cbdMD, Inc. [YCBD-PA] Filings

10-Q 1 ycbd20240630_10q.htm FORM 10-Q ycbd20240630_10q.htm

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, 2024

☐	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		47-3414576
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

2101 Westinghouse Blvd., Suite A, Charlotte, NC		28273
Address of Principal Executive Offices		Zip Code

704-445-3060

Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
common	YCBD	NYSE American
8% Series A Cumulative Convertible Preferred Stock	YCBDpA	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

3,763,433 shares of common stock are issued and outstanding as of August 14, 2024.

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TABLE OF CONTENTS

		Page No

PART I-FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements.	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	34

ITEM 4.	Controls and Procedures.	34

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings.	35

ITEM 1A.	Risk Factors.	35

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	35

ITEM 3.	Defaults Upon Senior Securities.	35

ITEM 4.	Mine Safety Disclosures.	35

ITEM 5.	Other Information.	36

ITEM 6.	Exhibits.	36

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OTHER PERTINENT INFORMATION

Unless the context otherwise indicates, when used in this report, the terms the “Company,” “cbdMD, “we,” “us, “our” and similar terms refer to cbdMD, Inc., a North Carolina corporation formerly known as Level Brands, Inc., and our subsidiaries CBD Industries LLC, a North Carolina limited liability company formerly known as cbdMD LLC, which we refer to as “CBDI”, Paw CBD, Inc., a North Carolina corporation which we refer to as “Paw CBD”, Proline Global, LLC, a North Carolina limited liability company which we refer to as "Proline", and cbdMD Therapeutics LLC, a North Carolina limited liability company which we refer to as “Therapeutics”. In addition, “fiscal 2023” refers to the year ended September 30, 2023, “fiscal 2024” refers to the fiscal year ending September 30, 2024, “first quarter of 2023” refers to the three months ended December 31, 2022, “first quarter of 2024” refers to the three months ended December 31, 2023, "second quarter of 2023" refers to the three months ended March 31, 2023, "second quarter of 2024" refers to the three months ended March 31, 2024, "third quarter of 2023" refers to the three months ended June 30, 2023, and "third quarter of 2024" refers to the three months ended June 30, 2024.

We maintain a corporate website at www.cbdmd.com. The information contained on our corporate website and our various social media platforms are not part of this report.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

●

material risks associated with our overall business, including:

●

our history of losses, potential liquidity concerns, and our ability to continue as a going concern;

●

our reliance to market to key digital channels;

●

our ability to acquire new customers at a profitable rate;

●

our reliance on third party raw material suppliers and manufacturers; and

●

our reliance on third party compliance with our supplier verification program and testing protocols

●

material risks associated with regulatory environment for CBD, including:

●

federal laws as well as FDA or DEA interpretation of existing regulation;

●

state laws pertaining to industrial hemp and their derivatives;

●

costs to us for compliance with laws and the risks of increased litigation; and

●

possible changes in the use of CBD.

●

material risks associated with the ownership of our securities, including;

●

the risks for failing to comply with the continued listing standards of the NYSE American and reliance on the NYSE American to accept our Plan for continued listing;

●

availability of sufficient liquidity;

●

the designations, rights and preferences of our 8% Series A Cumulative Convertible Preferred Stock;

●

our inability to pay dividends on our Series A Convertible Preferred Stock;

●

ability to repay the Notes; and

●

dilution upon the issuance of shares of common stock underlying outstanding Notes, warrants, options and the Series A Convertible Preferred Stock.

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward- looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing later in this report, Part I, Item 1A. - Risk Factors appearing in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on December 12, 2023 and as amended on January 29, 2024 (the “2023 10-K”), as well as our other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

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PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

cbdMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2024 AND SEPTEMBER 30, 2023

(Unaudited)

	(Unaudited)
	*June 30,*		*September 30,*
	*2024*		*2023*
Assets

Current assets:
Cash and cash equivalents	$	2,395,175	$	1,797,860
Accounts receivable, net of allowance for credit losses of $268,948 and $42,180, respectively		915,988		1,216,090
Inventory		3,225,915		4,052,972
Inventory prepaid		79,866		182,675
Prepaid sponsorship		8,978		70,061
Prepaid expenses and other current assets		663,332		750,383
Total current assets		7,289,254		8,070,041

Other assets:
Property and equipment, net		553,067		716,579
Operating lease assets		2,468,466		3,350,865
Deposits for facilities		132,203		138,708
Intangible assets		2,700,564		3,219,090
Investment in other securities, noncurrent		700,000		700,000
Total other assets		6,554,300		8,125,242

Total assets	$	13,843,554	$	16,195,283

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2024 AND SEPTEMBER 30, 2023

(continued)

	(Unaudited)
	*June 30,*			*September 30,*
	*2024*			*2023*
Liabilities and shareholders' equity

Current liabilities:
Accounts payable	$	1,273,044		$	1,906,319
Accrued expenses		1,216,134			629,648
Accrued dividends		3,667,667			667,000
Deferred revenue		550,043			187,793
Operating leases – current portion		1,149,976			1,277,089
Note payable		-			2,492
Total current liabilities		7,856,864			4,670,341

Long term liabilities:
Convertible notes		1,378,000			-
Other long term liabilities		-			9
Operating leases - long term portion		1,580,569			2,403,286
Contingent liability		-			90,363
Total long term liabilities		2,958,569			2,493,658

Total liabilities		10,815,433			7,163,999

Commitments and Contingencies (Note 11)

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, 3,759,433 and 2,960,573 shares issued and outstanding, respectively		3,759			2,961
Additional paid in capital		183,933,162			183,387,095
Comprehensive other expense		(1,200	)		-
Accumulated deficit		(180,912,600	)		(174,363,772	)
Shareholders' equity		3,028,121			9,031,284

Total liabilities and shareholders' equity	$	13,843,554		$	16,195,283

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE and Nine MONTHS ENDED June 30, 2024 and 2023

(Unaudited)

	*Three months*			*Three months*			*Nine Months*			*Nine Months*
	*Ended*			*Ended*			*Ended*			*Ended*
	*June 30,*			*June 30,*			*June 30,*			*June 30,*
	*2024*			*2023*			*2024*			*2023*

Gross Sales	$	5,173,878		$	6,462,965		$	15,365,953		$	19,288,155
Allowances		-			(343,585	)		(440,152	)		(843,538	)
Total Net Sales		5,173,878			6,119,380			14,925,801			18,444,617
Cost of sales		1,770,364			2,273,839			5,384,061			7,015,803
Gross Profit		3,403,514			3,845,541			9,541,740			11,428,814

Operating expenses		3,785,542			5,669,194			12,540,595			18,699,293
Loss from operations		(382,028	)		(1,823,653	)		(2,998,855	)		(7,270,479	)
Decrease of contingent liability		-			44,771			74,580			153,771
Decrease (increase) in fair value of convertible debt		854,506			-			(591,494	)		-
Other income		-			9,725			-			59,269
Interest expense		(12,741	)		(1,246	)		(31,558	)		(5,831	)
Income (loss) before provision for income taxes		459,737			(1,770,404	)		(3,547,327	)		(7,063,270	)

Net Income (loss)		459,737			(1,770,404	)		(3,547,327	)		(7,063,270	)
Preferred dividends		1,000,500			1,000,501			3,001,501			3,001,503

Net Loss attributable to cbdMD, Inc. common shareholders	$	(540,763	)	$	(2,770,904	)	$	(6,548,828	)	$	(10,064,773	)

Net Loss per common share:
Basic loss per share		(0.15	)		(1.16	)		(1.84	)		(4.26	)
Diluted loss per share		(0.15	)		(1.16	)		(1.84	)		(4.26	)
Weighted average number of shares Basic and diluted:		3,592,969			2,379,633			3,561,884			2,360,908

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE and Nine MONTHS ENDED June 30, 2024 and 2023

(Unaudited)

	*Three months*			*Three months*			*Nine Months*			*Nine Months*
	*Ended*			*Ended*			*Ended*			*Ended*
	*June 30,*			*June 30,*			*June 30,*			*June 30,*
	*2024*			*2023*			*2024*			*2023*

Net Income (loss)	$	459,737		$	(1,770,404	)	$	(3,547,327	)	$	(7,063,270	)
Comprehensive Loss		459,737			(1,770,404	)		(3,547,327	)		(7,063,270	)

Other Comprehensive income	$	4,800		$	-		$	(1,200	)	$	-
Preferred dividends		(1,000,500	)		(1,000,501	)		(3,001,501	)		(3,001,503	)
Comprehensive Loss attributable to cbdMD, Inc. common shareholders	$	(535,963	)	$	(2,770,904	)	$	(6,550,028	)	$	(10,064,773	)

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE Nine MONTHS ENDED June 30, 2024 and 2023

(Unaudited)

	*Nine Months*			*Nine Months*
	*Ended*			*Ended*
	*June 30,*			*June 30,*
	*2024*			*2023*
Cash flows from operating activities:
Net Loss	$	(3,547,327	)	$	(7,063,270	)
Adjustments to reconcile net loss to net cash used by operating activities:
Stock based compensation		10,019			130,879
Restricted stock expense		2,073			105,101
Write off of prepaid assets due to termination of contractual obligation		-			884,892
Intangibles amortization		518,526			832,063
Depreciation		343,527			300,726
Increase (decrease) in contingent liability		(74,580)			(153,771	)
Increase (decrease) in fair value of convertible debt		591,494			-
Amortization of operating lease asset		882,399			840,079
Changes in operating assets and liabilities:
Accounts receivable		253,361			336,091
Deposits		6,505			105,898
Inventory		827,057			424,079
Prepaid inventory		102,810			66,337
Prepaid expenses and other current assets		152,429			996,462
Accounts payable and accrued expenses		449,686			(1,172,306	)
Operating lease liability		(949,829	)		(876,526	)
Deferred revenue / customer deposits		(88,319	)		203,341
Collection on discontinued operations accounts receivable		-			1,375
Cash flows from operating activities		(520,169	)		(4,038,550	)
Cash flows from investing activities:
Purchase of property and equipment		(180,015	)		(177,369	)
Other Securities		-			1,000,000
Cash flows from investing activities		(180,015	)		822,631
Cash flows from financing activities:
Proceeds from issuance of common stock		50,000			2,474,072
Proceeds from (repayments) of notes payable		1,247,499			(130,145	)
Preferred dividend distribution		-			(3,001,503	)
Deferred Issuance costs		-			-
Cash flows from financing activities		1,297,499			(657,576	)
Net increase (decrease) in cash		597,315			(3,873,495	)
Cash and cash equivalents, beginning of period		1,797,860			6,720,234
Cash and cash equivalents, end of period	$	2,395,175		$	2,846,739

Supplemental Disclosures of Cash Flow Information:

	*2024*		*2023*

Cash Payments for:
Interest expense	$	31,558	$	$ 1,247

Non-cash financial/investing activities:
Issuance of shares in exchange for a360 credit	$	-	$	1,531,999
Issuance of shares for conversion of debt and accrued interest	$	464,625	$	-
Preferred dividends accrued but not paid	$	3,001,501	$	-

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE nine months ended June 30, 2024

(Unaudited)

									*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 fair 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 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		-		-		-		-		-			7,167		-			7,167
Issuance of restricted stock for share based compensation		-		-		-		-		-			5,376		-			5,376
Change in fair 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		-		-		-		-		-			-		(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

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE nine months ended June 30, 2023

(Unaudited)

									*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 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
True up of fraction shares resulting from reverse split		-		1		-		-		-			-			1
Preferred dividend		-		-		-		-		-			(1,000,500	)		(1,000,500	)
Net 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		9,001		9		-		-		69,606			-			69,615
Exercise of options for share based compensation		-		-		-		-		34,663			-			34,663
Issuance of restricted stock for share based compensation		-		-		-				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
Fraction share true-up		39,533		39		-		-		(39	)		-			-
Preferred dividend		-		-		-		-		-			(1,000,501	)		(1,000,501	)
Net Loss		-		-		-		-		-			(1,770,404	)		(1,770,404	)
Balance, June 30, 2023		2,855,230	$	2,855		5,000,000		5,000	$	183,212,202		$	(157,488,334	)	$	25,731,723

See Notes to Condensed Consolidated Financial Statements

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cbdMD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE three and nine months ended June 30, 2024 and 2023 (unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

cbdMD, Inc. (“cbdMD”, “we”, “us”, “our”, or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands, Inc. and on May 1, 2019 we changed the name of our Company to cbdMD, Inc. We operate from offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30.

There have been no material changes in the Company's significant accounting policies from those previously disclosed in the 2023 10-K.

The accompanying unaudited interim condensed consolidated financial statements of cbdMD have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the 2023 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries CBDI, Paw CBD, Proline and Therapeutics. All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP and requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, allowances for credit losses, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the valuation of investments other securities, acquired intangibles and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, and contingent liability is a material estimate. Actual results could differ from these estimates. The Company continues to monitor macroeconomic conditions to remain flexible and to optimize and evolve its business as appropriate.

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.

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Accounts Receivable

Accounts receivable are stated at cost less an allowance for credit losses, if applicable. Credit is extended to customers after an evaluation of the customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for credit losses is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio.

Merchant Receivable and Reserve

The Company primarily sells its products through the internet and has an arrangement to process customer payments with third-party payment processors and negotiate the fee based on the market. The arrangement with the payment processors requires that the Company pay a fee between 2.5% and 5.0% of the transaction amounts processed. Pursuant to this agreement, there can be a waiting period between 2 to 5 days prior to reimbursement to the Company, as well as a calculated reserve which some payment processors hold back. Fees and reserves can change periodically with notice from the processors. At June 30, 2024 and September 30, 2023, the receivable from payment processors included approximately $653,157 and $585,345, respectively, for the waiting period amount and is recorded as accounts receivable in the accompanying condensed consolidated balance sheet.

Inventory

Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (portions of which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. We assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end.

Property and Equipment

Property and equipment items are stated at cost less accumulated depreciation. Expenditures for routine maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for manufacturing equipment and automobiles and three years for software, computer, and furniture and equipment. The useful life for leasehold improvements are over the term of the lease, or the remaining economic life of the asset, whichever is shorter. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statements of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable.

Fair Value Accounting

The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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When the Company records an investment in marketable securities the carrying value is assigned at fair value. Any changes in fair value for marketable securities during a given period will be recorded as an unrealized gain or loss in the consolidated statement of operations. For 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.

The Company elected the fair value option under ASC 825 Fair Value Measurements for it’s Convertible notes. The convertible notes were initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income. The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss). See Note 12 for more information related to the convertible notes.

Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Performance Obligations

Contract liabilities represent unearned revenues and are presented as deferred revenue or customer deposits on the condensed consolidated balance sheets.

Other than account receivable, Company has no material contract assets nor contract liabilities at June 30, 2024.

The following tables represent a disaggregation of revenue by sales channel:

	*Three Months*					*Three Months*
	*Ended*					*Ended*
	*June 30,*					*June 30,*
	*2024*		*% of total*			*2023*		*% of total*

E-commerce sales	$	3,937,930		76.1	%	$	5,000,261		81.7	%
Wholesale sales		1,235,948		23.9	%		1,119,119		18.3	%
Total Net Sales	$	5,173,878		100.0	%	$	6,119,380		100.0	%

	*Nine Months*					*Nine Months*
	*Ended*					*Ended*
	*June 30,*					*June 30,*
	*2024*		*% of total*			*2023*		*% of total*

E-commerce sales	$	11,987,654		80.3	%	$	14,796,326		80.2	%
Wholesale sales		2,938,147		19.7	%		3,648,291		19.8	%
Total Net Sales	$	14,925,801		100.0	%	$	18,444,617		100.0	%

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Cost of Sales

The Company’s cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and outbound freight for the Company’s products sales. For the Company’s product sales, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale, if any, and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value.

Income Taxes

The Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. CBDI, Therapeutics, and Paw CBD are wholly owned subsidiaries and are disregarded entities for tax purposes and their entire share of taxable income or loss is included in the tax return of the Company and as of March 15, 2021, Therapeutics is also a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Company.

The Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of ASC 740 which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

Concentrations

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities.

The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $1.6 million uninsured balance at June 30, 2024.

Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the three and nine months ended June 30, 2024.

Earnings (Loss) Per Share

The Company uses ASC 260-10, Earnings Per Share for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders, after deducting preferred stock dividends, by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

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 $3,547,327 for the nine months ended June 30, 2024, resulting in a working capital deficit of $567,610 at June 30, 2024.

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While the Company is taking strong action, believes in the viability of its strategy and path to profitability, and in its ability to raise additional funds, there can be no assurances to that effect. The Company’s working capital position may not be sufficient to support the Company’s daily operations for the twelve months subsequent to the issuance of these annual financial statements. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and the ability to acquire additional funding. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the annual financial statements are issued. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.

Convertible Notes

Effective February 1, 2024 (the “Effective Date”), the Company entered into a Securities Purchase Agreement dated January 30, 2024 (the “Purchase Agreement”) with five institutional investors (the “Investors”) whereby the Investors advanced the Company an aggregate of $1,250,000 gross proceeds and the Company issued each Investor an 8% Senior Secured Original Issue 20% Discount Convertible Promissory Note, in the aggregate principal amount of $1,541,666 (the “Notes”). The Company is using the proceeds from the issuance of the Notes for working capital and general corporate purposes.

The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes. The Notes were initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income. The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss). See Note 12 for more information related to the Notes.

New Accounting Standards

The Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326) effective October 1, 2023. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost are presented at the net amount expected to be collected by using an allowance for credit losses. The Company evaluated the impacts of this standard and has determined that is does not have a material impact on the consolidated financial statements.

NOTE 2 – MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES

The Company has, from time to time, entered into contracts where a portion of the consideration provided by the counterparty in exchange for the Company’s services was common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company recorded the receivable as accounts receivable other, and used the value of the stock or other instrument upon invoicing to determine the value. In determining fair value of marketable securities and investment other securities, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. The Company determines the fair value of marketable securities and investment other securities based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the fair value hierarchy distinguishes between observable and unobservable inputs.

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 equipment sale is initially valued at approximately $1.8 million for accounting purposes, the sale price consisting of products to be provided to the Company under the manufacturing and supply agreement and $1.4 million of which the Company invested into Steady State in the form of an equity investment consistent with the terms of Steady State's completed series C financing. As of September 30, 2023, the Company impaired this investment by $700,000. The Company has classified this investment as Level 3 for fair value measurement purposes as there are no observable inputs and has included in non-current assets on the accompanying condensed consolidated balance sheets as the Company plans to hold this investment.

In valuing the investments, the Company used the value paid, which was the price offered to all third-party investors.

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NOTE 3 - INVENTORY

Inventory at June 30, 2024 and September 30, 2023 consists of the following:

	*June 30,*			*September 30,*
	*2024*			*2023*
Finished Goods	$	2,157,065		$	2,782,680
Inventory Components		1,377,837			1,397,034
Inventory Reserve		(308,987	)		(126,742	)
Total Inventory	$	3,225,915		$	4,052,972
Inventory prepaid		79,866			182,675
Total Inventory and Prepaid inventory	$	3,305,781		$	4,235,647

Abnormal amounts of idle facility expense, freight, handling costs, scrap and wasted material (spoilage) are expensed in the period they are in incurred and no material expenses related to these items occurred in the nine months ended June 30, 2024.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2024 and September 30, 2023 consisted of the following:

	*June 30,*			*September 30,*
	*2024*			*2023*
Computers, furniture and equipment	$	1,577,411		$	1,392,776
Manufacturing equipment		284,275			284,275
Leasehold improvements		487,081			487,081
Automobiles		-			11,087
		2,348,767			2,175,219
Less accumulated depreciation		(1,795,700	)		(1,458,640	)
Property and equipment, net	$	553,067		$	716,579

Depreciation expense related to property and equipment was $395,098 and $249,457 for the nine months ended June 30, 2024 and 2023, respectively.

NOTE 5 – INTANGIBLE ASSETS

Intangible Assets

Intangible assets as of June 30, 2024 and September 30, 2023 consisted of the following:

	*June 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 DirectCBDOnline.com		749,567			749,567
Impairment of intangible assets		(17,405,000	)		(17,504,000	)
Amortization of definite lived intangible assets		(2,946,847	)		(2,329,321	)
Total	$	2,700,564		$	3,219,090

Amortization expense related to definite lived intangible assets was $1,400,603 and $1,105,630 for the nine months ended June 30, 2024 and 2023.

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NOTE 6 – CONTINGENT CONSIDERATION

Pursuant to a merger agreement entered into in 2018, the Company had a contractual obligation to issue 338,889 shares of its common stock, after approval by its shareholders, to the members of Cure Based Development, issued in two tranches 144,445 shares and 194,945 shares, both of which were subject to leak out provisions, and the unrestricted voting rights to 194,445 tranche of shares which vested over a five year period and were subject to a voting proxy agreement.

The contractual obligations and earn out provision were accounted for as a contingent liability and fair value was determined using Level 3 inputs, as estimating the fair value of these contingent liabilities require the use of significant and subjective inputs that may and are likely to change over the duration of the liabilities with related changes in internal and external market factors.

The agreement also provided that an additional 338,889 Earnout Shares would be issued as part of the consideration, upon the satisfaction of certain aggregate net revenue criteria by cbdMD within 60 months following the closing date of the merger.

Aggregate Net Revenues		Shares Issued/ Each $ of Aggregate Net Revenue Ratio

$1 - $20,000,000		0.00423615
$20,000,001 - $60,000,000		0.002118075
$60,000,001 - $140,000,000		0.001059038

An aggregate of 271,405 Earnout shares were issued through September 30, 2023. There is no further Earnout obligation.

The Company determined the final Earnout shares to be issued were 19,818 and were issued on January 11, 2024. There is no further Earnout obligation.

NOTE 7 – RELATED PARTY TRANSACTIONS

None.

NOTE 8 – SHAREHOLDERS’ EQUITY

Preferred Stock – The Company is authorized to issue 50,000,000 shares of preferred stock, par value $0.001 per share. In October 2019, the Company designated 5,000,000 of these shares as 8.0% Series A Cumulative Convertible Preferred Stock. Our 8.0% Series A Cumulative Convertible Preferred Stock ranks senior to our common stock for liquidation or dividend provisions and holders are entitled to receive cumulative cash dividends at an annual rate of 8.0% payable monthly in arrears for the prior month. The Company reviewed ASC 480 – Distinguishing Liabilities from Equity in order to determine the appropriate accounting treatment for the preferred stock and determined that the preferred stock should be treated as equity. There were 5,000,000 shares of 8.0% Series A Cumulative Convertible Preferred Stock issued and outstanding at June 30, 2024 and September 30, 2023.

The total amount of preferred dividends declared and accrued were $1,000,500 and $3,001,501 for the three and nine months ended June 30, 2024, respectively, and the total amount of preferred dividends declared and paid were $1,000,501 and $3,001,503 for the three and nine months ended June 30, 2023, respectively.

Common Stock – The Company is authorized to issue 150,000,000 shares of common stock, par value $0.001 per share. There were 3,759,433 and 2,960,573 shares of common stock issued and outstanding at June 30, 2024 and September 30, 2023, respectively.

On March 2, 2023 Company entered into a purchase agreement (the "ELOC") with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone committed to purchase up to 281,934 of shares of our common stock. Upon the execution of the ELOC, The Company issued 2,616 shares of common stock as "Commitment Shares" to Keystone as consideration for its commitment to purchase shares of our common stock under the ELOC. An additional 6,104 Commitment Shares were issued 180 days after the date of the ELOC. The 281,934 shares of the Company's common stock were registered for resale and may be issued under the ELOC or sold by us to Keystone at our discretion from time to time over a 12 month period commencing April 1, 2023. The purchase price for the shares that the Company sold to Keystone under the ELOC fluctuated based on the price of the Company's common stock. Keystone purchased an aggregate of 180,955 shares (64,218 of which were purchases during the nine months ended June 30, 2024) under the ELOC, which has expired.

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Stock Options - The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period.

Preferred stock transactions:

The Company had no preferred stock transactions in the three and nine months ended June 30, 2024 and 2023.

Common stock transactions:

In the nine months ended June 30, 2024:

In April 2024, the Company issued an aggregate of 714,229 shares of common stock pursuant to the partial conversion of certain principal and interest related to the Notes.

In March 2024, the company issued 16,000 of restricted stock awards to the Company’s board of directors. The shares vest quarter on fourth on June 30, 2024, one fourth, on September 30, 2024, one fourth on December 31, 2024, and one fourth on March 31, 2025. The stock awards were valued at the fair market price of $13,760 and will amortize over the individual vesting periods.

In January 2024, the Company issued 64,218 shares under our ELOC.

In January 2024, the Company issued 19,818 shares as part of the final Earnout.

Stock option transactions:

In the nine months ended June 30, 2024:

On April 1, 2024, the Company granted its board of directors an aggregate of 8,000 common stock options. 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.

The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the nine months ended June 30, 2024 and 2023:

	*June 30,*			*June 30,*
	*2024*			*2023*
Exercise price		$ 0.537			10.3555 -12.60600
Risk free interest rate		4.34	%		3.93% - 4.71%
Volatility		107.21%			106.48% - 106.51%
Expected term (in years)		2.5			2.5 - 4
Dividend yield	None			None

Warrant Transactions:

The Company has no warrant transactions in the three or nine months ended June 30, 2024.

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NOTE 9 – STOCK BASED COMPENSATION

The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the year.

The following table summarizes stock option activity under both plans for the nine months ended June 30, 2024:

						*Weighted-average*
						*remaining*		*Aggregate*
				*Weighted-average*		*contractual term*		*intrinsic value*
	*Number of shares*			*exercise price*		*(in years)*		*(in thousands)*
Outstanding at September 30, 2023		41,765		$	144.43		3.65	$	-
Granted		8,000			-		-		-
Exercised		-			-		-		-
Forfeited		(2,447	)		166.06		-		-
Outstanding at June 30, 2024		47,318			119.00		3.36		-

Exercisable at June 30, 2024		45,651		$	122.98		3.39	$	-

As of June 30, 2024, there was approximately $3,925 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 0.75 years.

Restricted Stock Award transactions:

In the nine months ended June 30, 2024:

In March 2024, the company issued 16,000 of restricted stock awards to the Company’s board of directors. The shares vest quarter on fourth on June 30, 2024, one fourth, on September 30, 2024, one fourth on December 31, 2024, and one fourth on March 31, 2025. The stock awards were valued at the fair market price of $4,296 upon issuance and will amortize over the individual vesting periods.

In the nine months ended June 30, 2023:

In February of 2023, the Company issued 445 of restricted stock awards to the Company’s board of directors. The shares vested quarterly, one fourth on June 30, 2023, one fourth on September 30, 2023, one fourth on December 31, 2023, and one fourth on March 31, 2024. The stock awards were valued at the fair market price of $5,660 upon issuance and will amortize over the individual vesting periods.

In January 2023, the Company issued 3,889 shares to a group of employees. The shares vested upon issuance, having a fair market value upon issuance of $40,950.

In December 2022, the Company issued 1,112 shares of restricted common stock to an employee. 556 shares vested upon issuance and the Company recorded a total expense of $6,250. 556 shares vest based on meeting certain direct to consumer revenue performance hurdles prior to December 2024.

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NOTE 10 - WARRANTS

Transactions involving the Company equity-classified warrants for the nine months ended June 30, 2024 and 2023 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, 2023		50,309		$	37.75		4.07	$	-
Forfeited		(1,352	)		337.50		-		-
Outstanding at June 30, 2024		48,957			29.48		3.42		-

Exercisable at June 30, 2024		48,957		$	29.48		-	$	-

The following table summarizes outstanding common stock purchase warrants as of June 30, 2024:

			*Weighted-average*
	*Number of shares*		*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 $168.75 per share

cbdMD, Inc. [YCBD-PA] Filings
cbdMD, Inc. [YCBD] Filings
10-Q	[2024-08-14]
10-Q	[2024-05-15]
S-1	[2024-02-16]
10-Q	[2024-02-13]
10-K	[2023-12-22]
10-Q	[2023-08-10]
10-Q	[2023-05-15]
S-1	[2023-03-13]
10-Q	[2023-02-13]
10-K	[2022-12-15]
10-Q	[2022-08-11]
10-Q	[2022-05-13]
10-Q	[2022-02-10]
10-K	[2021-12-17]
10-Q	[2021-08-12]
10-Q	[2021-05-12]
10-Q	[2021-02-09]
10-K	[2020-12-22]
10-Q	[2020-08-12]
10-Q	[2020-05-15]
10-Q	[2020-02-13]
10-K	[2019-12-18]
10-Q	[2019-08-14]
10-Q	[2019-05-15]
10-Q	[2019-02-14]
10-K	[2018-12-12]
S-1	[2018-09-26]
10-Q	[2018-08-14]
10-Q	[2018-05-15]
10-Q	[2018-02-14]
10-K	[2017-12-26]

cbdMD, Inc. [YCBD-PA] Filings

cbdMD, Inc. [YCBD] Filings