) NOTE 3 – INVENTORY Inventory at September 30, 2023 and 2022 consists of the following: September 30, September 30, 2023 2022 Finished Goods $ 2,782,680 $ 3,198,488 Inventory Components 1,397,034 1,213,724 Inventory Reserve (126,742 ) (156,298 ) Inventory prepaid 182,675 511,459 Total Inventory $ 4,235,647 $ 4,767,373 44 Table of Contents Abnormal amounts of idle facility expense, freight, handling costs, scrap, and wasted material (spoilage) are expensed in the period they are incurred and no material expenses related to these items occurred in the year ended September 30, 2023.
The 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 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 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 .
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.
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.
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.
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.
Liquidity and Going Concern Considerations The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company experienced a loss of $23 million for the fiscal year ended September 30, 2023.
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.
Intangible assets as of September 30, 2023 and 2022 consisted of the following: September 30, September 30, 2023 2022 Trademark related to cbdMD $ 21,585,000 $ 21,585,000 Trademark for HempMD 50,000 50,000 Technology Relief from Royalty related to DirectCBDOnline.com 667,844 667,844 Tradename related to DirectCBDOnline.com 749,567 749,567 Impairment of definite lived intangible assets: (17,504,000 ) (4,285,000 ) Amortization of definite lived intangible assets: (2,329,321 ) (932,862 ) Total $ 3,219,090 $ 17,834,549 45 Table of Contents Future amortization of intangible assets as of September 30, 2023 is as follow: For the year ended September 30, 2024 $ 691,368 2025 688,757 2026 660,040 2027 660,040 2028 496,223 Thereafter 22,662 Total future intangibles amortization $ 3,219,090 NOTE 6 – CONTINGENT LIABILITY As consideration for the Mergers, described in Note 1, the Company had a contractual obligation to issue 338,889 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches of 144,445 shares and 194,945 shares, both of which are subject to leak out provisions, and the unrestricted voting rights to 194,945 tranche of shares vesting over a five year period and are subject to a voting proxy agreement.
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.
NOTE 4 – PROPERTY AND EQUIPMENT Major classes of property and equipment at September 30, 2023 and 2022 consist of the following: September 30, September 30, 2023 2022 Computers, furniture and equipment $ 1,392,776 $ 1,095,228 Manufacturing equipment 284,275 284,275 Leasehold improvements 487,081 487,081 Automobiles 11,087 11,087 2,175,219 1,877,671 Less accumulated depreciation (1,458,640 ) (1,054,361 ) Property and equipment, net $ 716,579 $ 823,310 Depreciation expense related to property and equipment was $404,280 and $948,962 for the year ended September 30, 2023 and 2022, respectively.
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.
Amortization expense for the year ended September 30, 2023 was $1,396,459 and was recorded on the consolidated statements of operations.
Amortization expense for the year ended September 30, 2024 was $697,510 and was recorded on the consolidated statements of operations.
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 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.
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.
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.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED September 30, 2023 and 2022 2023 2022 Net Loss $ (22,938,209 ) $ (70,083,693 ) Comprehensive Loss (22,938,209 ) (70,083,693 ) Preferred dividends (4,002,000 ) (4,002,005 ) Comprehensive Loss available to common shareholders $ (26,940,209 ) $ (74,085,698 ) See Notes to Consolidated Financial Statements 35 Table of Contents cbdMD, INC.
CONSOLIDATED 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.
Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The Company is still evaluating the impacts this standard may have on the consolidated financial statements.
Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.
Future minimum aggregate lease payments under operating leases as of September 30, 2023 are summarized as follows: For the year ended September 30, 2024 $ 1,421,610 2025 1,159,949 2026 1,372,862 2027 280,565 Total future lease payments 4,234,986 Less interest 274,046 Total lease liabilities $ 3,960,940 52 Table of Contents Future minimum lease payments (including interest) under non-cancelable operating leases as of September 30, 2022 are summarized as follows: For the year ended September 30, 2024 $ 1,421,610 2025 1,159,949 2026 1,372,862 2027 280,565 Total future lease payments 4,234,986 Less interest 274,046 Total lease liabilities $ 3,960,940 NOTE 14 – LOSS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the following periods: Year Ended September 30, September 30, 2023 2022 Basic: Net loss $ (22,938,209 ) $ (70,083,693 ) Preferred dividends paid or accrued 4,002,000 4,002,005 Net income loss attributable to cbdMD Inc. common shareholders (26,940,209 ) (74,085,698 ) Shares used in computing basic earnings per share 2,022,320 1,327,784 Shares used in computing diluted earnings per share 2,022,320 1,327,784 Earnings per share Basic: Basic earnings per share (13.32 ) (55.80 ) Earnings per share Diluted: Diluted earnings per share (13.32 ) (55.80 ) At the year ended September 30, 2023, 93,222 potential shares underlying options, unvested RSUs and warrants as well as 185,223 shares issuable upon conversion of our Series A Preferred stock and 40,404 a360 shares subject to certain vesting requirements, as well as a total 872 remaining commitment shares under the Keystone Purchase Agreement were related to the a360 transaction which are excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share. 53 Table of Contents NOTE 15 – INCOME TAXES The Company generated operating losses for the years ended September 30, 2023 and 2022 on which it has recognized a full valuation allowance.
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.
As of the end of the fourth quarter and fiscal 2023, a significant decline in market capitalization of both classes of equity as a result of the proxy vote triggered a subsequent impairment test, resulting in additional impairment during the fourth quarter of 2023. 40 Table of Contents Contingent Liability A significant component of the purchase price consideration for the Company’s acquisition of Cure Based Development includes a fixed number of future shares to be issued as well as a variable number of future shares to be issued based upon the post-acquisition entity reaching certain specified future revenue targets, as further described in Note 6.
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.
Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 45 days, to purchase up to an additional 202,500 shares of common stock.
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 Company also operates the subsidiary Proline Global, LLC ("Proline Global") where it operates some of its newer brand initiatives. Reverse Stock Split On April 12, 2023, the board effected a reverse stock split at a ratio of one -for- forty -five, effective as of April 24, 2023.
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.
In January of 2023, the Company issued 2,223 shares of common stock to Twenty Two Capital as the final obligation under the 2021 acquisition agreement upon the expiration of the indemnification period. In the year ended September 30, 2022: In August 2022, the Company issued 112 shares of restricted common stock to a newly appointed board member.
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.
In October 2021 the Company issued 556 shares of restricted stock awards to an executive officer, subject to a four -month vesting schedule. 50 Table of Contents NOTE 10 – WARRANTS Transactions involving the Company equity-classified warrants for the fiscal years ended September 30, 2023 and 2022 are summarized as follows: Weighted-average remaining Aggregate Weighted-average contractual term intrinsic value Number of shares exercise price (in years) (in thousands) Outstanding at September 30, 2021 14,771 $ 174.60 3.23 $ - Granted - - - Exercised - - - Forfeited (1,567 ) 242.55 - Outstanding at September 30, 2022 13,204 210.45 2.30 - Granted 40,500 2.52 - Exercised - - - Forfeited (3,395 ) 289.08 - Outstanding at September 30, 2023 50,309 37.75 4.07 - Exercisable at September 30, 2023 9,809 $ 183.23 - $ - The following table summarizes outstanding common stock purchase warrants as of September 30, 2023 : Weighted-average Number of shares exercise price Expiration Exercisable at $337.5 per share 1,352 $ 337.50 May 2024 Exercisable at $176.06 per share 1,079 176.06 October 2024 Exercisable at $56.25 per share 822 56.25 January 2025 Exercisable at $168.30 per share 3,357 168.30 December 2025 Exercisable at $168.75 per share 3,199 168.75 June 2026 Exercisable at $2.52 per share 40,500 2.52 April 2028 50,309 $ 37.75 NOTE 11 – COMMITMENTS AND CONTINGENCIES In May 2019, the Company entered into an endorsement agreement with a professional athlete.
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”).
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.
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.
In March 2022, the Company granted its board of directors an aggregate of 2,667 common stock options. The options vested immediately, have a strike price of $36.81 and a five -year term. The Company has recorded a total prepaid expense of $57,000 and intends to amortize the expense over the 12 -month board term.
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.
CONSOLIDATED STATEMENTS OF OPERATIONS September 30, 2023 and 2022 2023 2022 Gross Sales $ 25,053,857 $ 37,122,215 Allowances (898,495 ) (1,718,991 ) Total Net Sales 24,155,362 35,403,224 Cost of sales 9,177,703 13,066,639 Gross Profit 14,977,659 22,336,585 Operating expenses 24,246,208 39,647,130 Impairment of goodwill and other intangible assets 13,219,000 60,955,970 Loss from operations (22,487,549 ) (78,266,515 ) Realized and unrealized loss on marketable and other securities, including impairments (700,000 ) (33,350 ) Gain (loss) on sale of assets - 88,769 Restructuring expense - (602,092 ) Decrease of contingent liability 185,638 8,473,999 Other income - 239,250 Interest income 63,702 16,246 Loss before provision for income taxes (22,938,209 ) (70,083,693 ) Benefit (expense) for income taxes - - Net Loss (22,938,209 ) (70,083,693 ) Preferred dividends 4,002,000 4,002,005 Net Loss attributable to common shareholders $ (26,940,209 ) $ (74,085,698 ) Net Loss per share: Basic loss per share (13.32 ) (55.80 ) Diluted loss per share (13.32 ) (55.80 ) Weighted average number of shares Basic: 2,022,320 1,327,784 Weighted average number of shares Diluted: 2,022,320 1,327,784 See Notes to Consolidated Financial Statements 34 Table of Contents cbdMD, INC.
CONSOLIDATED STATEMENTS OF 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 BALANCE SHEETS September 30, 2023 and 2022 September 30, September 30, 2023 2022 Assets Current assets: Cash and cash equivalents $ 1,797,860 $ 6,720,234 Accounts receivable 1,216,090 1,447,831 Accounts receivable – discontinued operations - 1,375 Investment other securities - 1,000,000 Inventory 4,052,972 4,255,914 Inventory prepaid 182,675 511,459 Prepaid sponsorship 70,061 1,372,845 Prepaid expenses and other current assets 750,383 701,945 Total current assets 8,070,041 16,011,603 Other assets: Property and equipment, net 716,579 823,310 Operating lease assets 3,350,865 4,477,841 Deposits for facilities 138,708 244,606 Intangible assets 3,219,090 17,834,549 Investment in other securities, noncurrent 700,000 1,400,000 Total other assets 8,125,242 24,780,306 Total assets $ 16,195,283 $ 40,791,909 See Notes to Consolidated Financial Statements 32 Table of Contents CONSOLIDATED BALANCE SHEETS September 30, 2023 and 2022 (continued) September 30, September 30, 2023 2022 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 1,906,319 $ 2,036,558 Accrued expenses 1,484,441 2,060,762 Operating leases – current portion 1,277,089 1,178,683 Note payable 2,492 9,609 Total current liabilities 4,670,341 5,285,612 Long term liabilities: Long term liabilities 9 125,491 Operating leases - long term portion 2,403,286 3,680,375 Contingent liability 90,363 276,000 Total long term liabilities 2,493,658 4,081,866 Total liabilities 7,163,999 9,367,478 Commitments and Contingencies (Note 11) cbdMD, Inc. shareholders' equity: Preferred stock, authorized 50,000,000 shares, $ 0.001 par value, 5,000,000 and 500,000 shares issued and outstanding, respectively 5,000 5,000 Common stock, authorized 150,000,000 shares, $ 0.001 par value, 2,960,573 and 1,348,125 shares issued and outstanding, respectively 2,961 1,348 Additional paid in capital 183,387,095 178,841,646 Accumulated deficit (174,363,772 ) (147,423,563 ) Total cbdMD, Inc. shareholders' equity 9,031,284 31,424,431 Total liabilities and shareholders' equity $ 16,195,283 $ 40,791,909 See Notes to Consolidated Financial Statements 33 Table of Contents cbdMD, INC.
CONSOLIDATED 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.
Intangible Assets The Company's intangible assets consist of trademarks and other intellectual property, all of which were previously accounted for in accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other . The Company employed the non-amortization approach to account for purchased intangible assets having indefinite lives.
The Company 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 .
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.
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.
The company suspended payment of the dividend in August of 2023 and as such recorded an accrual of $667,000 for the dividends declared but not paid in August and September. Common Stock – The Company is authorized to issue 150,000,000 shares of common stock, par value $0.001 per share.
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.
The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the years ended September 30, 2023 and 2022: 2023 2022 Weighted average exercise price 10.355 -12.6060 $ 44.55 Risk free interest rate 3.93% -4.71 % 2.56% - 2.97 % Volatility 106.48% - 106.51 % 101.23% - 103.98 % Expected term (in years) 2.5 -4 2.5 - 5.5 Dividend yield None None 48 Table of Contents Warrant transactions: As part of the public underwritten offer discussed earlier in Note 8, the Company issued the Underwriter a warrant to purchase up to 40,500 shares of its common stock exercisable at $2.52 per share.
The 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.
The total amount of dividends declared were $4,002,000 for the year ended September 30, 2023. The total amount of dividends declared and paid were $4,002,005 for the years ended September 30, 2022.
The 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.
In the year ended September 30, 2022: In August 2022, the Company granted a new board member an aggregate of 667 common stock options. The options vested immediately, have a strike price of $25.56 and a five -year term. The Company has recorded a total prepaid expense of $10,290 and were expensed at the issuance date.
In 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.
In March 2022, the Company issued 448 of restricted stock awards to the Company’s board of directors. The shares vest quarterly one fourth on June 30, 2022, one fourth, on September 30, 2022, one fourth on December 31, 2022, and one fourth on March 31, 2023.
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.
The Merger Agreement also provided that an additional 338,889 Earnout Shares can be issued upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the closing date.
The 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.
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.
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.
On April 7, 2022, CBD Industries, LLC entered into an asset sale agreement to sell substantially all its manufacturing assets to a subsidiary of Steady State, LLC ("Steady State").
The 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").
Common stock transactions: In the year ended September 30, 2023: In September of 2023, the company issued 102,616 shares under the Purchase Agreement to Keystone. In July of 2023 the Company issued 2,616 shares to Keystone pertaining to the commitment shares under the Purchase Agreement.
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.
The stock awards were valued at the fair market price of $16,360 upon issuance and will amortize over the individual vesting periods. In January 2022, the Company issued 667 shares of restricted stock awards to six employees. The stock awards were valued at the fair market price of $29,250 and vested at the grant date.
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.
As of December 31, 2021, the Company has prepared a tradename impairment analysis in accordance with ASC 350 and has determined that the “cbdMD” trademark was impaired by $4,285,000.
At September 30, 2024, the Company prepared a tradename impairment analysis in accordance with ASC 360 and has determined that no impairment existed.
Payments are for 48 months and have a financing rate of 6.2%, which requires a monthly payment of $841. 51 Table of Contents NOTE 13 – LEASES The Company has lease agreements for its corporate, warehouse and laboratory offices with lease periods expiring between 2024 and 2026.
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.
As such we believe it was prudent to reassess the carrying value of this non-liquid security.
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.
There were 2,960,573 and 1,348,125 shares of common stock issued and outstanding at September 30, 2023 and 2022, respectively. Preferred stock transactions: The Company has no preferred stock transactions in the year ended September 30, 2023 and 2022.
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.
Removed
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED September 30, 2023 and 2022 Additional Common Stock Preferred Stock Paid in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance, September 30, 2021 1,284,075 $ 1,285 5,000,000 $ 5,000 $ 176,473,767 $ (73,337,865 ) $ 103,142,187 Issuance of Common stock 10,992 11 - - 404,989 - 405,000 Issuance of options for share based compensation - - - - 505,466 - 505,466 Issuance of restricted stock for share based compensation - - - - 508,754 - 508,754 Preferred dividend - - - - - (1,000,502 ) (1,000,502 ) Net Income (loss) - - - - - (19,160,904 ) (19,160,904 ) Balance, December 31, 2021 1,295,067 1,296 5,000,000 5,000 177,892,975 (93,499,271 ) 84,400,000 Issuance of Common stock 23,873 24 - - 660,976 - 661,000 Issuance of options for share based compensation - - - - 291,630 - 291,630 Issuance of restricted stock for share based compensation - - - - 328,515 - 328,515 Preferred dividend - - - - - (1,000,500 ) (1,000,500 ) Net Income (loss) - - - - - (4,657,215 ) (4,657,216 ) Balance, March 31, 2022 1,318,940 1,320 5,000,000 5,000 179,174,096 (99,156,986 ) 80,023,429 Issuance of Common Stock 13,198 13 - - 177,987 - 178,000 Issuance of options for share based compensation - - - - (373,168 ) - (373,168 ) Issuance of restricted stock for share based compensation - - - - (593,617 ) - (593,617 ) Preferred dividend - - - - - (1,000,501 ) (1,000,501 ) Net Income (loss) - - - - - (31,634,143 ) (31,634,143 ) Balance, June 30, 2022 1,332,138 1,333 5,000,000 5,000 178,385,298 (131,791,630 ) 46,600,000 Issuance of Common stock 15,987 15 - - 197,986 - 198,001 Issuance of Preferred Stock - - - - 128,404 - 128,404 Issuance of options for share based compensation - - - - 129,959 - 129,959 Preferred dividend - - - - - (1,000,501 ) (1,000,501 ) Net Income (loss) (14,631,432 ) (14,631,432 ) Balance, September 30, 2022 1,348,125 $ 1,348 5,000,000 $ 5,000 $ 178,841,646 $ (147,423,563 ) $ 31,424,431 See Notes to Condensed Consolidated Financial Statements 38 Table of Contents cbdMD, INC.
Added
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.
Removed
On December 20, 2018 ( the “Closing Date”), the Company, and its newly organized wholly owned subsidiaries AcqCo, LLC and cbdMD LLC (“CBDI”), completed a two -step merger (the “Mergers”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). Upon completion of the Mergers, CBDI survived and operates the prior business of Cure Based Development.
Added
There have been no material changes in the Company's significant accounting policies from those previously disclosed in the 2023 10 -K.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

33 edited+61 added−7 removed92 unchanged
Biggest changeIf our other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings. During fiscal year 2023 and 2022, we incurred $0 and $56.67 million, respectively of goodwill impairment and $13.22 and $4.29 million, respectively, of intangible impairment as noted in Note 5 of our financial statements.
Biggest changeDuring fiscal year 2023, we incurred $13.22 million of intangible impairment as noted in Note 5 of our financial statements. We may be required to record future impairments of other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value.
We face risks related to system interruption and lack of redundancy. From time to time we experience occasional system interruptions and delays that make our websites and product sales unavailable or slow to respond and prevent us from efficiently fulfilling orders which could adversely impact our net sales and the attractiveness of our products.
We face risks related to system interruption and lack of redundancy. From time to time we experience system interruptions and delays that make our websites and product sales unavailable or slow to respond and prevent us from efficiently fulfilling orders which could adversely impact our net sales and the attractiveness of our products.
There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.
There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including but not limited to product registrations/approvals, taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.
For example, our business depends in part on our ability to maintain a strong community of engaged customers and social media and athlete influencers.
For example, our business depends in part on our ability to maintain a strong community of engaged customers and social media and influencers.
Additionally, some states also permit advertising and labeling laws to be enforced by private attorneys general who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product recalls of products sold by us.
Additionally, some states also permit advertising and labeling laws to be enforced by private attorneys general who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product withdrawals of products sold by us.
Any actions against our company by governmental authorities or private litigants could be time consuming, costly to defend and could have a material adverse effect on our business, financial condition, and results of operations. Uncertainty caused by potential changes to legal regulations could impact the use of CBD products.
Any actions against our company by governmental authorities or private litigants could be time consuming, costly to defend and could have a material adverse effect on our business, financial condition, and results of operations. Uncertainty caused by potential changes to legal regulations could impact the use of the Company ’ s products.
We do not have any long-term committed contracts with any of these third parties, and we expect to compete with other companies for raw materials, production and imported packaging material capacity.
We do not have any long-term committed contracts with any of these third parties, and we expect to compete with other companies for raw materials, production and imported materials.
In the event our revenues do not increase, we will need to raise additional capital to fund our operations in furtherance of our business plan. Until we are profitable, we will need to raise additional capital during the current fiscal year in order to fund our operations in furtherance of our business plan.
In the event our revenues do not increase, we will need to raise additional capital to fund our operations in furtherance of our business plan. Until we are profitable, we may need to raise additional capital during the current fiscal year in order to fund our operations in furtherance of our business plan and repay the Notes.
In the event of any of these occurrences, you may not receive dividends that you anticipate. On or after October 16, 2023 we may, at our option, redeem the Series A Convertible Preferred Stock, in whole or in part, at any time or from time to time.
In the event of any of these occurrences, you may not receive dividends that you anticipate. We may, at our option, redeem the Series A Convertible Preferred Stock, in whole or in part, at any time or from time to time.
Continued development of the industrial hemp industry will be dependent upon new legislative authorization of industrial hemp at the state level, expansion of current state approvals for hemp products, and further amendment or supplementation of legislation at the federal level, including re-authorization and expansion of the hemp language in the upcoming 2024 Farm Act.
Continued development of the industrial hemp industry will be dependent upon new legislative authorization of industrial hemp at the state level, expansion of current state approvals for hemp products, and further authorization, amendment or supplementation of legislation at the federal level, including re-authorization and expansion of the hemp language in the next Agriculture Improvement Act.
This decrease was primarily driven by a decrease in total orders year over year in both our direct to consumer and wholesale divisions and we believe associate with (i) changes in social algorithms and IOS that affect effectiveness and cost of marketing and acquiring new customers, (ii) access to certain channels, (iii) ongoing competitive environment, (iv) statements from the FDA that negatively impacted retailer interest in the category, (v) significant inflationary pressures on consumers and businesses alike and (vi) a significant reduction in marketing spend as we rationalize expenses.
This decrease was primarily driven by a decrease in total orders year over year in both our direct to consumer and wholesale divisions and we believe associate with (i) changes in social algorithms and IOS that affect effectiveness and cost of marketing and acquiring new customers, (ii) access to certain channels, (iii) ongoing competitive environment, (iv) statements from the FDA that negatively impacted retailer interest in the category, (v) significant inflationary pressures on consumers and businesses alike and (vi) we have reduced advertising and marketing as we have made consistent reduction of cash consumed by advertising and marketing over this 2 year period.
RISKS RELATED TO OUR OVERALL BUSINESS We have a history of losses from operations and there are no assurances we will report profitable operations in future periods or continue as a going concern. We reported losses from operations of $24.2 million and $78.3 million for fiscal year 2023 and fiscal year 2022, respectively.
RISKS RELATED TO OUR OVERALL BUSINESS We have a history of losses from operations and there are no assurances we will report profitable operations in future periods or continue as a going concern. We reported losses from operations of $3.3 million and $22.5 million fiscal year 2024 and fiscal year 2023, respectively.
Any intentional or unintentional failure of any of these parties to perform the functions for which we have engaged them would adversely impact the quality of our products and could result in delays in meeting consumer demand or a decline in our sales. We could be harmed by data loss or other security breaches.
Any intentional or unintentional failure of any of these parties to perform the functions for which we have engaged them would adversely impact the quality of our products and could result in delays in meeting consumer demand or a decline in our sales.
If the NYSE American delists either our common stock and/or our Series A Convertible Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain any additional financing to fund our operations that we may need. 14 Table of Contents The Series A Convertible Preferred Stock ranks junior to all of our indebtedness and other liabilities and is effectively junior to all indebtedness and other liabilities of our subsidiaries.
If the NYSE American delists either our common stock and/or our Series A Convertible Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain any additional financing to fund our operations that we may need.
Our advertising is subject to regulation by the U.S. Federal Trade Commission, or FTC, under the Federal Trade Commission Act, and is subject to various state regulations enforced by state agencies and state attorneys general.
Our advertising is subject to regulation by, among others, the FDA under the Federal Food, Drug & Cosmetics Act, and the U.S. Federal Trade Commission, or FTC, under the Federal Trade Commission Act, and is also subject to various state regulations enforced by state agencies and state attorneys general.
Not included in our loss from operations for fiscal 2023 is a $0.70 million impairment non-cash charge pertaining to our ownership interest in Steady State, LLC as well as a non-cash income of $0.19 million and non-cash expense of $8.47 million for fiscal 2023 and fiscal 2022, respectively, reflecting a change in value of the contingent liability associated with the Earnout Shares (as hereinafter defined) primarily as a result of the change in the market price of our common stock.
Not included in our loss from operations for fiscal 2023 is a $0.70 million impairment non-cash charge pertaining to our ownership interest in Steady State, LLC as well as a non-cash income of $0.09 million and $0.19 million for fiscal 2024 and fiscal 2023, respectively, reflecting a change in value of the contingent liability associated with the Earnout Shares.
Both our common stock and our Series A Convertible Preferred Stock are listed on the NYSE American. In order to maintain these listings, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders.
In order to maintain these listings, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders.
In addition, changes in Federal or state laws could require us to alter the way we conduct our business in order to remain compliant with applicable state laws in ways we are presently unable to foresee.
In addition, changes in Federal or state laws could require us to alter the way we conduct our business in order to remain compliant with applicable state laws in ways we are presently unable to foresee. These possible changes, if necessary, could be costly and may adversely impact our results of operations in future periods.
Holders of the Series A Convertible Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “ qualified dividend income. ” Distributions paid to corporate U.S. holders of the Series A Convertible Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders of the Series A Convertible Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes.
We cannot assure you that our businesses will generate sufficient cash flow from operations in an amount sufficient to enable us to make distributions on our common stock and preferred stock, including the Series A Convertible Preferred Stock, or to fund our other liquidity needs. 15 Table of Contents Holders of the Series A Convertible Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “ qualified dividend income. ” Distributions paid to corporate U.S. holders of the Series A Convertible Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders of the Series A Convertible Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes.
The manufacture, labeling and distribution by us of the hemp-based cannabinoid products is regulated by various federal, state and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future.
These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future.
We are subject to regulation by the federal government and other state and local agencies as a result of our hemp-based cannabinoid products. The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements.
The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements.
Other than these limited circumstances and except to the extent required by law, holders of Series A Convertible Preferred Stock do not have any voting rights. 15 Table of Contents We may redeem the Series A Convertible Preferred Stock at our option, we will be required to redeem the Series A Convertible Preferred Stock upon a Change of Control and we may convert shares of Series A Convertible Preferred Stock upon a Market Trigger into shares of our common stock.
We may redeem the Series A Convertible Preferred Stock at our option, we will be required to redeem the Series A Convertible Preferred Stock upon a Change of Control and we may convert shares of Series A Convertible Preferred Stock upon a Market Trigger into shares of our common stock.
We may be required to record future impairments of other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value.
Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value.
Failure to comply with the various federal, state and local requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. We are seeing increasing state-level labeling requirements that may increase our costs with respect to monitoring and adhering to unique label requirements in addition to potential product and packaging obsolescence costs.
Failure to comply with the various federal, state and local requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions.
If we do not adapt to meet these evolving challenges, the strength of our brand may erode, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and our corporate culture may be harmed. 10 Table of Contents In addition, we may make investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions.
If we do not adapt to meet these evolving challenges, the strength of our brand may erode, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and our corporate culture may be harmed.
If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets. RISKS RELATED TO OWNERSHIP OF OUR SECURITIES We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in de-listing of our securities.
RISKS RELATED TO OWNERSHIP OF OUR SECURITIES We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in de-listing of our securities. Both our common stock and our Series A Convertible Preferred Stock are listed on the NYSE American.
We also offered free credit monitoring and reporting to all affected customers and are maintaining a call center to handle any customer issues.
We conducted a forensic examination, made all notices to customers, governments, banks and card associations as required under local, state and federal laws, merchant agreements and card association rules. We also offered free credit monitoring and reporting to all affected customers and are maintaining a call center to handle any customer issues.
Drug Enforcement Administration and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules.
The uncertainties, conflicts and lack of uniformity cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules.
Competition for this type of personnel is intense, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively. There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business and operating strategies.
Furthermore, our ability to manage further expansion will require us to continue to attract, motivate, and retain additional qualified personnel. Competition for this type of personnel is intense, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively.
Included in our loss from operation is a non-cash $0 and $56.6 million impairment of goodwill for fiscal year 2023 and fiscal year 2022, respectively as well as an impairment of $13.2 and $4.3 million on our trade names for fiscal 2023 and 2022, respectively.
Included in our loss from operation in fiscal 2023 is an impairment of $13.2 on our trade name for fiscal 2023. Not included in our loss from operations for fiscal 2024 is a $0.4 increase in the valuation on the convertible Notes.
We depend on the talents and continued efforts of our senior management and key employees. The loss of members of our management or key employees may disrupt our business and harm our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract, motivate, and retain additional qualified personnel.
We depend on the talents and continued efforts of our senior management and key employees. We currently do not have any long-term employment agreements with our executive officers. The loss of members of our management or key employees may disrupt our business and harm our results of operations.
Our recent negative growth rates may continue. We have now had 2 consecutive fiscal years of revenue declines as the industry and Company have faced numerous headwinds. Net sales decreased $11.2 million or 32% to $24.2 million in fiscal 2023 and $9.0 million, or 20%, to $35.4 million in 2022, as compared to $44.5 million in 2021.
Net sales decreased $4.7 million or 19% to $19.5 million in fiscal 2024 and $11.2 million or 32% to $24.2 million in fiscal 2023 as compared to $35.4 million in 2022.
The issuance of shares upon exercise of our outstanding options, restricted stock awards and warrants, or the conversion of the Series A Convertible Preferred Stock may cause immediate and substantial dilution to our existing shareholders.
The issuance of shares upon the conversions of our outstanding Notes may cause immediate and substantial dilution to our existing shareholders. We presently have Notes, that if converted would result in the issuance of approximately an additional 718,000 shares of our common stock.
Removed
Despite this reduction in revenue, we have made consistent reduction of quarterly cash consumed by the business over this 2 year period.
Added
In the event the holders of our Notes do not convert the Notes, our ability to repay our Notes upon their maturity in July 2025 is uncertain, and we will face additional risks if we are unable to repay the Notes. As of December 16, 2024, we had approximately $364,000 of Notes due on July 30, 2025 outstanding.
Removed
Some of our systems have experienced past security incidents, including a recent incident that compromised some customers' personal and payment information. We conducted a forensic examination, made all notices to customers, governments, banks and card associations as required under local, state and federal laws, merchant agreements and card association rules.
Added
The Notes are secured by our assets. Our ability to repay the Notes, in whole or in part, upon their maturity, is uncertain. In addition, the Notes impose certain customary affirmative and negative covenants upon us.
Removed
These possible changes, if necessary, could be costly and may adversely impact our results of operations in future periods. 13 Table of Contents Costs associated with compliance with numerous laws and regulations could impact our financial results. In addition, we could become subject to increased litigation risks associated with the CBD industry.
Added
If we are not in compliance with certain of these covenants or we are unable to repay the Notes on or before July 30, 2025, in addition to other actions the note holders may require, the amounts outstanding under the Notes to become immediately due and payable.
Removed
We cannot assure you that our businesses will generate sufficient cash flow from operations in an amount sufficient to enable us to make distributions on our common stock and preferred stock, including the Series A Convertible Preferred Stock, or to fund our other liquidity needs.
Added
In addition, the Notes and the preferences of our outstanding Series A Preferred likely harm our ability to incur additional indebtedness on acceptable terms.
Removed
We presently have options, unvested restricted stock awards and warrants that if exercised would result in the issuance of an additional 93,222 shares of our common stock, and our Series A Convertible Preferred Stock is presently convertible into an additional 185,223 shares of common stock.
Added
Our cash flow and capital resources may be insufficient to pay interest and principal on the Notes in the future, in which case we would have to extend such maturity date, or otherwise repay, refinance, and/or restructure the obligations under the Notes, including with proceeds from the sale of assets, and additional equity or debt capital.
Removed
The issuance of shares upon exercise of warrants and options and/or the conversion of shares of our Series A Convertible Preferred Stock will result in dilution to the interests of other shareholders. Company ’ s former Co-CEO ’ s ongoing legal challenges with the SEC could impact customers and investors perception of the Company.
Added
If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance, or restructure prior to maturity, or any other default existed under the Notes, the holders could accelerate the indebtedness under the Notes, foreclose against its collateral, or seek other remedies, which would jeopardize our ability to continue our current operations. 10 Table of Contents Our recent negative growth rates may continue.
Removed
In May of 2022, our former Co-CEO was indicted civilly by the SEC for activities prior to 2019. While the Company was not named as a defendant and we strongly believe no improprieties occurred by the Company, his ongoing legal proceedings and any association could impact customers and investors perception of the Company. ITEM 1B. UNRESOLVED STAFF COMMENTS.
Added
Although we have made consistent and significant reductions in marketing spend as we rationalize expenses, we had consecutive fiscal years of revenue declines as the industry and Company have faced numerous headwinds.
Added
In addition, we may make investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions.
Added
Failures to comply with applicable laws, including hemp laws, by our third-party suppliers could create disruptions in the supply chain and adversely impact our ability to manufacture products effectively. The Company’s suppliers and manufacturers must comply with the hemp production and manufacturing laws of their respective states.
Added
Since these laws can vary significantly between states, the Company relies on its partners to adhere to both state-specific regulations and USDA requirements. If any supplier or manufacturer fails to comply with local laws or loses their permits or licenses, their ability to continue operations may be jeopardized, which could, in turn, disrupt the Company’s supply chain and manufacturing processes.
Added
Such disruptions may negatively impact the Company’s ability to conduct its business as planned. Product inventory may expire prior to sale due to limited shelf life. While the Company actively manages its inventory, it is possible that products could reach their expiration date and remain unsold.
Added
In such cases, the Company may need to write down the value of the expired inventory, which could negatively impact its business, financial position, and operational outcomes.
Added
Consumers of the Company ’ s products may face adverse consequences should they test positive for THC which could negatively impact the Company ’ s reputation, lead to litigation, or other potentially negative impacts to the Company.
Added
Many of the Company’s products are derived from cannabis and may contain trace amounts of tetrahydrocannabinol (THC), which may be below the level of detection but could build up in a regular consumer’s system. Although these levels are generally low, historically THC has been a banned substance in many jurisdictions, and regulations regarding permissible THC limits are continually evolving.
Added
As a result, there is a potential risk for end users who test positive for THC due to consumption of the Company’s products. This may be of particular concern in the case of full-spectrum hemp products, which contain not only CBD but also trace levels of THC and other cannabinoids.
Added
These trace amounts could lead to false positives on drug tests, especially with certain testing methods that do not differentiate between THC from hemp and that from other sources.
Added
There is also the possibility that certain approved tests for THC may not properly differentiate between the metabolites of THC and the metabolites of CBD, thus leading to a false positive for THC consumption. Additionally, metabolic processes in the body may cause CBD and its metabolites to convert into forms that could affect drug test results.
Added
Positive test results, even from trace amounts of THC, can have significant consequences for individuals, potentially affecting their reputation, employment, or participation in specific activities, including professional sports. Furthermore, a claim or regulatory action based on such positive test results could damage the Company’s reputation and adversely affect its operations, potentially leading to legal or regulatory challenges.
Added
We could be harmed by data loss or other security breaches. Like all companies that utilize technology, we are subject to threats of breaches of our technology systems and cybersecurity risks. Some of our systems have experienced past security incidents, including an incident that compromised some customers' personal and payment information.
Added
There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business and operating strategies. 13 Table of Contents If our other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings.
Added
Final designation of hemp derived cannabinoids as impermissible adulterants, FDAs refusal to accept hemp derived cannabinoids as New Dietary Ingredients (NDI) or FDAs interpretation of IND Preclusion could negatively impact the Company ’ s operations. The regulatory framework surrounding cannabinoids, particularly CBD, raises significant challenges for the Company.
Added
First, concerns about CBD as an impermissible adulterant persist due to the FDA's position that cannabinoids cannot legally be added to food or beverages. The FDA has consistently objected to such uses, asserting that CBD-containing products may be adulterated and subject to enforcement action.
Added
Second, under the FD&C Act, unless a product was in the food supply and marketed to the public prior to October 15, 1994, manufacturers must notify the FDA before marketing dietary supplements containing NDIs, providing evidence that the ingredient is expected to be safe.
Added
However, there is ongoing uncertainty regarding whether hemp-derived cannabinoids were in the food supply and marketed to the public before October 15, 1994, as required to avoid classification as an NDI.
Added
As of the end of fiscal 2024, the FDA has uniformly objected to several New Dietary Ingredient Notifications (NDIN) submitted to the Agency by competitors, asserting it does not meet the definition of a dietary supplement due to the FDA's stance that CBD was not marketed as a dietary ingredient before its investigation as a new drug.
Added
The Company disagrees with this position and believes there are counterarguments. The FDA has consistently taken the position that CBD cannot be marketed as a dietary supplement or added to food because it was investigated as a new drug before its inclusion in the food supply, known as IND Preclusion.
Added
This position has been outlined in the majority of Warning Letters the FDA has sent to CBD companies since the enactment of the Farm Bill. Any enforcement of the IND Preclusion could require the Company to allocate significant resources to defend its position, adversely affecting its business and operations.
Added
Without changes in federal law, regulation, or judicial interpretation, the FDA’s current stance could materially and adversely impact the Company’s ability to operate. Failure or inability to secure required state or federal regulatory approvals and permits could negatively impact the Company ’ s ability to conduct business.
Added
The Company must secure and maintain specific approvals and permits in many jurisdictions where its products are sold, and failure to do so could delay or inhibit its operations. Regulatory approval and permit requirements are subject to change without notice. There is no guarantee that the Company will be able to acquire or retain these essential approvals.
Added
Any substantial delays or inability to obtain the required permits or licenses would negatively impact the Company’s ability to conduct its business, potentially leading to material adverse effects on its financial condition and operations. Costs associated with compliance with numerous laws and regulations could impact our financial results.
Added
In addition, we could become subject to increased litigation risks associated with the CBD industry and the overall Dietary Supplement Industry. The manufacture, labeling and distribution by us of the products in our portfolio are regulated by various federal, state and local agencies.
Added
We are subject to regulation by the federal government and other state and local agencies as a result of our product offering, including but not limited to hemp-based cannabinoid products and other natural health products.
Added
We are seeing increasing state-level potency, labeling and package size requirements that may increase our costs with respect to monitoring and adhering to unique requirements in addition to potential product and packaging obsolescence costs as well as stop sales or product withdrawals.
Added
Drug Enforcement Administration and/or the FDA, various administrative determinations and court decisions, all of which impact the extent to which manufacturers and processors of products containing Farm Bill-compliant cannabinoids may engage in interstate commerce. There are currently no consistent regulations applicable to hemp derived cannabinoids in the United States or globally.
Added
There is no assurance the Company will remain compliant with all of these laws, rules and regulations as changes to such laws, rules and regulations are promulgated and this may have a negative impact on the Company’s operations.
Added
By way of example, through the end of Fiscal 2024, multiple states including Alaska, Florida, Maryland, Minnesota, New York, Utah and Virginia had implemented new regulations which impact the Company’s ability to sell some of its products as they exist now in formulation and packaging.
Added
If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets. 14 Table of Contents The FTC may seek to pursue enforcement actions against companies selling hemp derived cannabinoids, including the Company.
Added
The Federal Trade Commission (FTC) has increasingly focused on the regulation of advertising, labeling, and promotion of CBD and other health-related products. In the CBD product marketplace, the FTC has collaborated with the FDA to issue warnings about advertisements lacking competent and reliable scientific evidence, which violates the FTC Act.
Added
In addition, the FTC has independently issued warning letters to companies marketing CBD products with exaggerated or unsupported health claims.
Added
Although the FTC has primarily issued warning letters, it initiated its first law enforcement administrative action in December 2020, taking action against six CBD companies for allegedly making unsupported health claims, resulting in settlement agreements requiring cessation of such claims and monetary penalties.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also have an 80,000 square foot warehouse in Charlotte, North Carolina under an agreement which began November 2019 and goes through December 2024. The agreement calls for an annual base monthly rent of $34,766, inclusive of monthly TICAM for the first year and the rent escalates 3% annually.
Biggest changeITEM 2. DESCRIPTION OF PROPERTY. We operate our executive offices and warehouse from an 80,000 square foot facility in Charlotte, North Carolina under a lease agreement which commenced in November 2019. Through February 2025 the agreement calls for an annual base monthly rent of $34,766, inclusive of monthly TICAM for the first year and the rent escalates 3% annually.
Removed
ITEM 2. DESCRIPTION OF PROPERTY. Our headquarters are located in approximately 50,000 square feet in a modern two-story building in Charlotte, North Carolina which we sub-lease under an agreement which began August 1, 2019 and goes through December 2026. The agreement calls for an annual base monthly rent of $76,041 for the first year and escalates 3% annually.
Added
Effective November 26, 2024 we entered into a Second Amendment to Lease to extend the lease. 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.
Removed
We are currently behind in lease payments on our headquarter facility, received a default notice from the landlord in September 2023, and are attempting to renegotiate with the landlord and find another party to sublet or assume our lease.
Added
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.
Removed
We currently sublet a portion of our warehouse to offset its expense. 16 Table of Contents
Added
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 have been deleted. Furthermore, the landlord has approved certain subleases entered into by and between the Company and sub tenants for portions of the facility.
Added
This facility is sufficient for our current and anticipated operations through September 2026. See footnote 11 to our financial statements including with this annual report for a discussion on the termination of our former executive office lease pursuant to agreements entered into in March 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company believes this matter will eventually be dismissed but there is no timeline on when the FDA or Congress will take action so the case is expected to be stayed indefinitely. In April 2019 our wholly owned subsidiary, CBDI, filed a cancellation proceeding before the U.S.
Biggest changeThe Company believes this matter will eventually be dismissed but there is no timeline on when the FDA or Congress will take action so the case is expected to be stayed indefinitely. As previously disclosed, the Company’s subsidiary, CBD Industries, LLC, initiated a trademark cancellation proceeding in 2019 against Majik Medicine, LLC regarding Majik Medicine’s “CBD MD” trademark.
Removed
Patent and Trademark Office Trademark Trial and Appeal Board (TTAB) against Majik Medicine, LLC to cancel its issued supplemental register trademark for “CBD MD” on multiple grounds.
Added
In a Settlement, Purchase, and Release Agreement, effective August 23, 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, and 50,000 more shares on the one-year anniversary.
Removed
On February 12, 2021 CBDI filed a complaint against Majik Medicine in Federal Court in North Carolina seeking, among other things, the cancellation of Majik Medicine’s CBD MD mark on various grounds (the “Civil Action”).
Added
Failure to make the additional payments would reassign the trademark to Majik Medicine. We believe that this acquisition strengthens the Company’s IP portfolio, avoids litigation costs, and expedites trademark issuance. Majik Medicine also appointed board member William Raines III as a voting proxy for the Initial Shares for a period of 12 months. ITEM 4. MINE SAFETY DISCLOSURES.
Removed
On April 28, 2021 the TTAB ruled in favor of a motion filed by CBDI to suspend the cancellation proceedings pending final determination in the Civil Action. The case is currently in the discovery phase. The Company will continue to vigorously pursue its rights and protect the cbdMD brand.
Added
Not applicable to our company. 18 Table of Contents PART II
Removed
In 2022 the global settlement between Company and Plaintiffs in the matter of Warshawsky et al v. cbdMD was approved by the court and the case was dismissed with prejudice. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable to our company. 17 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. Mine Safety Disclosures. 17 PART II ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 18 ITEM 6. [Reserved] 18 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 19
Biggest changeITEM 4. Mine Safety Disclosures. 18 PART II ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 19 ITEM 6. [Reserved] 19 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 20

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+2 added−1 removed8 unchanged
Biggest changeSince May 1, 2019, commensurate with our name change, our common stock has been listed on the NYSE American under the symbol “YCBD” and from November 17, 2017 through May 1, 20219 our common stock was listed on the NYSE American under the symbol “LEVB.” Our Series A Convertible Preferred Stock has been listed on the NYSE American since October 21, 2019 under the symbol “YCBDpA.” As of December 9, 2023, there were approximately 11,419 street owners of our common stock and 1,462 street holder of our Series A Convertible Preferred Stock.
Biggest changeSince May 1, 2019, commensurate with our name change, our common stock has been listed on the NYSE American under the symbol “YCBD” and from November 17, 2017 through May 1, 2019 our common stock was listed on the NYSE American under the symbol “LEVB.” Our Series A Convertible Preferred Stock has been listed on the NYSE American since October 21, 2019 under the symbol “YCBDpA.” As of December 16, 2024, there were approximately 13,308 street owners of our common stock and 995 street holders of our Series A Convertible Preferred Stock.
Removed
See “Risk Factors”. Recent sales of unregistered securities None, except as previously reported. Purchases of equity securities by the issuer and affiliated purchasers None.
Added
See “Risk Factors”. Recent sales of unregistered securities In addition to those unregistered securities previously disclosed in reports filed with the SEC during the period covered by this report, we have sold the securities disclosed below without registration under the Securities Act of 1933, as amended, during the period covered by this report, except as provided below.
Added
The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. The securities contain a legend restricting their transferability absent registration or applicable exemption. In November 2024, the Company issued 175,000 shares of common stock to a consultant for advisory services. Purchases of equity securities by the issuer and affiliated purchasers None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNon-GAAP Adjusted Operating Income The non-GAAP Adjusted Income for the three and twelve months ended September 30, 2023 and September 30, 2022 is as follows: Three Months Year Ended September 30, September 30, September 30, September 30, 2023 2022 2023 2022 (Unaudited) GAAP (loss) from operations $ (15,217,070 ) $ (14,894,624 ) $ (22,487,549 ) $ (78,266,515 ) Adjustments: Depreciation & Amortization 667,950 455,965 1,800,739 1,833,326 Employee and director stock compensation (1) 33,263 272,613 349,245 1,124,130 Inventory adjustment(2) 70,000 - 70,000 878,142 Impairment of Goodwill and other intangible assets (3) 13,219,000 11,996,249 13,219,000 60,955,970 Incremental bad debt 45,000 - 45,000 - Accrual for severance (4) - - - 129,761 a360 non-cash trade credit 609,732 - 1,476,967 - Accrual / expenses for discretionary bonus - - - 150,000 Non-GAAP adjusted (loss) from operations $ (572,125 ) $ (2,169,797 ) $ (5,526,598 ) $ (13,195,186 ) (1) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period.
Biggest changeNon-GAAP Adjusted Operating Income The non-GAAP Adjusted Income (loss) for the three and twelve months ended September 30, 2024 and September 30, 2023 is as follows: Three Months Year Ended September 30, September 30, September 30, September 30, 2024 2023 2024 2023 (Unaudited) GAAP (loss) from operations $ (316,553 ) $ (15,217,070 ) $ (3,315,410 ) $ (22,487,549 ) Adjustments: Depreciation & Amortization 287,783 667,950 1,149,836 1,800,739 Employee and director stock compensation (1) 5,881 33,263 43,688 349,245 Inventory adjustment(2) 588,160 70,000 588,160 70,000 Impairment of Goodwill and other intangible assets (3) - 13,219,000 - 13,219,000 Incremental bad debt - 45,000 - 45,000 Non-cash expense incurred as a credit (4) - - 439,926 - Non-cash accelerated amortization of expense related to terminated IT contracts - - 72,101 - Termination of HQ lease (696,280 ) - (696,280 ) - Mergers and acquisitions expense - - 125,838 - a360 non-cash trade credit - 609,732 - 1,476,967 Non-GAAP adjusted (loss) from operations $ (131,009 ) $ (572,125 ) $ (1,592,141 ) $ (5,526,598 ) (1) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period.
We source cannabinoids, including CBD, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods.
We source cannabinoids, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods.
We believe that we are an industry leader in producing and distributing broad spectrum CBD products and now full spectrum CBD products. Our mission is to enhance our customer’s overall quality of life while bringing CBD education, awareness and accessibility of high quality and effective products to all.
We believe that we are an industry leader in producing and distributing broad spectrum and full spectrum CBD products. Our mission is to enhance our customer’s overall quality of life while bringing CBD education, awareness and accessibility of high quality and effective products to all.
For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million decrease primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share.
For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million, primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share.
While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2022, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies and functional products.
While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2024, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies and functional products.
In addition to our core brands, we also operate cbdMD Therapeutics, LLC to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications. During 2023 we continued to focus on our path to profitability by lowering our costs and focusing on the customer experience.
In addition to our core brands, we also operate cbdMD Therapeutics, LLC to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications. During 2024 we continued to focus on our path to profitability by lowering our costs and focusing on the customer experience.
As of September 2023, we have stopped paying this in cash monthly and are accruing this dividend instead. 21 Table of Contents While the Company is taking strong action and believes that it can execute its strategy and path to profitability within its balance sheet, and in its ability to raise additional funds, there can be no assurances to that effect.
As of September 2023, we have stopped paying the dividends in cash monthly and are accruing this dividend instead. 22 Table of Contents While the Company is taking strong action and believes that it can execute its strategy and path to profitability within its balance sheet, and in its ability to raise additional funds, there can be no assurances to that effect.
Our full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that falls within the limits set in the 2018 Farm Bill.
Our full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that fall within the limits set in the 2018 Farm Bill.
The following table provides information on the contribution of net sales by type of sale to our total net sales for the fiscal years ended September 30, 2023 and 2022.
The following table provides information on the contribution of net sales by type of sale to our total net sales for the fiscal years ended September 30, 2024 and 2023.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this report.
The earnout ended November 2023 and we will record a final change in the non-cash contingent liability in the first quarter of fiscal 2024.
The earnout ended November 2023 and we recorded a final change in the non-cash contingent liability in the first quarter of fiscal 2024.
While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2023 and we have successfully achieved 8 sequential quarters of Non-GAAP Adjusted Operating Income improvement, although our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends.
While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2024 and we have successfully achieved 3 sequential years of Non-GAAP Adjusted Operating Income (Loss) improvement, although our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends.
Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $1.0 and $2.8 million for the three months ended September 30, 2023 and 2022, respectively $4.3 and $15.0 million for the twelve months ended September 30, 2023 and 2022, respectively.
Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net generation of $0.2 million and use of $1.0 for the three months ended September 30, 2024 and 2023, respectively and a use of $0.6 (net of $1.25 million of proceeds from the Notes) and $4.3 million for the twelve months ended September 30, 2024 and 2023, respectively.
The fourth and final marking period runs through November 2023. Critical accounting policies The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
Critical accounting policies The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report. Overview We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD and cbdMD Botanicals.
Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report. Overview We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD as well as the functional mushroom brand ATRx Labs.
Our operating expenses on a consolidated basis decreased approximately $15.1 million, excluding impairment charges, or 37.5% for the fiscal year ended September 30, 2023 versus the fiscal year ended September 30, 2022.
Our operating expenses on a consolidated basis decreased approximately $8.9 million, excluding impairment charges, or 36.4% for the fiscal year ended September 30, 2024 versus the fiscal year ended September 30, 2023.
Fiscal 2023 % of total Fiscal 2022 % of total E-commerce sales $ 19,436,124 80.5 % $ 26,435,203 74.7 % Wholesale sales 4,719,238 19.5 % 8,968,021 25.3 % Total Net Sales $ 24,155,362 $ 35,403,224 In addition, the following table provides information on the contribution of net sales by type of sale to our total net sales for the three months ended September 30, 2023 and 2022 (unaudited): September 30, September 30, 2023 % of total 2022 % of total E-commerce sales $ 4,639,651 81.2 % $ 6,274,482 79.8 % Wholesale sales 1,070,946 18.8 % 1,585,143 20.2 % Total Net Sales $ 5,710,597 $ 7,859,625 Total net sales during the fiscal year ended September 30, 2023 decreased by approximately $11.2 million, or 32% as compared to fiscal year ended September 30, 2022.
Fiscal 2024 % of total Fiscal 2023 % of total E-commerce sales $ 15,655,337 80.4 % $ 19,436,124 80.5 % Wholesale sales 3,826,830 19.6 % 4,719,238 19.5 % Total Net Sales $ 19,482,167 $ 24,155,362 In addition, the following table provides information on the contribution of net sales by type of sale to our total net sales for the three months ended September 30, 2024 and 2023 (unaudited): September 30, September 30, 2024 % of total 2023 % of total E-commerce sales $ 3,667,458 80.5 % $ 4,639,651 81.2 % Wholesale sales 888,908 19.5 % 1,070,946 18.8 % Total Net Sales $ 4,556,366 $ 5,710,597 Total net sales during the fiscal year ended September 30, 2024 decreased by approximately $4.7 million, or 19% as compared to fiscal year ended September 30, 2023.
We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter. Fiscal 2023 proved to be more challenging for the Company and industry as a whole as inflation reached 30 year records.
We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter.
The following tables provide information on our corporate overhead for the fiscal years ended September 30, 2023 and 2022: Fiscal 2023 Fiscal 2022 Change Staff related expense $ 318,762 $ 1,066,428 $ (747,666 ) Accounting/Legal expense 704,933 728,250 (23,317 ) Professional outside services 428,923 330,633 98,290 Travel expense - 3,932 (3,932 ) Business insurance 783,781 703,107 80,674 Non-cash stock compensation 349,245 1,124,130 (774,885 ) Totals $ 2,585,644 $ 3,956,480 $ (1,370,836 ) The 44.6% decrease in corporate related expenses for the fiscal year ended September 30, 2023 over prior year is primarily due to the decreases in non-cash stock compensation to employees and directors tied to fewer shares issued under our equity incentive plans and at lower prices per share and, decreases in staffing related expenses as well as legal and accounting costs.
The following tables provide information on our corporate overhead for the fiscal years ended September 30, 2024 and 2023: Fiscal 2024 Fiscal 2023 Change Staff related expense $ 288,602 $ 318,762 $ (30,160 ) Accounting/Legal expense 710,188 704,933 5,255 Professional outside services 310,448 428,923 (118,475 ) Business insurance 626,027 783,781 (157,754 ) Non-cash stock compensation 43,688 349,245 (305,557 ) Totals $ 1,978,953 $ 2,585,644 $ (606,691 ) The 23% decrease in corporate related expenses for the fiscal year ended September 30, 2024 over prior year is primarily due to the decreases in non-cash stock compensation to employees and directors tied to fewer shares issued under our equity incentive plans and at lower prices per share and, decreases in legal, accounting and insurance costs.
The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $5.3 million reduction in payroll, $8.3 million reduction of marketing expenses and $1.0 million of sponsorships. This was partially offset by a $0.8 million non-cash expense as we began amortizing intangibles.
The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $1.9 million reduction in payroll and a $2.8 million reduction of marketing expenses in fiscal 2024.
For the fourth quarter of fiscal 2023 our cost of sales as a percentage of net sales was 37.9% as compared to 36.2% in the prior year comparative period. The change reflects the product mix change to our higher strength and additional inventory write downs during the fourth quarter.
For the fourth quarter of fiscal 2024 our cost of sales as a percentage of net sales was 46.1% as compared to 37.9% in the prior year comparative period.
Of our total net sales as indicated above, during the fiscal years ended September 30, 2023 and 2022 our Paw CBD line accounted for net sales of $2,404,787 and $3,748,779, respectively. The year over year decline in our Paw CBD brand is due to increasing competition and a rationalization in marketing efforts specific to the brand.
Of our total net sales as indicated above, during the fiscal years ended September 30, 2024 and 2023 our Paw CBD line accounted for net sales of $1,445,644 and $2,404,787, respectively.
During the three and twelve months ended September 30, 2023 we used cash primarily to fund our operations and pay the preferred dividend. We do not have any commitments for capital expenditures. We have a commitment for cumulative dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders.
We have a commitment for cumulative dividends at an annual rate of 8% payable monthly in arrears for the prior month to our preferred shareholders.
Results of operations The following tables provide certain selected consolidated financial information for the fiscal years ended September 30, 2023 and 2022: Fiscal Fiscal 2023 2022 Change Total net sales $ 24,155,362 $ 35,403,224 $ (11,247,862 ) Cost of sales 9,177,703 13,066,639 (3,888,936 ) Gross profit as a percentage of net sales 62.0 % 63.1 % -1.1 % Operating expenses 24,246,208 39,647,130 (15,400,922 ) Impairment of goodwill and other intangible assets 13,219,000 60,955,970 (47,736,970 ) Operating loss from operations (22,487,549 ) (78,266,515 ) 55,778,966 (Increase) decrease on contingent liability 185,638 8,473,999 (8,288,361 ) Net loss before taxes (22,938,209 ) (70,083,693 ) 47,145,484 Net loss attributable to cbdMD Inc. common shareholders $ (26,940,209 ) $ (74,085,698 ) $ 47,145,489 The following tables provide certain selected unaudited consolidated financial information for the three months ended September 30, 2023 and 2022: September September 2023 2022 Change Total net sales $ 5,710,745 $ 7,859,625 $ (2,148,880 ) Cost of sales 2,161,900 2,844,744 (682,844 ) Gross profit as a percentage of net sales 62.1 % 63.8 % -1.7 % Operating expenses 5,546,915 7,913,256 (2,366,341 ) Impairment of goodwill and other intangible assets 13,219,000 11,996,249 1,222,751 Operating income from operations (15,217,070 ) (14,894,624 ) (322,446 ) (Increase) decrease on contingent liability 31,867 228,000 (196,133 ) Net loss before taxes (15,874,941 ) (14,631,432 ) (1,243,509 ) Net loss attributable to cbdMD Inc. common shareholders $ (16,875,436 ) $ (15,631,932 ) $ (1,243,504 ) 19 Table of Contents Sales We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team.
Results of operations The following tables provide certain selected consolidated financial information for the fiscal years ended September 30, 2024 and 2023: Fiscal Fiscal 2024 2023 Change Total net sales $ 19,482,167 $ 24,155,362 $ (4,673,195 ) Cost of sales 7,486,626 9,177,703 (1,691,077 ) Gross profit as a percentage of net sales 61.6 % 62.0 % -0.4 % Operating expenses 15,310,951 24,246,208 (8,935,257 ) Impairment of goodwill and other intangible assets - 13,219,000 (13,219,000 ) Operating loss from operations (3,315,410 ) (22,487,549 ) 19,172,139 (Increase) decrease on contingent liability 74,580 185,638 (111,058 ) Net loss before taxes (3,700,126 ) (22,938,209 ) 19,238,083 Net loss attributable to cbdMD Inc. common shareholders $ (7,704,127 ) $ (26,940,209 ) $ 19,236,082 The following tables provide certain selected unaudited consolidated financial information for the three months ended September 30, 2024 and 2023: September September 2024 2023 Change Total net sales $ 4,556,367 $ 5,710,745 $ (1,154,378 ) Cost of sales 2,102,564 2,161,900 (59,336 ) Gross profit as a percentage of net sales 53.9 % 62.1 % -8.3 % Operating expenses 2,770,356 5,546,915 (2,776,559 ) Impairment of goodwill and other intangible assets - 13,219,000 (13,219,000 ) Operating income from operations (316,553 ) (15,217,070 ) 14,900,517 (Increase) decrease on contingent liability 15,573 31,867 (16,294 ) Net loss before taxes (152,798 ) (15,874,941 ) 15,722,143 Net loss attributable to cbdMD Inc. common shareholders $ (1,155,298 ) $ (16,875,436 ) $ 15,720,138 20 Table of Contents Sales We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team.
Cost of sales Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 38.0% and 36.1% for fiscal years ended September 30, 2023 and 2022, respectively.
Our cost of sales as a percentage of net sales was 38.4% and 38.0% for fiscal years ended September 30, 2024 and 2023, respectively.
The change in revenue was driven by a combination of broader CBD category softness which we believe is partially attributed to the macro inflationary environment in addition to management reducing unprofitable marketing expenses that resulted in an increase in net contribution, in addition to some stock outages later in the year.
Wholesale sales decreased by approximately $0.9 million, or 19% year over year while E-commerce sales decreased by $3.7 million or 19%. The change in revenue was driven by a combination of broader CBD category softness which we believe is partially attributed to the macro inflationary environment in addition to lower marketing spend.
Liquidity and Capital Resources We had cash and cash equivalents on hand of $1.8 million and working capital of $3.4 million at September 30, 2023 as compared to cash and cash equivalents on hand of $6.7 million and working capital of $10.7 million at September 30, 2022.
Liquidity and Capital Resources We had cash and cash equivalents on hand of $2.4 million and working capital of negative $1.1 million at September 30, 2024. Our working capital is reduced by approximately $4.7 million of accrued Series A Preferred dividend payments.
There was $13,219,000 and $4,285,000 of impairment losses recognized related to long-lived assets for the year ended September 30, 2023 and September 30, 2022, respectively. 23 Table of Contents Recent accounting pronouncements Please see Note 1 – Organization and Summary of Significant Accounting Policies appearing in the consolidated financial statements included in this report for information on accounting pronouncements.
Impairment losses are recorded in selling, general, and administrative expense in the consolidated statements of operations. There was $0 and $13,219,000 of impairment losses recognized related to long-lived assets for the year ended September 30, 2024 and September 30, 2023, respectively.
Consolidated Operating Expenses The following tables provide information on our operating expenses for the fiscal years ended September 30, 2023 and 2022: Fiscal 2023 Fiscal 2022 Change Staff related expense $ 7,440,687 $ 12,819,447 $ (5,378,760 ) Accounting/Legal expense 986,295 1,045,836 (59,541 ) Preofessional outside services 846,475 816,584 29,891 Advertising/marketing/social media/events/tradeshows 5,960,458 14,332,235 (8,371,777 ) Sponsorships 18,750 1,031,516 (1,012,766 ) Affiliate commissions 971,132 1,111,795 (140,663 ) Merchant Fees 791,475 1,007,025 (215,550 ) R&D and regulatory 173,038 633,392 (460,354 ) Non-cash stock compensation 349,245 1,124,130 (774,885 ) Intangibles amortization 1,396,459 884,380 512,079 Depreciation 404,280 948,946 (544,666 ) All other expenses 4,907,914 3,891,844 1,016,070 Totals $ 24,246,208 $ 39,647,130 $ (15,400,922 ) 20 Table of Contents Corporate overhead and allocation of management fees to our segments Included in our consolidated operating expenses are expenses associated with our corporate overhead which are not allocated to the operating business unit, including (i) staff related expenses; (ii) accounting and legal expenses; (iii) professional outside services; (iv) travel and entertainment expenses; (v) rent; (vi) business insurance; and (vii) non-cash stock compensation expense.
Consolidated Operating Expenses The following tables provide information on our operating expenses for the fiscal years ended September 30, 2024 and 2023: Fiscal 2024 Fiscal 2023 Change Staff related expense $ 5,521,869 $ 7,440,687 $ (1,918,818 ) Accounting/Legal/Professional outside expense 1,527,456 1,832,770 (305,314 ) Marketing 4,181,026 6,950,340 (2,769,314 ) Merchant Fees 642,102 791,475 (149,373 ) R&D and regulatory 39,021 173,038 (134,017 ) Non-cash stock compensation 43,688 349,245 (305,557 ) Intangibles amortization 697,510 1,396,459 (698,949 ) Rent and Utilities 1,349,284 1,569,906 (220,622 ) Depreciation 452,326 404,280 48,046 All other expenses 856,669 3,338,008 (2,481,339 ) Totals $ 15,310,951 $ 24,246,208 $ (8,935,257 ) 21 Table of Contents Corporate overhead and allocation of management fees to our segments Included in our consolidated operating expenses are expenses associated with our corporate overhead which are not allocated to the operating business unit, including (i) staff related expenses; (ii) accounting and legal expenses; (iii) professional outside services; (iv) travel and entertainment expenses; (v) rent; (vi) business insurance; and (vii) non-cash stock compensation expense.
Fiscal 2023 Fiscal 2022 Change Staff related expense $ 357,871 $ 338,985 $ 18,886 Accounting and legal - 3,119 3,119 R&D and Regulatory 158,795 565,096 (406,301 ) Totals $ 516,666 $ 907,200 $ (384,296 ) Other income and other non-operating expenses We also record income and expenses associated with non-operating items. The material components of those are set forth below.
The corporate operating expenses are primarily related to the ongoing public company related activities. Other income and other non-operating expenses We also record income and expenses associated with non-operating items. The material components of those are set forth below.
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Operationally we continued to optimize our product portfolio, adding to our NSF for Sport as well as our hemp-derived delta 9 line of products. Since year end we added the hempMD and ATRX line of products to open up and expand our distribution channels and customer base and refreshed our website to improve the customer experience.
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During fiscal 2024, we launched 2 important categories to the business (i) our line of ATRx functional mushroom supplements, that launched in GNC and Amazon and (ii) entered into the hemp derived beverage category starting with our Mixer line and followed up in November 2024 by our line of Herbal Oasis Social Tonics.
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We believe we are well positioned to take market share during fiscal 2024.
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With our leaner cost structure and some exciting new categories, we believe we are well positioned to start growing revenue during fiscal 2025.
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Wholesale sales decreased by approximately $4.2 million, or 47% year over year while E-commerce sales decreased by $7.0 million or 26%.
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Net sales for the fourth quarter declined 20% year over year. A few items that impacted the quarter include: (i) During the 2024 fiscal fourth quarter, one of our agencies made a recommendation which resulted in a sharp decline in emails delivered.
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Net sales for the fourth quarter declined 27% year over year as a result of industry trends, a reduction of marketing spend and lower wholesale pricing initiatives with our new high-strength products that launched mid-September of 2022.
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We have reacted accordingly to address the issue and have seen deliverability and metrics rebound during early fiscal 2025, however we believe this had greater than $200,000 impact to our direct-to-consumer revenue during the quarter. (ii) We continued to face ongoing down time on various digital marketing platforms tied to our regulated category.
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The decrease was partially offset by $98,000 in professional outside services and increased business insurance rates. The corporate operating expenses are primarily related to the ongoing public company related activities.
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To help offset this ongoing challenge, we made a change to our marketing resources during the summer of 2024. As a result, we have seen our SEO rankings jump significantly and we are now ranking atop a number of key high-traffic, strategic terms resulting in strong gains on high-intent traffic during the first quarter of fiscal 2025.
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Therapeutics Overhead Included in our consolidated operating expenses are expenses associated with Therapeutics which are not allocated to the operating business unit, including staff related expenses and R&D and regulatory expenses. The Therapeutic operating expenses include research and development activities for therapeutic applications. Year over year’s decline is primarily driven by the finishing of our clinical studies.
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(iii) A number of our larger international wholesale clients faced a new regulatory registration requirement which ultimately impacted sales for approximately 100 days, most of which overlapped the fourth quarter. The wholesale demand rebounded in late October and continues to strengthen.
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The following tables provide information on our approximate corporate overhead for the fiscal years ended September 30, 2023. Therapeutics was formed March 15, 2021.
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Un-audited revenues for October and November have rebounded, trending ahead of the fourth fiscal quarter of 2024 and management currently anticipates being able to recapture most of the revenue lost in the September 2024 quarter during the first quarter of fiscal 2025.
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For the three months ended September 30, 2023, the remaining contingent liabilities associated with the business combination, after the issuance of the second quarter fourth marking period Earnout Shares, were decreased by $0.03 million to reflect their reassessed fair values as of September 30, 2023.
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The year over year decline in our Paw CBD brand is due to increasing competition in the pet product industry and a rationalization in marketing efforts specific to the brand. Cost of sales Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and freight for our product sales.
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This decrease in the contingent liability is mostly due to the change in our common stock share price between June 30, 2023 to September 30, 2023 from $1.40 per share to $1.03 per share.
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The change reflects approximately $588,000 one-time non-cash inventory write down related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory, with most all of this inventory older than 2 years. Excluding this one-time write down, our non-GAAP adjusted cost of sales would have been 33% for the fourth quarter of fiscal 2024.
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In addition, as of September 30, 2023 the measuring period for the Twenty Two Earnout Shares is over, the threshold was not met and there is no longer any value ascribed to this on our balance sheet.
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All other expenses includes a $0.7 million gain related to the settlement of our former executive office (“HQ”) lease in 2024 while all other expenses in 2023 includes $0.7 million of impairment of the Steady State Holdings investment.
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Our current assets decreased approximately 49% at September 30, 2023 from September 30, 2022, which is primarily attributable to cash used by operations. Our current liabilities decreased approximately 13% at September 30, 2023 from September 30, 2022. This decrease is primarily attributable to a decrease in accounts payable and accrued expenses.
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On September 30, 2023 we had cash and cash equivalents on hand of $1.8 million and working capital of $3.4 million, which was reduced by approximately $0.7 million for accrued Series A Preferred dividend payments. Our current assets decreased approximately 20% at September 30, 2024 from September 30, 2023, which is primarily attributable to reduction of inventory.
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(4) Represents one-time severance costs incurred as the Company rationalized a number of positions. 22 Table of Contents Earnout Shares As described in Note 6 in notes to our consolidated financial statements appearing elsewhere in this report, on March 31, 2021 we entered into Addendum No. 1 to the Merger Agreement with the holders of the remaining Earnout Rights which amended the measurement periods within the third marking period to change the determination of the aggregate net revenues within the third marking period to a quarterly basis for each of the six fiscal quarters within the third marking period, beginning with the quarter ended March 31, 2021, instead of the initial 18 month period.
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Our current liabilities increase approximately 55% at September 30, 2024 from September 30, 2023. This increase is primarily attributable to a $4 million increase in dividend payable, partially offset by a $1.1 reduction in the current portion of rent as a result of the elimination the lease liability associated with the HQ lease.
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Impairment losses are recorded in selling, general, and administrative expense in the consolidated statements of operations.
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We entered into a securities Purchase Agreement dated January 30, 2024 with five accredited Investors whereby the Investors advanced the Company an aggregate of $1,250,000 gross proceeds and the Company issued each Investor an 8% Senior Secured Original Issue 20% Discount Convertible Promissory Note (each a “Note” and collectively, the “Notes”), in the aggregate principal amount of $1,541,666.
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The Company has used the proceeds from the issuance of the Notes for working capital and general corporate purposes, including, but not limited to inventory investment to assist with orders and administrative and corporate governance costs.
Added
As of the filing date of this report, the principal balance of the Notes has been reduced to approximately $364,000 and $5,000 of accrued interest. During the three and twelve months ended September 30, 2024 we used cash primarily to fund our operations. We do not have any commitments for capital expenditures.
Added
(4) Represents non-cash expense incurred as a credit provided to GNC to replace expired product. 23 Table of Contents Earnout Shares As described in Note 6 in notes to our consolidated financial statements appearing elsewhere in this report, the Earnout Right ran through November 2023. The Earnout period has expired.
Added
Fair Value of Convertible Notes The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes. The Notes were initially recognized at a fair value of $2,702,000 on the balance sheet as of March 31,2024.
Added
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).
Added
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.
Added
As of September 30, 2024, total fair value of the Notes is $1,021,935, of which $1,032,909 represents the total principal outstanding. 24 Table of Contents Recent accounting pronouncements Please see Note 1 – Organization and Summary of Significant Accounting Policies appearing in the consolidated financial statements included in this report for information on accounting pronouncements.

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