cbdMD, Inc. (NYSE:YCBD) Q2 2023 Earnings Conference Call May 15, 2023 4:15 PM ET Company Participants Brad Whitford - VP of Finance Ronan Kennedy - Interim Chief Executive Officer and Chief Financial Officer Sibyl Swift - Chief Science Officer & VP Regulatory Affairs Conference Call Participants Anthony Vendetti - Maxim Group Operator Good afternoon. Welcome to cbdMD's, Inc. March 31, 2023, Second Quarter of Fiscal '23 Earnings Call and Update. This afternoon, the company issued a press release that provide ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _______________ Commission file number 001-38299 cbdMD, INC. (Exact Name of Registrant as Specified in its Charter) No ...

Financial Data and Key Metrics Changes - Total net sales for the first quarter of fiscal 2023 were $6.1 million, a 34% decrease from the prior year comparative quarter [19] - E-commerce sales generated $4.9 million, reflecting a 31% year-over-year decrease, while e-commerce represented 81% of total net sales compared to 76% in the prior year [20] - Operating expenses totaled $7.6 million, down from $11.9 million in the prior year, with a loss from operations of approximately $4 million compared to a $25 million loss in the prior year [22][24] - Non-GAAP adjusted operating loss was $2.6 million for the first quarter of fiscal 2023, improved from a $4.4 million loss in the prior year [26] Business Line Data and Key Metrics Changes - The wholesale business generated $1.2 million in net sales, down 46% from $2.2 million in the prior year [20] - Gross profit as a percentage of net sales increased to 59% from 54% in the prior year, with expectations to maintain gross profit margins in the mid-60s range [21] Market Data and Key Metrics Changes - The CBD market is described as a multibillion-dollar market with expected growth, and the company anticipates gaining market share [16] Company Strategy and Development Direction - The company has focused on rightsizing its cost structure and establishing a foundation for growth, emphasizing a purposeful approach to revenue generation while holding expenses flat [5][7] - A new Chief Marketing Officer has been appointed to enhance brand positioning and expand consumer demographics [11][39] - The company is pursuing strategic partnerships to improve liquidity and profitability [36] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in revenue trends but noted improvements in operating income and a focus on profitability [10][16] - The company is optimistic about its competitive product position and anticipates growth in quarterly sales throughout 2023 [34] Other Important Information - The FDA has been criticized for its lack of regulatory tools for CBD, which management believes affects the industry [17][18] - Cash and cash equivalents were approximately $3.3 million as of December 31, 2022, down from $6.7 million at the end of the previous quarter [31] Q&A Session Summary Question: Background on new CMO Shannon Charles - Management highlighted Shannon's experience in the food and supplement space and her success in expanding brand demographics [38][39] Question: Current cash position and runway - The company reported $3.3 million in cash and anticipated improvements in the upcoming quarter [40][42] - Management acknowledged the need for sales growth to sustain operations, emphasizing their focus on liquidity [45][46]

Financial Performance - Total net sales for the three months ended December 31, 2022, were $6.1 million, a decrease of 34.7% from $9.3 million in the same period of 2021[161]. - The company reported a net loss attributable to common shareholders of $4.96 million for Q4 2022, compared to a net loss of $20.16 million in Q4 2021, an improvement of $15.2 million[161]. - The company reported a net cash consumption of $2.1 million for Q4 2022, compared to $5.5 million for Q4 2021, indicating an improvement in cash flow[184]. Sales and Revenue - E-commerce sales accounted for 80.6% of total net sales in Q4 2022, down from 76.3% in Q4 2021, with a decline of $2.2 million year-over-year[162]. Cost Management - Gross profit as a percentage of net sales increased to 58.6% in Q4 2022 from 53.6% in Q4 2021, reflecting improved cost management[161]. - Operating expenses decreased by $4.3 million or 36.3% year-over-year, driven by reductions in staff-related expenses and marketing costs[169]. - Corporate overhead expenses decreased from $1,857,959 in Q4 2021 to $726,649 in Q4 2022, a reduction of approximately 62.0%[173]. - R&D and regulatory expenses for Therapeutics dropped significantly from $267,529 in Q4 2021 to $75,213 in Q4 2022, a decrease of approximately 71.9%[175]. Strategic Initiatives - The company is focusing on product innovation, with plans to launch new clinically proven products, including cbdMD Max for Pain, in fiscal 2023[159]. - The company is expanding its international presence, with products currently available in 31 countries and ongoing efforts to enter markets in the EU, Israel, and Japan[159]. - The company aims to improve its cost structure by lowering facility costs and reassessing marketing expenses, with a focus on achieving profitability by the end of 2022[158]. - The company has engaged third parties to assess strategic alternatives to enhance operational efficiency and revenue growth[171]. - The company is exploring acquisitions that could provide a complementary customer base or profitable business synergies to accelerate profitability[160]. Financial Position - Cash and cash equivalents decreased from $6.7 million at September 30, 2022, to $3.4 million at December 31, 2022, a decline of approximately 49.0%[181]. - Working capital decreased from $10.7 million at September 30, 2022, to $6.0 million at December 31, 2022, a reduction of approximately 44.0%[181]. - The non-cash contingent liability decreased from $276,000 at September 30, 2022, to $215,000 at December 31, 2022, a reduction of approximately 22.1%[179]. - Goodwill was fully impaired by September 30, 2022, after being valued at $42,772,685 on December 31, 2021[176]. - The company does not have any commitments for capital expenditures as of December 31, 2022[182]. - The company’s ability to continue as a going concern is dependent on improving profitability and acquiring additional funding[183]. Staffing and Expenses - Staff-related expenses for Therapeutics increased from $80,235 in Q4 2021 to $87,198 in Q4 2022, a rise of 8.7%[175].

PART 1 [ITEM 1. DESCRIPTION OF BUSINESS](index=5&type=section&id=ITEM%201.%20DESCRIPTION%20OF%20BUSINESS) cbdMD, Inc. operates nationally recognized CBD brands, focusing on product innovation, channel expansion, and global presence in a fragmented and regulated CBD market - cbdMD operates nationally recognized CBD brands: **cbdMD**, **Paw CBD**, **cbdMD Botanicals**, and **cbdMD Therapeutics** for R&D[22](index=22&type=chunk)[29](index=29&type=chunk)[229](index=229&type=chunk) - The company produces **broad spectrum** (THC-free) and **full spectrum/Delta 9** CBD products, sourced from non-GMO US-grown hemp, complying with 2018 Farm Act limits[22](index=22&type=chunk)[31](index=31&type=chunk)[228](index=228&type=chunk) - In fiscal 2022, cbdMD products received 'Product of the Year Awards' and 'Sleeping Beauty Award', while Paw CBD won two Pet Innovations awards[29](index=29&type=chunk)[30](index=30&type=chunk) - Growth strategies include product innovation (e.g., **NSF for Sport**, **Delta 9**, **cbdMD Max for Pain**), expanding revenue channels (e.g., **GNC**, **Wegmans**, international), and international expansion to **31 countries** with UK/EU Novel Food validation[31](index=31&type=chunk)[32](index=32&type=chunk) - **E-commerce** accounted for approximately **75% of sales** in fiscal 2022, with B2B brick-and-mortar locations expanding to **3,366**[40](index=40&type=chunk) - Manufacturing assets were sold to Steady State, LLC in 2022, shifting to an outsourced, variable cost structure, while maintaining strict quality control with **cGMP certified suppliers** and **third-party testing**, achieving **NSF** and **NASC certifications**[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - R&D efforts include clinical studies showing improved mobility and quality of life in dogs with osteoarthritis, and reduced pain, inflammation, and improved mood in healthy adults, informing future product development[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - cbdMD holds US and foreign trademarks (e.g., **CBDMD**, **PAWCBD**) and has a patent application for novel formulations and delivery systems[50](index=50&type=chunk)[51](index=51&type=chunk) - The CBD market is fragmented with over **2,000 brands**; cbdMD ranked **3rd in Online Brand Share** and **5th in Revenue** in 2022[54](index=54&type=chunk) - The company had approximately **90 full-time employees** as of December 1, 2022[63](index=63&type=chunk) [ITEM 1A. RISK FACTORS.](index=11&type=section&id=ITEM%201A.%20RISK%20FACTORS.) The company faces significant risks including operating losses, liquidity concerns, operational challenges, an uncertain regulatory environment, and equity ownership risks - The company reported operating losses of **$78.2 million** in fiscal 2022 and **$19.6 million** in 2021, including significant goodwill and trade name impairments in 2022[69](index=69&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to insufficient working capital and reliance on improved profitability and additional funding[70](index=70&type=chunk) - Net sales decreased by **$9 million (20%)** in 2022, primarily due to reduced direct-to-consumer and wholesale orders, impacted by marketing effectiveness, channel access, and inflationary pressures[71](index=71&type=chunk) - International expansion plans face significant costs and risks, including brand identity establishment, increased operational costs, compliance with foreign laws, currency fluctuations, and intellectual property protection challenges[80](index=80&type=chunk)[81](index=81&type=chunk) - Reliance on third-party raw material suppliers and manufacturers without long-term contracts poses risks of production delays and increased costs if relationships are disrupted[83](index=83&type=chunk) - The regulatory environment for industrial hemp and cannabinoids is uncertain, with potential changes in federal or state laws, increased compliance costs, and litigation risks[90](index=90&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The fair value of non-cash contingent liabilities for Earnout Shares can materially impact financial results and shareholders' equity, with a **decrease of $8.47 million** in fiscal 2022[95](index=95&type=chunk) - The company is subject to NYSE American listing standards, and failure to meet criteria could result in delisting, impacting liquidity and financing[96](index=96&type=chunk) - Issuance of remaining Earnout Shares (up to **3,928,797 shares**) and conversion of Series A Convertible Preferred Stock (**8,335,000 shares**) could significantly dilute existing common shareholders[97](index=97&type=chunk)[107](index=107&type=chunk) - Series A Convertible Preferred Stock ranks junior to all indebtedness and liabilities, and the company may not be able to pay dividends on it[98](index=98&type=chunk)[99](index=99&type=chunk) [ITEM 1B. Unresolved Staff Comments.](index=17&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments.) This item is not applicable to cbdMD, Inc. as a smaller reporting company - Not applicable to a smaller reporting company[110](index=110&type=chunk) [ITEM 2. Properties.](index=17&type=section&id=ITEM%202.%20Properties.) cbdMD's headquarters and a warehouse are located in Charlotte, NC, under sub-lease and lease agreements, respectively - Headquarters: **50,000 sq ft** in Charlotte, NC, sub-leased until December 2026, with an annual base monthly rent of **$76,041** (3% annual escalation)[111](index=111&type=chunk) - Warehouse: **80,000 sq ft** in Charlotte, NC, leased until December 2024, with an annual base monthly rent of **$34,766** (3% annual escalation)[111](index=111&type=chunk) [ITEM 3. LEGAL PROCEEDINGS.](index=18&type=section&id=ITEM%203.%20Legal%20Proceedings.) cbdMD is involved in a class action lawsuit, a trademark cancellation proceeding, and a recently settled data breach class action - Cynthia Davis filed a class action lawsuit in California alleging violations of Unfair Competition Law and False Advertising Law, currently stayed pending FDA/Congress action on CBD regulation[113](index=113&type=chunk) - CBDI filed a cancellation proceeding against Majik Medicine, LLC for the 'CBD MD' trademark, with TTAB proceedings suspended pending a Federal Court determination[114](index=114&type=chunk) - A class action lawsuit regarding a data breach was globally settled within policy limits and approved by the Court, with dismissal expected in Q2 2023[115](index=115&type=chunk) [ITEM 4. Mine Safety Disclosures.](index=18&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to cbdMD, Inc - Not applicable to our company[116](index=116&type=chunk) PART II [ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](index=19&type=section&id=ITEM%205.%20Market%20for%20Registrants%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) cbdMD's common and preferred stock are listed on NYSE American, with no common stock dividends planned, but monthly cash dividends on preferred stock - Common stock (**YCBD**) and Series A Convertible Preferred Stock (**YCBDpA**) are listed on the NYSE American[119](index=119&type=chunk) - As of December 9, 2022, there were **104 record owners of common stock** and **one record holder of Series A Convertible Preferred Stock**[119](index=119&type=chunk) - The company does not currently intend to pay dividends on common stock[120](index=120&type=chunk) - Monthly cumulative cash dividends of **8.0% ($0.0667 per share)** are paid on Series A Convertible Preferred Stock[121](index=121&type=chunk) [ITEM 6. [Reserved]](index=19&type=section&id=ITEM%206.%20%5BReserved%5D) This item is reserved and contains no information [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.](index=20&type=section&id=ITEM%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operation.) cbdMD faced a challenging fiscal 2022 with decreased net sales and a significant net loss, impacted by goodwill impairments, leading to liquidity concerns and a going concern warning - Fiscal 2022 was challenging due to inflation and reduced marketing, leading to a **20% decrease in total net sales**[126](index=126&type=chunk)[129](index=129&type=chunk) - The company launched new high-strength CBD products, Delta 9 products, and achieved **NSF certification** for certain products, including **NSF for Sport**[126](index=126&type=chunk) Selected Consolidated Financial Information (Fiscal Years Ended September 30) | Metric | 2022 | 2021 | Change (2022 vs 2021) | | :--------------------------------------- | :----------- | :----------- | :---------------------- | | Total net sales | $35,403,224 | $44,480,763 | $(9,077,539) | | Cost of sales | $13,066,639 | $14,495,063 | $(1,428,424) | | Gross profit as a percentage of net sales | 63.1% | 67.4% | (4.3)% | | Operating expenses | $39,647,130 | $49,601,690 | $(9,954,560) | | Impairment of goodwill and other intangible assets | $60,955,970 | $- | $60,955,970 | | Operating loss from operations | $(78,266,515) | $(19,615,990) | $(58,650,525) | | (Increase) decrease on contingent liability | $8,473,999 | $(6,687,439) | $15,161,438 | | Net loss before taxes | $(70,083,693) | $(24,289,889) | $(45,793,804) | | Net loss attributable to cbdMD Inc. common shareholders | $(74,085,698) | $(25,949,498) | $(48,136,200) | Net Sales by Channel (Fiscal Years Ended September 30) | Sales Channel | Fiscal 2022 | % of total | Fiscal 2021 | % of total | | :-------------- | :------------ | :--------- | :------------ | :--------- | | E-commerce sales | $26,435,203 | 74.7% | $32,907,956 | 74.0% | | Wholesale sales | $8,968,021 | 25.3% | $11,572,807 | 26.0% | | Total Net Sales | $35,403,224 | | $44,480,763 | | - Paw CBD net sales declined from **$5,659,796** in FY2021 to **$3,748,779** in FY2022 due to increasing competition and rationalized marketing[130](index=130&type=chunk) - Cost of sales as a percentage of net sales increased to **36.1%** in FY2022 from **32.6%** in FY2021, impacted by inventory adjustments, lower overhead absorption, and discounting[131](index=131&type=chunk) - Operating expenses decreased by approximately **$10 million (20%)** in FY2022 due to cost rationalization efforts, partially offset by **$0.8 million** in intangibles amortization[132](index=132&type=chunk) Corporate Overhead Expenses (Fiscal Years Ended September 30) | Expense Category | Fiscal 2022 | Fiscal 2021 | Change | | :------------------------ | :---------- | :---------- | :------- | | Staff related expense | $1,066,428 | $1,725,535 | $(659,107) | | Accounting/Legal expense | $728,250 | $866,876 | $(138,626) | | Professional outside services | $330,633 | $333,666 | $(3,033) | | Travel expense | $3,932 | $7,381 | $(3,449) | | Business insurance | $703,107 | $607,288 | $95,819 | | Non-cash stock compensation | $1,124,130 | $3,161,805 | $(2,037,675) | | Totals | $3,956,480 | $6,702,551 | $(2,746,071) | - Corporate overhead decreased **41%** in FY2022, primarily due to lower non-cash stock compensation and reduced staffing, legal, and accounting costs[135](index=135&type=chunk) - Cash and cash equivalents decreased from **$26.4 million** in FY2021 to **$6.7 million** in FY2022, while working capital decreased from **$29.6 million** to **$10.7 million**[142](index=142&type=chunk) - The company's ability to continue as a going concern depends on improving profitability and securing additional funding, as current working capital may not support operations for the next twelve months[145](index=145&type=chunk)[146](index=146&type=chunk) Non-GAAP Adjusted Operating Income (Fiscal Years Ended September 30) | Metric | Year Ended 2022 | Year Ended 2021 | | :----------------------------------- | :-------------- | :-------------- | | GAAP (loss) from operations | $(78,266,515) | $(19,615,990) | | Adjustments: | | | | Depreciation & Amortization | $1,833,326 | $1,017,408 | | Employee and director stock compensation | $1,124,130 | $3,149,688 | | Inventory adjustment | $878,142 | $671,669 | | Impairment of Goodwill and other intangible assets | $60,955,970 | $- | | Accrual for severance | $129,761 | $703,022 | | Accrual / expenses for discretionary bonus | $150,000 | $300,000 | | Non-GAAP adjusted (loss) from operations | $(13,195,186) | $(13,676,481) | [ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.](index=25&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This item is not applicable to cbdMD, Inc. as a smaller reporting company - Not applicable for a smaller reporting company[162](index=162&type=chunk) [ITEM 8. Financial Statements and Supplementary Data.](index=25&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section refers to the consolidated financial statements and supplementary data, starting on page 31, with Cherry Bekaert LLP as the external auditor - Financial Statements and Report of Independent Registered Accounting Firm are listed in the 'Index to Financial Statements and Schedules' beginning on page **31**[163](index=163&type=chunk)[183](index=183&type=chunk) - The Auditor Firm ID for Cherry Bekaert LLP is **677**[163](index=163&type=chunk) [ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.](index=25&type=section&id=ITEM%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[164](index=164&type=chunk) [ITEM 9A. Controls and Procedures.](index=25&type=section&id=ITEM%209A.%20Controls%20and%20Procedures.) Management concluded that cbdMD's disclosure controls and internal control over financial reporting were effective as of September 30, 2022, with no material changes during the fiscal year - Disclosure controls and procedures were evaluated and concluded to be effective as of **September 30, 2022**[166](index=166&type=chunk) - Management's assessment of internal control over financial reporting, based on COSO criteria, concluded it was effective as of **September 30, 2022**[171](index=171&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal year[172](index=172&type=chunk) [ITEM 9B. Other Information.](index=26&type=section&id=ITEM%209B.%20Other%20Information.) This item reports that there is no other information to disclose - None[173](index=173&type=chunk) PART III [ITEM 10. Directors, Executive Officers and Corporate Governance.](index=27&type=section&id=ITEM%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance.) Information for this item will be incorporated by reference from the company's 2023 Proxy Statement, expected by January 28, 2023 - Information will be incorporated by reference from the **2023 Proxy Statement**, expected by **January 28, 2023**[176](index=176&type=chunk) [ITEM 11. Executive Compensation.](index=27&type=section&id=ITEM%2011.%20Executive%20Compensation.) Information for this item will be incorporated by reference from the company's Proxy Statement - Information will be incorporated by reference from the Proxy Statement[177](index=177&type=chunk) [ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.](index=27&type=section&id=ITEM%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters.) Information for this item will be incorporated by reference from the company's Proxy Statement - Information will be incorporated by reference from the Proxy Statement[178](index=178&type=chunk) [ITEM 13. Certain Relationships and Related Transactions, and Director Independence.](index=27&type=section&id=ITEM%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence.) Information for this item will be incorporated by reference from the company's Proxy Statement - Information will be incorporated by reference from the Proxy Statement[179](index=179&type=chunk) [ITEM 14. Principal Accounting Fees and Services.](index=27&type=section&id=ITEM%2014.%20Principal%20Accounting%20Fees%20and%20Services.) Information for this item will be incorporated by reference from the company's Proxy Statement - Information will be incorporated by reference from the Proxy Statement[180](index=180&type=chunk) PART IV [ITEM 15. Exhibits and Financial Statement Schedules.](index=28&type=section&id=ITEM%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists consolidated financial statements and the auditor's report, confirms schedules are included or not applicable, and provides a detailed Exhibit Index - Consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the 'Index to Financial Statements and Schedules' beginning on page **31**[183](index=183&type=chunk) - All financial statement schedules are either not required, not applicable, or their disclosures are contained in the consolidated financial statements[184](index=184&type=chunk) - A detailed Exhibit Index is provided, listing various agreements, corporate documents, and certifications[186](index=186&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) [ITEM 16. Form 10-K Summary](index=28&type=section&id=ITEM%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - None[187](index=187&type=chunk) SIGNATURES This section contains the signatures of cbdMD, Inc.'s President, CFO, and Board of Directors, all dated December 15, 2022, along with a power of attorney - The report is signed by **Kevin MacDermott** (President) and **T. Ronan Kennedy** (CFO) on **December 15, 2022**[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Board of Directors, including Chairman **Scott Stephen**, **Raymond S. Coffman**, **Bakari Sellers**, **Peter Ghiloni**, **William Raines III**, and **Sibyl Swift, PhD**, also signed on **December 15, 2022**[199](index=199&type=chunk) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Cherry Bekaert LLP issued an unqualified opinion on cbdMD's financial statements but highlighted substantial doubt about the company's ability to continue as a going concern - Cherry Bekaert LLP issued an **unqualified opinion** on the consolidated financial statements for FY2022 and FY2021[201](index=201&type=chunk) - The audit report includes a 'Substantial Doubt about the Company's Ability to Continue as a Going Concern' due to historical losses (**$74.1 million net loss** in FY2022) and an accumulated deficit of **$147.4 million** as of September 30, 2022[202](index=202&type=chunk) - The financial statements do not include adjustments for the possible future effects of this uncertainty[202](index=202&type=chunk) PART 1 – FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS.](index=33&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This section presents cbdMD's consolidated financial statements for FY2022 and FY2021, reflecting a significant net loss, decreased liquidity, and a going concern warning, with detailed notes on accounting policies and financial items - The consolidated financial statements include Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Cash Flows, and Shareholders' (Deficit) Equity for FY2022 and FY2021[208](index=208&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk) - The company reported a net loss of **$74,085,698** for the fiscal year ended September 30, 2022, compared to **$25,949,498** in 2021[214](index=214&type=chunk) - Cash and cash equivalents decreased from **$26,411,424** in FY2021 to **$6,720,234** in FY2022[209](index=209&type=chunk) - Total assets decreased from **$124,883,376** in FY2021 to **$40,791,909** in FY2022, primarily due to the impairment of goodwill and intangible assets[209](index=209&type=chunk) - Total liabilities decreased from **$21,741,189** in FY2021 to **$9,367,478** in FY2022[212](index=212&type=chunk) - Shareholders' equity decreased from **$103,142,187** in FY2021 to **$31,424,431** in FY2022[212](index=212&type=chunk) [NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=40&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details cbdMD's organization, accounting policies, and going concern considerations, covering revenue recognition, asset impairment, and stock-based compensation - cbdMD, Inc. was formed in 2015, changed its name to cbdMD, Inc. in 2019, and acquired Cure Based Development, LLC in 2018, establishing its core CBD brands[226](index=226&type=chunk)[227](index=227&type=chunk) - The company's products comply with the **2018 Farm Bill**, offering both **broad spectrum** (non-detectable THC) and **full spectrum** (trace THC) cannabinoids[228](index=228&type=chunk) - Consolidated financial statements include wholly-owned subsidiaries **CBDI**, **Paw CBD**, and **cbdMD Therapeutics**[231](index=231&type=chunk) - Significant estimates are made for allowances for doubtful accounts, inventory valuation, sales returns, investments, intangible assets, income taxes, and contingent liabilities[232](index=232&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually or when triggering events occur; trademarks 'cbdMD' and 'HempMD' were reclassified to definite-lived assets with **20-year useful lives** in FY2022[243](index=243&type=chunk)[245](index=245&type=chunk)[285](index=285&type=chunk) - Revenue is recognized when products are shipped (FOB shipping) for both E-commerce and wholesale channels, with E-commerce sales representing the majority[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) - Advertising and related marketing costs are expensed as incurred, totaling **$14.3 million** in FY2022[257](index=257&type=chunk) - The company has a valuation allowance against net deferred tax assets due to uncertainty of realization and faces a going concern risk due to historical losses and insufficient working capital[266](index=266&type=chunk)[267](index=267&type=chunk)[376](index=376&type=chunk) [NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES](index=45&type=section&id=NOTE%202%20%E2%80%93%20MARKETABLE%20SECURITIES%20AND%20INVESTMENT%20OTHER%20SECURITIES) This note describes the accounting for marketable and other investment securities, including a realized/unrealized loss in FY2022 and an equity investment in Steady State, LLC - Marketable securities and other investment securities are recorded at fair value using a **three-level hierarchy** (Level 1, 2, 3 inputs)[240](index=240&type=chunk)[241](index=241&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - The company recorded a realized and unrealized loss of **$(33,350)** in FY2022, compared to a gain of **$546,878** in FY2021[274](index=274&type=chunk) - An investment in **Adara Sponsor LLC** (a SPAC) was made, contingent on Adara's acquisition of Alliance Entertainment, Inc., with risk of loss if the business combination is not completed by **February 2023**[275](index=275&type=chunk) - In April 2022, cbdMD invested **$1.4 million** in **Steady State, LLC** as an equity investment, following the sale of its manufacturing assets[277](index=277&type=chunk) [NOTE 3 – INVENTORY](index=48&type=section&id=NOTE%203%20%E2%80%93%20INVENTORY) Inventory is valued at the lower of cost or net realizable value, with a significant write-down in FY2022 due to product line rationalization - Inventory is stated at the lower of cost or net realizable value, using a weighted average basis[237](index=237&type=chunk) Inventory Breakdown (September 30) | Category | 2022 | 2021 | | :---------------- | :----------- | :----------- | | Finished Goods | $3,198,488 | $3,362,897 | | Inventory Components | $1,213,724 | $1,729,176 | | Inventory Reserve | $(156,298) | $(70,206) | | Inventory prepaid | $511,459 | $551,519 | | Total Inventory | $4,767,373 | $5,573,386 | - The company recorded an inventory write-down of **$878,142** in FY2022, mainly due to product line rationalization and elimination of slow-moving SKUs[279](index=279&type=chunk) [NOTE 4 – PROPERTY AND EQUIPMENT](index=48&type=section&id=NOTE%204%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT) Property and equipment are recorded at cost less depreciation, with a significant decrease in net value in FY2022 due to the sale of manufacturing assets - Property and equipment are stated at cost less accumulated depreciation, using the straight-line method over estimated useful lives (**3-5 years**)[239](index=239&type=chunk) Property and Equipment, Net (September 30) | Category | 2022 | 2021 | | :-------------------------- | :--------- | :--------- | | Computers, furniture and equipment | $1,095,228 | $549,910 | | Manufacturing equipment | $284,275 | $2,968,838 | | Leasehold improvements | $487,081 | $870,621 | | Automobiles | $11,087 | $35,979 | | Total Gross Property and Equipment | $1,877,671 | $4,425,348 | | Less accumulated depreciation | $(1,054,361) | $(1,863,774) | | Property and equipment, net | $823,310 | $2,561,574 | - Net property and equipment decreased significantly in FY2022 due to the sale of substantially all manufacturing assets[280](index=280&type=chunk) - Depreciation expense was **$948,962** in FY2022, down from **$1,017,408** in FY2021[280](index=280&type=chunk) [NOTE 5 – GOODWILL AND INTANGIBLE ASSETS](index=48&type=section&id=NOTE%205%20%E2%80%93%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill was fully impaired in FY2022, and certain trademarks were reclassified to definite-lived intangible assets, with an additional impairment recorded for the 'cbdMD' trademark - Goodwill of **$56,670,970** at September 30, 2021, was fully impaired in fiscal 2022 through multiple charges, resulting in a zero balance[281](index=281&type=chunk)[287](index=287&type=chunk) - Trademarks 'cbdMD' and 'HempMD' were reclassified from indefinite to definite-lived intangible assets with a **20-year useful life**, effective **January 1, 2022**[285](index=285&type=chunk) - An impairment charge of **$4,285,000** was recorded for the 'cbdMD' trademark in FY2022[285](index=285&type=chunk) Intangible Assets (September 30) | Category | 2022 | 2021 | | :------------------------------------------ | :----------- | :----------- | | 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 | $(4,285,000) | $- | | Amortization of definite lived intangible assets | $(932,862) | $(48,482) | | Total | $17,834,549 | $23,003,929 | - Amortization expense for definite-lived intangible assets was **$932,862** for the year ended September 30, 2022[286](index=286&type=chunk) [NOTE 6 – CONTINGENT LIABILITY](index=50&type=section&id=NOTE%206%20%E2%80%93%20CONTINGENT%20LIABILITY) This note details contingent liabilities primarily related to Earnout Shares from the 2018 acquisition, which significantly decreased in FY2022 due to changes in stock price and unmet targets - The company has a contractual obligation to issue up to **15,250,000 Earnout Shares** based on aggregate net revenue criteria from the 2018 acquisition[288](index=288&type=chunk)[291](index=291&type=chunk) - As of September 30, 2022, **3,928,797 Earnout Shares** remain subject to issuance[292](index=292&type=chunk) - The contingent liability for Earnout Shares decreased from **$9,856,000** in FY2021 to **$276,000** in FY2022, primarily due to changes in the common stock share price[212](index=212&type=chunk)[140](index=140&type=chunk)[293](index=293&type=chunk) - The measurement period for the Twenty Two Earnout Shares ended in **September 2022**, with no further obligation as revenue targets were not met[294](index=294&type=chunk) - Other contingent obligations for RSUs and options to employees were terminated or valued at zero due to unmet revenue targets or employee resignation[295](index=295&type=chunk)[296](index=296&type=chunk) [NOTE 7 – RELATED PARTY TRANSACTIONS](index=51&type=section&id=NOTE%207%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note briefly mentions related party investments in Adara and the counterparty in the earnout arrangement - The company, its directors, and affiliates have invested in Adara through **Adara Sponsor LLC**[297](index=297&type=chunk) - The counterparty in the earnout arrangement (Note 6) is a related party[297](index=297&type=chunk) [NOTE 8 – SHAREHOLDERS' EQUITY](index=51&type=section&id=NOTE%208%20%E2%80%93%20SHAREHOLDERS%27%20EQUITY) This note details cbdMD's preferred and common stock, including authorized and outstanding shares, preferred dividends, and various common stock issuances in FY2022 and FY2021 - Authorized preferred stock: **50,000,000 shares** (**$0.001 par value**)[298](index=298&type=chunk) - Outstanding **8.0% Series A Cumulative Convertible Preferred Stock**: **5,000,000 shares** at September 30, 2022 (vs **500,000** in 2021)[298](index=298&type=chunk) - Total preferred dividends declared: **$4,002,005** in FY2022 (vs **$2,554,609** in FY2021)[299](index=299&type=chunk) - Authorized common stock: **150,000,000 shares** (**$0.001 par value**)[299](index=299&type=chunk) - Outstanding common stock: **60,665,595 shares** at September 30, 2022 (vs **57,783,340** in 2021)[299](index=299&type=chunk) - Common stock issuances in FY2022 included restricted stock for a new board member (**5,000 shares**), a consultant (**100,000 shares**), and Earnout Shares (**409,505**, **458,887**, **444,243**, **466,713 shares**)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk)[308](index=308&type=chunk) - In FY2021, the company completed a public offering of **2,200,000 shares** of Series A Convertible Preferred Stock for **$15.3 million** net proceeds[301](index=301&type=chunk) [NOTE 9 -STOCK-BASED COMPENSATION](index=55&type=section&id=NOTE%209%20-STOCK-BASED%20COMPENSATION) This note details stock-based compensation under equity plans, including option and restricted stock activity, and a significant decrease in compensation expense in FY2022 - Stock-based compensation is accounted for under **ASC 718**, recognizing fair value at grant date over the service period[339](index=339&type=chunk) - The **2015 and 2021 Equity Compensation Plans** allow for awards of options, restricted stocks, and other stock grants to eligible recipients[337](index=337&type=chunk)[338](index=338&type=chunk) Stock Option Activity (Fiscal Years Ended September 30) | Metric | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | | Outstanding at Sep 30, beginning | 2,702,500 | 1,750,000 | | Granted | 1,060,000 | 1,380,000 | | Exercised | - | (147,953) | | Forfeited | (1,260,000) | (279,547) | | Outstanding at Sep 30, end | 2,502,500 | 2,702,500 | | Weighted-average exercise price (end) | $3.36 | $4.42 | | Weighted-average remaining contractual term (end) | 4.55 years | 5.13 years | - As of September 30, 2022, **$301,126** of total unrecognized compensation cost related to non-vested stock options remains, vesting over approximately **2.3 years**[343](index=343&type=chunk) - Restricted stock compensation expense was **$373,610** in FY2022, a decrease from **$1,626,613** in FY2021[360](index=360&type=chunk) - In FY2022, **400,000 restricted common shares** were issued for a former executive officer's separation agreement, while **500,000 unvested RSUs** and **500,000 unvested options** were forfeited[346](index=346&type=chunk) [NOTE 10 – WARRANTS](index=58&type=section&id=NOTE%2010%20%E2%80%93%20WARRANTS) This note summarizes equity-classified warrant activity, showing no grants or exercises in FY2022, but 70,500 forfeitures, with 589,917 warrants outstanding Warrant Activity (Fiscal Years Ended September 30) | Metric | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | | Outstanding at Sep 30, beginning | 660,417 | 914,184 | | Granted | - | 293,984 | | Exercised | - | (323,444) | | Forfeited | (70,500) | (224,307) | | Outstanding at Sep 30, end | 589,917 | 660,417 | | Weighted-average exercise price (end) | $4.68 | $4.60 | | Weighted-average remaining contractual term (end) | 2.30 years | 3.05 years | - As of September 30, 2022, **589,917 warrants** were outstanding and exercisable, with exercise prices ranging from **$1.25 to $7.50** and expiration dates up to **June 2026**[361](index=361&type=chunk) [NOTE 11 – COMMITMENTS AND CONTINGENCIES](index=58&type=section&id=NOTE%2011%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines commitments related to athlete endorsement agreements, including a new agreement and the CEO's resignation due to SEC action - An endorsement agreement with a professional athlete was separated in November 2022 with a final cash payment, incurring a one-time non-cash expense of approximately **$850,000**[362](index=362&type=chunk) - A new endorsement agreement with another professional athlete, effective **February 2022 through February 2025**, includes potential base payments of **$1,500,000** and sales incentives[363](index=363&type=chunk) - The company's CEO resigned in **June 2022** due to SEC action against him, with cbdMD not named as a defendant[364](index=364&type=chunk) [NOTE 12 – NOTE PAYABLE](index=58&type=section&id=NOTE%2012%20%E2%80%93%20NOTE%20PAYABLE) This note details the company's note payable obligations, including a $249,100 equipment loan paid off in FY2022 and a remaining $3,000 balance on another loan - A **$249,100** equipment loan from July 2019 was paid off in **April 2022**[365](index=365&type=chunk) - A **$35,660** equipment loan from January 2020 has a long-term note payable balance of **$3,000** at September 30, 2022, with monthly payments of **$841** at a **6.2%** financing rate[365](index=365&type=chunk) [NOTE 13 – PAYCHECK PROTECTION PROGRAM LOAN](index=60&type=section&id=NOTE%2013%20%E2%80%93%20PAYCHECK%20PROTECTION%20PROGRAM%20LOAN) This note confirms cbdMD received a $1,456,100 PPP loan in April 2020, which was fully forgiven by the SBA in May 2021, resulting in a gain - The company received a **$1,456,100 PPP loan** in **April 2020**[367](index=367&type=chunk) - The PPP loan was fully forgiven by the SBA in **May 2021**, resulting in a **$1,466,113 gain**[367](index=367&type=chunk) [NOTE 14 – LEASES](index=60&type=section&id=NOTE%2014%20%E2%80%93%20LEASES) This note outlines cbdMD's operating lease agreements for offices, with total costs of $1,391,856 in FY2022 and future payments totaling $5,334,625 - The company has operating lease agreements for corporate, warehouse, and laboratory offices, expiring between **2024 and 2026**[368](index=368&type=chunk) - Operating lease ROU assets and liabilities are recognized based on the present value of lease payments, using the incremental borrowing rate[369](index=369&type=chunk) - Total operating lease costs for FY2022 were **$1,391,856**[371](index=371&type=chunk) - As of September 30, 2022, the weighted average remaining lease term was **3.91 years**, and the weighted average discount rate was **4.66%**[371](index=371&type=chunk) Future Minimum Aggregate Lease Payments (September 30, 2022) | For the year ended September 30, | Amount | | :------------------------------- | :------- | | 2023 | $1,380,204 | | 2024 | $1,421,610 | | 2025 | $1,159,949 | | Thereafter | $1,372,862 | | Total future lease payments | $5,334,625 | | Less interest | $(475,567) | | Total lease liabilities | $4,859,058 | [NOTE 15 – LOSS PER SHARE](index=61&type=section&id=NOTE%2015%20%E2%80%93%20LOSS%20PER%20SHARE) This note presents basic and diluted loss per share for cbdMD, which was $(1.24) in FY2022, with potential dilutive securities excluded due to anti-dilutive effects Loss Per Share (Fiscal Years Ended September 30) | Metric | 2022 | 2021 | | :------------------------------------------ | :----------- | :----------- | | Net income (loss) attributable to common shareholders | $(74,085,698) | $(25,949,498) | | Weighted average number of shares Basic | 59,750,301 | 54,938,128 | | Basic earnings per share | $(1.24) | $(0.47) | | Diluted earnings per share | $(1.24) | $(0.47) | - **3,335,750 potential shares** underlying options, unvested RSUs, and warrants, as well as **8,335,000 convertible preferred shares**, were excluded from diluted EPS calculation in FY2022 because their effect was anti-dilutive[373](index=373&type=chunk) [NOTE 16 – INCOME TAXES](index=62&type=section&id=NOTE%2016%20%E2%80%93%20INCOME%20TAXES) This note details cbdMD's income tax accounting, including operating losses, a full valuation allowance against deferred tax assets, and significant NOL carryforwards - The company generated operating losses in FY2022 and FY2021, leading to a **full valuation allowance** against net deferred tax assets[375](index=375&type=chunk)[376](index=376&type=chunk) - The effective income tax rate was **0.0%** in FY2022[375](index=375&type=chunk) Significant Components of Deferred Income Taxes (September 30) | Category | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | | **Deferred tax assets:** | | | | Net operating loss carryforwards | $12,909,000 | $9,160,000 | | ROU - Liability | $1,087,000 | $1,342,000 | | Capital loss carryforward | $702,000 | $716,000 | | Stock compensation | $833,000 | $1,107,000 | | Total deferred tax assets | $16,373,000 | $13,046,000 | | **Deferred tax liabilities:** | | | | Prepaid Expenses | $(257,000) | $(219,000) | | ROU - Assets | $(1,002,000) | $(1,254,000) | | Intangibles | $(3,426,000) | $(4,481,000) | | Total deferred tax liabilities | $(4,685,000) | $(6,116,000) | | Net deferred tax assets | $11,688,000 | $6,930,000 | | Valuation allowance | $(11,688,000) | $(6,930,000) | | Net deferred tax liability | $- | $- | - Due to **IRC Section 382** ownership changes, approximately **$11.4 million** of pre-ownership change NOL carryforwards from FY2019 will expire[377](index=377&type=chunk) - The total valuation allowance increased by **$4,758,000** in FY2022[378](index=378&type=chunk) - As of September 30, 2022, the company has utilizable federal NOL carryforwards of approximately **$57.7 million**, which carry forward indefinitely[379](index=379&type=chunk) [NOTE 17 – ACQUISITIONS](index=63&type=section&id=NOTE%2017%20%E2%80%93%20ACQUISITIONS) This note details the July 2021 acquisition of directcbdonline.com, including purchase consideration and the non-fulfillment of Earnout Share contingencies - In **July 2021**, cbdMD acquired **directcbdonline.com** from Twenty Two Capital, LLC[384](index=384&type=chunk) - Consideration included **$2,000,000 cash** and up to **600,000 shares** of restricted common stock[384](index=384&type=chunk) - The measurement period for the Twenty Two Earnout Shares ended in **September 2022**, with the revenue threshold not met, resulting in no further obligation[385](index=385&type=chunk) Final Purchase Price Allocation for DirectCBDOnline.com Acquisition | Consideration | Amount | | :-------------- | :----------- | | Total Consideration | $3,552,529 | | **Assets Acquired:** | | | Undeposited Funds | $18,155 | | Inventory | $79,895 | | Inventory - Prepaid Shipping | $31,094 | | Property and equipment, net | $5,000 | | Intangible Assets | $3,418,383 | | Total assets acquired | $3,552,529 | [NOTE 18 – SUBSEQUENT EVENTS](index=64&type=section&id=NOTE%2018%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note states that no material subsequent events occurred between September 30, 2022, and the financial statement issuance date, beyond those disclosed - No material subsequent events occurred between **September 30, 2022**, and the financial statement issuance date, beyond those already disclosed[388](index=388&type=chunk)

cbdMD, Inc. (NYSE:YCBD) Q3 2022 Results Conference Call August 11, 2022 4:30 PM ET Company Participants Ronan Kennedy - CFO and COO Scott Stephen - Chairman Kevin MacDermott - President Dr. Sibyl Swift - Vice President of Scientific and Regulatory Affairs Conference Call Participants Jeff Porter - Porter Capital Management Operator Good afternoon. Welcome to the cbdMD Inc.'s June 30, 2022 Third Quarter of Fiscal 2022 Earnings Call and Update. This afternoon, the Company issued a press release that provided ...

Table of Contents Commission file number 001-38299 cbdMD, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _______________ (Exact Name of Registrant as Specified in its Charter) Nor ...

cbdMD, Inc. (NYSE:YCBD) Q2 2022 Earnings Conference Call May 13, 2022 4:30 PM ET Company Participants Ronan Kennedy - CFO and COO Marty Sumichrast - Chairman and Co-CEO Sibyl Swift - VP, Scientific & Regulatory Affairs Conference Call Participants Operator Good afternoon, and welcome to cbdMD, Inc.'s March 31, 2022, Second Quarter of Fiscal 2022 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its second quarter of fiscal year 2022 results, which foll ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _______________ Commission file number 001-38299 cbdMD, INC. (Exact Name of Registrant as Specified in its Charter) North Carolina 47-34 ...

cbdMD, Inc. (NYSE:YCBD) Q1 2022 Earnings Conference Call February 10, 2022 4:15 PM ET Company Participants Ronan Kennedy – Chief Financial Officer and Chief Operating Officer Marty Sumichrast – Chairman and Co-Chief Executive Officer Sibyl Swift – Vice President-Scientific & Regulatory Affairs Conference Call Participants Mike Pfeffer – Oppenheimer Operator Welcome to cbdMD’s December 31, 2021 First Quarter Earnings Call and Update. This afternoon, the company issued a press release that provided an overvie ...