cbdMD(YCBD) - 2022 Q4 - Annual Report

PART 1 ITEM 1. DESCRIPTION OF BUSINESS 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][29][229] - 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][31][228] - In fiscal 2022, cbdMD products received 'Product of the Year Awards' and 'Sleeping Beauty Award', while Paw CBD won two Pet Innovations awards[29][30] - 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][32] - E-commerce accounted for approximately 75% of sales in fiscal 2022, with B2B brick-and-mortar locations expanding to 3,366[40] - 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][43][44] - 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][48][49] - cbdMD holds US and foreign trademarks (e.g., CBDMD, PAWCBD) and has a patent application for novel formulations and delivery systems[50][51] - The CBD market is fragmented with over 2,000 brands; cbdMD ranked 3rd in Online Brand Share and 5th in Revenue in 2022[54] - The company had approximately 90 full-time employees as of December 1, 2022[63] ITEM 1A. RISK FACTORS. 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] - 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] - 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] - 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][81] - 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] - 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][92][93] - 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] - The company is subject to NYSE American listing standards, and failure to meet criteria could result in delisting, impacting liquidity and financing[96] - 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][107] - 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][99] ITEM 1B. Unresolved Staff Comments. This item is not applicable to cbdMD, Inc. as a smaller reporting company - Not applicable to a smaller reporting company[110] ITEM 2. Properties. 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] - 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] ITEM 3. LEGAL PROCEEDINGS. 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] - CBDI filed a cancellation proceeding against Majik Medicine, LLC for the 'CBD MD' trademark, with TTAB proceedings suspended pending a Federal Court determination[114] - 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] ITEM 4. Mine Safety Disclosures. This item is not applicable to cbdMD, Inc - Not applicable to our company[116] PART II ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 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] - As of December 9, 2022, there were 104 record owners of common stock and one record holder of Series A Convertible Preferred Stock[119] - The company does not currently intend to pay dividends on common stock[120] - Monthly cumulative cash dividends of 8.0% ($0.0667 per share) are paid on Series A Convertible Preferred Stock[121] ITEM 6. [Reserved] This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 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][129] - The company launched new high-strength CBD products, Delta 9 products, and achieved NSF certification for certain products, including NSF for Sport[126] 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] - 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] - 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] 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] - 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] - 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][146] 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. This item is not applicable to cbdMD, Inc. as a smaller reporting company - Not applicable for a smaller reporting company[162] ITEM 8. Financial Statements and Supplementary Data. 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][183] - The Auditor Firm ID for Cherry Bekaert LLP is 677[163] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[164] ITEM 9A. Controls and Procedures. 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] - Management's assessment of internal control over financial reporting, based on COSO criteria, concluded it was effective as of September 30, 2022[171] - No material changes in internal control over financial reporting occurred during the last fiscal year[172] ITEM 9B. Other Information. This item reports that there is no other information to disclose - None[173] PART III ITEM 10. Directors, Executive Officers and Corporate Governance. 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] ITEM 11. Executive Compensation. 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] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. 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] ITEM 13. Certain Relationships and Related Transactions, and Director Independence. 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] ITEM 14. Principal Accounting Fees and Services. 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] PART IV ITEM 15. Exhibits and Financial Statement Schedules. 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] - All financial statement schedules are either not required, not applicable, or their disclosures are contained in the consolidated financial statements[184] - A detailed Exhibit Index is provided, listing various agreements, corporate documents, and certifications[186][189][190] ITEM 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - None[187] 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][195][196] - 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] 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] - 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] - The financial statements do not include adjustments for the possible future effects of this uncertainty[202] PART 1 – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. 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][211][213][215][217][221][223] - 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] - Cash and cash equivalents decreased from $26,411,424 in FY2021 to $6,720,234 in FY2022[209] - 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] - Total liabilities decreased from $21,741,189 in FY2021 to $9,367,478 in FY2022[212] - Shareholders' equity decreased from $103,142,187 in FY2021 to $31,424,431 in FY2022[212] NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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][227] - The company's products comply with the 2018 Farm Bill, offering both broad spectrum (non-detectable THC) and full spectrum (trace THC) cannabinoids[228] - Consolidated financial statements include wholly-owned subsidiaries CBDI, Paw CBD, and cbdMD Therapeutics[231] - Significant estimates are made for allowances for doubtful accounts, inventory valuation, sales returns, investments, intangible assets, income taxes, and contingent liabilities[232] - 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][245][285] - Revenue is recognized when products are shipped (FOB shipping) for both E-commerce and wholesale channels, with E-commerce sales representing the majority[253][254][255] - Advertising and related marketing costs are expensed as incurred, totaling $14.3 million in FY2022[257] - 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][267][376] NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES 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][241][271][272] - The company recorded a realized and unrealized loss of $(33,350) in FY2022, compared to a gain of $546,878 in FY2021[274] - 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] - In April 2022, cbdMD invested $1.4 million in Steady State, LLC as an equity investment, following the sale of its manufacturing assets[277] NOTE 3 – INVENTORY 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] 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] NOTE 4 – PROPERTY AND EQUIPMENT 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] 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] - Depreciation expense was $948,962 in FY2022, down from $1,017,408 in FY2021[280] NOTE 5 – GOODWILL AND INTANGIBLE ASSETS 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][287] - Trademarks 'cbdMD' and 'HempMD' were reclassified from indefinite to definite-lived intangible assets with a 20-year useful life, effective January 1, 2022[285] - An impairment charge of $4,285,000 was recorded for the 'cbdMD' trademark in FY2022[285] 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] NOTE 6 – CONTINGENT LIABILITY 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][291] - As of September 30, 2022, 3,928,797 Earnout Shares remain subject to issuance[292] - 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][140][293] - The measurement period for the Twenty Two Earnout Shares ended in September 2022, with no further obligation as revenue targets were not met[294] - Other contingent obligations for RSUs and options to employees were terminated or valued at zero due to unmet revenue targets or employee resignation[295][296] NOTE 7 – RELATED PARTY TRANSACTIONS 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] - The counterparty in the earnout arrangement (Note 6) is a related party[297] NOTE 8 – SHAREHOLDERS' EQUITY 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] - Outstanding 8.0% Series A Cumulative Convertible Preferred Stock: 5,000,000 shares at September 30, 2022 (vs 500,000 in 2021)[298] - Total preferred dividends declared: $4,002,005 in FY2022 (vs $2,554,609 in FY2021)[299] - Authorized common stock: 150,000,000 shares ($0.001 par value)[299] - Outstanding common stock: 60,665,595 shares at September 30, 2022 (vs 57,783,340 in 2021)[299] - 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][303][304][305][306][308] - 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] NOTE 9 -STOCK-BASED COMPENSATION 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] - The 2015 and 2021 Equity Compensation Plans allow for awards of options, restricted stocks, and other stock grants to eligible recipients[337][338] 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] - Restricted stock compensation expense was $373,610 in FY2022, a decrease from $1,626,613 in FY2021[360] - 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] NOTE 10 – WARRANTS 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] NOTE 11 – COMMITMENTS AND CONTINGENCIES 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] - 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] - The company's CEO resigned in June 2022 due to SEC action against him, with cbdMD not named as a defendant[364] NOTE 12 – NOTE PAYABLE 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] - 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] NOTE 13 – PAYCHECK PROTECTION PROGRAM LOAN 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] - The PPP loan was fully forgiven by the SBA in May 2021, resulting in a $1,466,113 gain[367] NOTE 14 – LEASES 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] - Operating lease ROU assets and liabilities are recognized based on the present value of lease payments, using the incremental borrowing rate[369] - Total operating lease costs for FY2022 were $1,391,856[371] - 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] 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 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] NOTE 16 – INCOME TAXES 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][376] - The effective income tax rate was 0.0% in FY2022[375] 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] - The total valuation allowance increased by $4,758,000 in FY2022[378] - As of September 30, 2022, the company has utilizable federal NOL carryforwards of approximately $57.7 million, which carry forward indefinitely[379] NOTE 17 – ACQUISITIONS 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] - Consideration included $2,000,000 cash and up to 600,000 shares of restricted common stock[384] - 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] 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 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]