YCBD 10-K & 10-Q changes, risk factors and insider trading

Investing in our securities involves risks. You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and the consolidated financial statements and related notes. If any of the risks and uncertainties described in the cautionary factors described below actually occur or continue to occur, our business, financial condition and results of operations and the trading price of our common stock and our Series A Convertible Preferred Stock could be materially and adversely affected. Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may negatively impact our business, reputation, financial condition, results of operations or the trading price of our securities.

We reported losses from operations of $3.3$2.1 million and $22.5$3.3 million fiscal year 20242025 and fiscal year 2023,2024, respectively. Included in our loss from operation in fiscal 2023 is an impairment of $13.2 on our trade name for fiscal 2023. Not included in our loss from operations for fiscal 2024 is a $0.4 increase in the valuation on the convertible Notes. Not included in our loss from operations for fiscal 2023 is a $0.70 million impairment non-cash charge pertaining to our ownership interest in Steady State, LLC as well as a non-cash income of $0.09 million and $0.19 million for fiscal 2024 and fiscal 2023, respectively, reflecting a change in value of the contingent liability associated with the Earnout Shares. Until such time, if ever, that we are successful in generating gross profits which are sufficient to pay our operating expenses it is likely we will continue to report losses from operations in future periods.

Until we are profitable, we may need to raise additional capital during the current fiscal year in order to fund our operations in furtherance of our business plan and repay the Notes.plan. A potential financing may include shares of common stock, shares of preferred stock, warrants to purchase shares of common stock or preferred stock, debt securities, units consisting of the foregoing securities, equity investments from strategic development partners or some combination of each. Any additional equity financings may be financially dilutive to, and will be dilutive from an ownership perspective to, our stockholders, and such dilution may be significant based upon the size of such financing. Additionally, we cannot assure that such funding will be available on a timely basis, in needed quantities, or on terms favorable to us, if at all.

Although we have made consistent and significant reductions in marketing spend as we rationalize expenses, we had consecutive fiscal years of revenue declines as the industry and Company have faced numerous headwinds. Net sales decreased $4.7 million or 19% to $19.5 million in fiscal 2024 and $11.2 million or 32% to $24.2$19.2 million in fiscal 2023 as compared to $35.4 million in 2022.2025. This decrease was primarily driven by a decrease in total orders year over year in both our direct to consumer and wholesale divisions and we believe associate with (i) changes in social algorithms and IOS that affect effectiveness and cost of marketing and acquiring new customers, (ii) access to certain channels, (iii) ongoing competitive environment, (iv) statements from the FDA that negatively impacted retailer interest in the category, (v) significant inflationary pressures on consumers and businesses alike and (vi) we have reduced advertising and marketing as we have made consistent reduction of cash consumed by advertising and marketing over this 2 year period.alike. We believe that our revenue growth will depend upon, among other factors:

Continued expansion into markets outside the United States is one of our key long-term strategies for the future growth of our business. This expansion requires significant investment of capital and human resources, new business processes and marketing platforms, legal compliance, and the attention of many managers and other employees who would otherwise be focused on other aspects of our business. There are significant costs and risks inherent in selling our products in international markets, including: (ai) failure to effectively establish our core brand identity; (bii) increased employment costs; (ciii) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (div) potentially lower margins in some regions; (ev) longer collection cycles in some regions; (fvi) increased competition from local providers of similar products; (gvii) compliance with foreign laws and regulations, including but not limited to product registrations/approvals, taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (hviii) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (iix) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (jx) compliance with anti-bribery, anti-corruption, and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (kxi) currency exchange rate fluctuations and related effects on our results of operations; (lxii) economic weakness, including inflation, or political instability in foreign economies and markets; (mxiii) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (nxiv) workforce uncertainty in countries where labor unrest is more common than in the United States; (oxv) business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (pxvi) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (qxvii) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (rxviii) difficulty developing retail relationships; and (sxix) other costs and risks of doing business internationally.

WeMany currently hold short-term supply and manufacturing agreements with unaffiliated third-party vendors for our critical raw materials. In addition,of our products are manufactured, compounded, and packaged by unaffiliated third partiesparties, of which we hold short-term supply and manufacturing agreements with and the use of these third-parties changes from time to time due to customer demand and the composition of our product mix and product portfolio. We do not have any long-term committed contracts with any of these third parties, and we expect to compete with other companies for raw materials, production and imported materials. If we experience significant increased demand or need to replace an existing raw material supplier or third-party manufacturer, there can be no assurances that replacements for these third-party vendors will be available when required on terms that are acceptable to us, or at all, or that any manufacturer or compounder would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new sources, we may encounter delays in production and added costs as a result of the time it takes to engage third parties. Any delays, interruption or increased costs in raw materials and/or the manufacturing or compounding of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short and long-term.

Many of the Company’s products are derived from cannabis and may contain trace amounts of tetrahydrocannabinol (THC),THC, which may be below the level of detection but could build up in a regular consumer’s system. Although these levels are generally low, historically THC has been a banned substance in many jurisdictions, and regulations regarding permissible THC limits are continually evolving. As a result, there is a potential risk for end users who test positive for THC due to consumption of the Company’s products. This may be of particular concern in the case of full-spectrum hemp products, which contain not only CBD but also trace levels of THC and other cannabinoids. These trace amounts could lead to false positives on drug tests, especially with certain testing methods that do not differentiate between THC from hemp and that from other sources. There is also the possibility that certain approved tests for THC may not properly differentiate between the metabolites of THC and the metabolites of CBD, thus leading to a false positive for THC consumption. Additionally, metabolic processes in the body may cause CBD and its metabolites to convert into forms that could affect drug test results. Positive test results, even from trace amounts of THC, can have significant consequences for individuals, potentially affecting their reputation, employment, or participation in specific activities, including professional sports. Furthermore, a claim or regulatory action based on such positive test results could damage the Company’s reputation and adversely affect its operations, potentially leading to legal or regulatory challenges.

During fiscal year 2023, we incurred $13.22 million of intangible impairment as noted in Note 5 of our financial statements. We may be required to record future impairments of other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value. Estimates used for future sales growth rates, gross profit performance, and other assumptions used to estimate fair value could cause us to record material non-cash impairment charges, which could harm our results of operations and financial condition.

ContinuedOn developmentNovember 12, 2025, President Trump signed into law H.R. 5371, the “Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026” (the “Act”), which makes continuing appropriations and extensions for fiscal year 2026, and which also limits any THC content to 0.4mg per container for hemp-derived consumable products nationally on November 12, 2026. It is unknown to the Company whether or not the sections of the industrialAct that impact the hemp industry will ultimately go into effect on November 12, 2026, or if those sections will be dependentreplaced, uponimpacted newor legislativeamended authorizationby subsequent acts of industrialCongress. hempcbdMD atwas founded using THC-free broad spectrum, however a significant amount of our revenues are from products that contain low-dose hemp-derived THC that complies with the stateoriginal level,Farm expansion of current state approvals for hemp products,Bill and furtherthe authorization,Act amendmentin orall supplementationlikelihood ofwill legislationhave ata harmful impact on the federal level, including re-authorizationindustry and expansionCompany ofif thefurther hemp language in the next Agriculture Improvement Act. Any number of events or occurrences could slow or halt progress all together in this space. While progress within the industrial hemp industry is currently encouraging, growthlegislation is not assured.enacted to mitigate the current language. While there appears to be ample public support for favorable legislative action, including the Cannabinoid Safeety and Regulation Act (CSRA) proposed in December 2025, numerous factors may impact or negatively affect the legislative process(es) within the various states where we have business interests. Any one of these factors could slow or halt use of industrial hemp, which could negatively impact the business up to possibly causing us to discontinue operations as a whole. In addition, changes in Federal or state laws could require us to alter the way we conduct our business in order to remain compliant with applicable state laws in ways we are presently unable to foresee. These possible changes, if necessary, could be costly and may adversely impact our results of operations in future periods.

Final designation of hemp derived cannabinoids as impermissible adulterants, FDAs refusal to accept hemp derived cannabinoids as New Dietary Ingredients ("NDI") or FDAs interpretation of Investigational New Drug ("IND") Preclusion could negatively impact the Company’s operations.

The regulatory framework surrounding cannabinoids, particularly CBD, raises significant challenges for the Company. First, concerns about CBD as an impermissible adulterant persist due to the FDA's position that cannabinoids cannot legally be added to food or beverages. The FDA has consistently objected to such uses, asserting that CBD-containing products may be adulterated and subject to enforcement action. Second, under the FD&C Act, unless a product was in the food supply and marketed to the public prior to October 15, 1994, manufacturers must notify the FDA before marketing dietary supplements containing NDIs, providing evidence that the ingredient is expected to be safe. However, there is ongoing uncertainty regarding whether hemp-derived cannabinoids were in the food supply and marketed to the public before October 15, 1994, as required to avoid classification as an NDI. As of the end of fiscal 2024, the FDA has uniformly objected to several New Dietary Ingredient Notifications ("NDIN") submitted to the Agency by competitors, asserting it does not meet the definition of a dietary supplement due to the FDA's stance that CBD was not marketed as a dietary ingredient before its investigation as a new drug. The Company disagrees with this position and believes there are counterarguments. The FDA has consistently taken the position that CBD cannot be marketed as a dietary supplement or added to food because it was investigated as a new drug before its inclusion in the food supply, known as IND Preclusion. This position has been outlined in the majority of Warning Letters the FDA has sent to CBD companies since the enactment of the Farm Bill. Any enforcement of the IND Preclusion could require the Company to allocate significant resources to defend its position, adversely affecting its business and operations. Without changes in federal law, regulation, or judicial interpretation, the FDA’s current stance could materially and adversely impact the Company’s ability to operate.

The manufacture, labeling and distribution by us of the products in our portfolio are regulated by various federal, state and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to sell products in the future. We are subject to regulation by the federal government and other state and local agencies as a result of our product offering, including but not limited to hemp-based cannabinoid products and other natural health products. The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that we may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to our company, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely affect the ability to operate our business and our financial results. Failure to comply with the various federal, state and local requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. We are seeing increasing state-level potency, labeling and package size requirements that may increase our costs with respect to monitoring and adhering to unique requirements in addition to potential product and packaging obsolescence costs as well as stop sales or product withdrawals. Our advertising is subject to regulation by, among others, the FDA under the Federal Food, Drug & Cosmetics Act, and the U.S. Federal Trade Commission, or FTC, under the Federal Trade Commission Act, and is also subject to various state regulations enforced by state agencies and state attorneys general. Additionally, some states also permit advertising and labeling laws to be enforced by private attorneys general who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product withdrawals of products sold by us. Any actions against our company by governmental authorities or private litigants could be time consuming, costly to defend and could have a material adverse effect on our business, financial condition, and results of operations.

There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration and/or the FDA, various administrative determinations and court decisions, all of which impact the extent to which manufacturers and processors of products containing Farm Bill-compliant cannabinoids may engage in interstate commerce. There are currently no consistent regulations applicable to hemp derived cannabinoids in the United States or globally. There is no assurance the Company will remain compliant with all of these laws, rules and regulations as changes to such laws, rules and regulations are promulgated and this may have a negative impact on the Company’s operations. By way of example, through the end of Fiscal 2024,2025, multiple states including Alaska, Florida, Maryland, Minnesota, New York, UtahUtah, Texas and Virginia had implemented new regulations which impact the Company’s ability to sell some of its products as they exist now in formulation and packaging. The uncertainties, conflicts and lack of uniformity cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.

The Federal Trade Commission (FTC) has increasingly focused on the regulation of advertising, labeling, and promotion of CBD and other health-related products. In the CBD product marketplace, the FTC has collaborated with the FDA to issue warnings about advertisements lacking competent and reliable scientific evidence, which violates the FTC Act. In addition, the FTC has independently issued warning letters to companies marketing CBD products with exaggerated or unsupported health claims. Although the FTC has primarily issued warning letters, it initiated its first law enforcement administrative action in December 2020, taking action against six CBD companies for allegedly making unsupported health claims, resulting in settlement agreements requiring cessation of such claims and monetary penalties. The FTC further heightened its scrutiny in May 2021 and, more recently, issued its April 2023 Notice of Penalty Offenses, which stresses the need for rigorous substantiation of health-related product claims. This notice emphasizes that companies must provide scientific evidence, including high-quality, randomized, placebo-controlled human clinical trials, to substantiate claims. Failure to comply with these standards could result in significant penalties under Section 5 of the FTC Act. The FTC’s actions, along with the potential for increased enforcement in the future, present additional risks to companies in the CBD industry. The Company must be cautious in making health claims, ensuring all advertising is adequately supported by scientific evidence, as any violations could result in penalties, corrective measures, and reputational damage.

We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in de-listing of our securities.common stock.

Both ourOur common stock and our Series A Convertible Preferred Stock areis listed on the NYSE American. In order to maintain these listings, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low selling price” and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs or any condition exists whichwhich, in the opinion of the NYSE American, makes continued listing oninadvisable. On June 5, 2024 and December 31, 2024, we received notifications from the NYSE American,American that the Company was no longer in compliance with an NYSE American continued listing standards, specifically, the continued listing standards set forth in Section 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”). Section 1003(a)(i) requires a listed company to have stockholders’ equity of $2.0 million or more if the listed company has reported losses from continuing operations and/or net losses in two of its opinion,three inadvisable.most recent fiscal years then ended and Section 1003(a)(ii) of the Company Guide requires a listed company to have stockholders’ equity of $4.0 million if the listed company has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years then ended. As previously disclosed, all previously outstanding shares of our Series A Preferred Stock were converted to common stock on May 6, 2025 and all accrued dividends were eliminated. As part of this conversion, $6.7 million of accrued and unpaid dividends as of June 30, 2025 were converted to equity upon the Series A Preferred conversion which brought us into compliance with the NYSE American’s continued listing standards, and we maintained the continued listing standards for two fiscal quarters and complied with other provisions of Section 1003 of the Company Guide, including increased stockholders’ equity requirements of a minimum of $6,000,000, as we continued to incur annual losses from continuing operations and/or net losses for the fiscal year ended September 30, 2025. If we fail to maintain continued listing standards and the NYSE American delists either our common stock and/or our Series A Convertible Preferred Stock,stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain any additional financing to fund our operations that we may need.

The Series AB Convertible Preferred Stock ranks juniorsenior to all of our indebtednessCommon and other liabilities and is effectively junior toStock all indebtedness and other liabilities of our subsidiaries.

Change of Control redemption obligationsrights of the Series AB Convertible Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us.

The Change of Control redemption featurerights of the Series AB Convertible Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for our company or of delaying, deferring or preventing certain of change of control transactions under circumstances that otherwise could provide the holders of our common stock and Series AB Convertible Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that shareholders may otherwise believe is in their best interests.

The liquidation preference of the shares of our Series AB Convertible Preferred Stock would reduce the amount available to our common shareholders in the event of our liquidation or winding up.

Holders of our Series AB Convertible Preferred Stock have a liquidation preference of $10.00$1.00 per share in the event of our liquidation or winding up. This means that those holders are entitled to receive the liquidation preference before any payment or other distribution of assets to our common shareholders, and the amount of any such payment or other distribution will be reduced by that amount.

We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD as well as the functional mushroom brand ATRx Labs.Labs and emerging THC beverage brand Herbal Oasis. We believe that we are an industry leader in producing and distributing broadhemp spectrumderived and full spectrum CBDcannabinoid products. Our mission is to enhance our customer’s overall quality of life while bringing CBDcannabinoid education, awareness and accessibility of high quality and effective products to all. We source cannabinoids, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods. Our full spectrum products contain a variety of cannabinoids and terpenes in addition to CBD while maintaining trace amounts of THC that fall within the limits set in the 2018 Farm Bill. In addition to our core brands, we also operate cbdMD Therapeutics, LLC to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications.

During fiscal year 2024 we continued to focus on our path to profitability by lowering our costs and focusing on the customer experience. We transitioned a significant part of our organization during the first half of the year in addition to our ecommerce platform at the end of the third quarter. While we have not yet achieved positive operating income, management has worked hard to rationalize cost structure during fiscal 2024 and we have successfully achieved 3 sequential years of Non-GAAP Adjusted Operating Income (Loss) improvement, although our revenues were negatively impacted as we tightened our marketing spend and consumers were impacted by inflation trends.2024. During fiscal 2024, we launched 2 important categories to the business (i) our line of ATRx functional mushroom supplements, that launched in GNC and Amazon and (ii) entered into the hemp derived beverage category starting with our Mixer line and followed up in Novemberearly 2024fiscal 2025 by our line of Herbal Oasis Social Tonics. With our leaner cost structure and some exciting new categories, we believebegan weseeing arepositive wellyear positionedover toyear start growing revenuegrowth during the fourth fiscal quarter of 2025.

The following tables provide certain selected unaudited condensed consolidated financial information for the three months ended September 30, 20242025 and 20232024:

We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team. The following table provides information on the contribution of net sales by type of sale to our total net sales for the fiscal years ended September 30, 20242025 and 2023.2024:

Total net sales during the fiscal year ended September 30, 20242025 decreasedwere within $0.3 million of fiscal 2024. Wholesale sales grew by approximately $4.7$0.7 million, or 19% as compared to fiscal year ended September 30, 2023. Wholesale sales decreased by approximately $0.9 million, or 19%17% year over year while E-commerce sales decreased by $3.7$0.9 million or 19%.6%. The change in revenue was driven by a combination of broader CBD category softness which we believe is partially attributed to the macro inflationary environment in addition to lower marketing spend.

Of our total net sales as indicated above, during the fiscal years ended September 30, 20242025 and 20232024 our Paw CBD line accounted for net sales of $1,445,644$1.1 million and $2,404,787,$1.4 million, respectively. The year over year decline in our Paw CBD brand is due to increasing competition in the pet product industry and a rationalization in marketing efforts specific to the brand.

Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third-party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 38.4%37% and 38.0%38% for fiscal years ended September 30, 20242025 and 2023,2024, respectively. While we made significant strides to reduce our overall fixed overhead cost associated with our cost of goods sold during fiscal 2024, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies and functional products. For the fourth quarter of fiscal 2024 our cost of sales as a percentage of net sales was 46.1% as compared to 37.9% in the prior year comparative period. The changeimprovement reflects approximately $588,000$0.6 million one-time non-cash inventory write down in fiscal 2024 related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory, with most all of this inventory older than 2 years. ExcludingWhile thiswe one-timemade writesignificant down,strides to reduce our non-GAAPoverall adjustedcosts associated with our cost of salesgoods wouldsold haveduring beenfiscal 33%2025, gross margins for the year were impacted by lower overhead absorption based on lower revenue and ongoing product mix change from high-margin tinctures to gummies, functional products and beverage in addition to higher lease costs for our warehouse facility. For the fourth quarter of fiscal 2024.2025 our cost of sales as a percentage of net sales was 39% as compared to 46% in the prior year comparative period.

Our principal operating expenses include staff related expenses, advertisingmarketing (which includes expenses related to industry distribution and trade shows), sponsorships, affiliate commissions,expense, merchant fees, technology, travel, rent, professional service fees, and business insurance expenses. Our operating expenses on a consolidated basis decreased approximately $8.9$1.2 million, excluding impairment charges, or 36.4%8% for the fiscal year ended September 30, 20242025 versus the fiscal year ended September 30, 2023.2024. The decrease can be attributed to management’s efforts to rationalize and right size our expenses across all areas of our business, especially a $1.9$0.5 million reduction in payrollpayroll, a $0.3 million reduction in professional expenses, and a $2.8$0.6 million reduction in rent expense with the elimination of marketingour expensesformer inexecutive fiscal 2024.offices. All other expenses includes a $0.7 million gain related to the settlement of our former executive office (“HQ”) lease in 2024 while all other expenses in 2023 includes $0.7 million of impairment of the Steady State Holdings investment.2024.

As described in Note 6 to the notes to the consolidated financial statements appearing elsewhere in this report,Annual Report on Form 10-K, the earn-out provision for the Earnout Shares is accounted for and recorded as a contingent liability with increases in the liability recorded as non-cash other expense and decreases in the liability recorded as non- cash other income. The earnout ended November 2023 and we recorded a final change in the non-cash contingent liability in the first quarter of fiscal 2024. For the twelve months ended September 30, 2023, the contingent liability decreased $0.19 million, primarily related to the change in our common stock share price between September 30, 2022 to September 30, 2023 from $10.25 per share to $1.03 per share.

We had cash and cash equivalents on hand of $2.2 million and working capital of $3.1 million at September 30, 2025. On September 30, 2024 we had cash and cash equivalents on hand of $2.4 million and working capital of negative $1.1 million at September 30, 2024. Our working capital is reduced by approximately $4.7 milliondeficit of accrued Series A Preferred dividend payments. On September 30, 2023 we had cash and cash equivalents on hand of $1.8 million and working capital of $3.4$1.1 million, which was reduced by approximately $0.7 million for accrued Series A Preferred dividend payments. Our current assets decreasedincreased approximately 20%4% at September 30, 20242025 from September 30, 2023, which is primarily attributable to reduction of inventory.2024. Our current liabilities increasedecreased approximately 55%53% at September 30, 20242025 from September 30, 2023.2024. This increasedecrease is primarily attributable to a $4$4.7 million increasedecrease in dividend payable,payable partiallyas offsetwell byas aan $1.1approximate $0.4 million reduction in theaccounts current portion of rent as a result of the elimination the lease liability associated with the HQ lease.payable.

We entered into a securities Purchase Agreement dated JanuarySeptember 30, 20242025 with fivethree accredited Investors whereby the Investors advanced the Company an aggregate of $1,250,000$1.5 million gross proceeds and the Company issued each Investor an 8%10% SeniorSeries B Convertible Preferred Security Secured Original Issue 20% Discount Convertible Promissory Note (each a “Note” and collectively, the “Notes”), in the aggregate principal amount of $1,541,666.$1.7 million. The Company has used the proceeds from the issuance of the Notes for working capital and general corporate purposes, including, but not limited to inventory investment to assist with orders and administrative and corporate governance costs. As of the filing date of this report, the principal balance of the Notes has been reduced to approximately $364,000 and $5,000 of accrued interest.

During the threefiscal and twelve monthsyear ended September 30, 20242025 we used cash primarily to fund our operations.

We do not have any commitments for capital expenditures. We have a commitment for cumulative dividends at an annual rate of 8%10% payable monthlyquarterly in arrears for the prior monthquarter to our preferred shareholders. As of September 2023, we have stopped paying the dividends in cash monthly and are accruing this dividend instead.

Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $0.3 million and a net generation of $0.2 million and use of $1.0 for the three months ended September 30, 20242025 and 2023,2024, respectively and a use of $1.5 million and $0.6 (net of $1.25 million of proceeds from the Notes) and $4.3 million for the twelve months ended September 30, 20242025 and 2023,2024, respectively.

Non-GAAP Adjusted Operating IncomeLoss

The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to our consolidated financial statements appearing elsewhere in this reportAnnual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping (andunder istypical typicallysales FOB shipping)term, which is when our performance obligation is met. Net sales are comprised of gross revenues less product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. The Company currently offers a 60-day, money back guarantee.

The Company reviews all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Long-lived assets, such as property and equipment and intangible assets subject to depreciation and amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than the Company had originally estimated. Recoverability of these assets is measured by comparison of the carrying amount of each asset or asset group to the future undiscounted cash flows the asset or asset group is expected to generate over their remaining lives. If the asset or asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset or asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. Impairment losses are recorded in selling, general, and administrative expense in the consolidated statements of operations. There waswere $0 and $13,219,000 ofno impairment losses recognized related to long-lived assets for the yearyears ended September 30, 20242025 and September 30, 2023,2024, respectively.

The Company elected the fair value option under ASC 825 Fair Value Measurements for the Notes. The Notes were initially recognized at a fair value of $2,702,000$2.7 million on the balance sheet as of March 31,2024. All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income. The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

The overall change in fair value of the Notes during the year ended September 30, 2024 was a decrease of $1,357,096. The overall change in principal value related to the conversion of Notes to commons stock during the year ended September 30,2024 was a decrease of $508,757. AsThe note was repaid in full during the second quarter of Septemberfiscal 30, 2024, total fair value of the Notes is $1,021,935, of which $1,032,909 represents the total principal outstanding.2025.

The following discussion of our financial condition and results of operations for the three and sixnine months ended MarchJune 31,30, 2026 and the three and sixnine months ended MarchJune 31,30, 2025 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties such as our plans, objectives, expectations and intentions.

Herbal Oasis (“Oasis”) is a premium hemp-derived THC-infused social seltzer that blends cannabinoids and nootropic mushrooms to deliver a fast-acting, functional beverage made for presence and connection. In addition, Oasis just expanded into other natural compounds including Kava.

Management continues to be very focused on our goal of delivering positive revenue growth and positive earnings through a combination of optimizing our product portfolio, right-sizing our cost structure and investing in marketing that will provide positive return on customer acquisition. During the quarter we continued to make gains year over year in revenue growth, but fell short on profitability.

Toward the end of the first quarter of 2026, the Company raised additional cash to bolster its balance sheet with the Series C Preferred Stock and structured an ELOC. Over the last few months, we have seen several instances where the stock price and volume hashave increased and in the future we believe the ELOC will allow us to prudently take advantage of these situations should they occur in the future.

The Company has continued to pursue several potential acquisitions since the conversion of the Series A Preferred Stock in 2025. In January 2026, the Company acquired the Bluebird brand. The Company believes Bluebird provides (i) a large existing customer base that we believe is underserved with theirits existing product portfolio (ii) a brand name not defined by CBD, allowing for natural expansion into other natural products, (iii) significant SG&A synergies, and (iv) intellectual property including self-GRAS status on their full spectrum product. During the second quarter of fiscal 2026, the acquisition cost and integration costs created a $75,000 drag on the P&L, however,and wean estimateadditional $24,000 in costs in the third quarter related to the accounting valuation. Bluebird will contributecontributed over $500,000$550,000 in revenue perfor the third quarter atof healthyfiscal contribution margins in the forthcoming quarters.2026.

While cbdMD was founded using THC-free broad spectrum formulations, a meaningful amount of our revenues is derived from products containing low-dose hemp-derived THC that complies with the original Farm Bill. The majority of the Company's revenue for the three and sixnine months ended MarchJune 31,30, 20262026, 64% and 61%, respectively, was derived from products that would comply with the Act's THC limitations; however, a meaningful amount of revenue could be impacted should no changes in legislation occur. The Act, if implemented as currently written, will in all likelihoodlikely have a material adverse impact on the Company's business, results of operations, and financial condition. Management continues to evaluate strategic alternatives to mitigate potential impacts, including product reformulation and channel diversification, but no assurance can be given that the Company will successfully adapt its portfolio or that alternative legislation will be enacted.

Additionally, weWe continue to see changing rules and regulations at the state level, which is causing ongoing disruption and additional compliance costs. Given the pace and uncertainty of these developments, the ultimate impact on the Company's business, results of operations, and financial condition cannot be predicted with certainty.

We had total net sales of $5.6 million and $4.7$4.6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, resulting in an increase in net sales of $0.9 million or 19%20% quarter over quarterquarter. We had total net sales of $16.2 million and $14.5 million for the nine months ended June 30, 2026 and 2025, respectively, resulting in an increase in net sales of $1.7 million or 12% sequentially.year over year. This increase is comprised of gains in both our direct to consumer and wholesale business. Direct to consumer included gains to the core business in additionrelated to the revenue added from the acquisition of Bluebird. We anticipate Bluebird will add incremental revenue during the third quarter with the benefit of ownership for a full fiscal quarter as well as increased marketing by our in house marketing team. Our wholesale business continued to strengthentrend thisyear quarterover asyear wedue madeto progressgains with our Oasis brand and other cbdMD brand initiatives. WeOur remainteam remains focused on growthbeing and,nimble asand ofadjusting thisto filingcombat April’srevenue orderslosses remainedcoming strong.from state level regulatory changes. Despite the pervasive, industry-wide challenges which we are facing, we remainbelieve optimisticwe aboutare better positioned than many of our marketpeers positioningas inwe fiscallook 2026toward andthe continueNovember torule seek to diversify revenue.changes.

Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 42%45.3% and 38%38.5% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and was 42.7% and 36.5% for the nine month ended June 30,2026 and 2025, respectively. This slight increase in cost of sales is mostly attributed to (i) a shift in our sales mix to more wholesale business which grew $0.7$0.6 million year over year, and (ii) increase in warehouse labor as we encounteredcontinue severalto incur repacking projects in response to changes in state regulation.regulation, and (iii) $187,437 increase in inventory reserves during the quarter as we prepare for pending regulatory changes.

The following tables provide information on our operating expenses for the three and sixnine months ended MarchJune 31,30, 2026 and 2025:

Our overall operating expenses increased approximately $0.6$0.8 million or 17.3%7.9% for the threenine months ended MarchJune 31,30, 2026 as compared to the threenine months ended MarchJune 31,30, 2025. The acquisition of Bluebird added approximately $340,000$746,000 in labor, marketing and acquisition related legal and transaction expenses during the secondnine quartermonths ofended fiscalJune 30, 2026. Additionally,We professionalalso outsidehad servicesapproximately increased as we made investments to target the Medicare program$134,000 in addition to transaction costsexpenses related to theother acquisitionmergers ofand Bluebird.acquisitions activity. Stock based compensation increased as certain grants vested during the secondthird quarter of fiscal 2026. TheThese increaseincreases inwere labor is tied to acquisition of Bluebird, some annual adjustments but also a number of projects during the quarter, notably regulatory related reworks, andpartially offset by savingsdecreases in rents,depreciation expense and property plant and equipment became fully depreciated, and other miscellaneous expenses.

We had cash and cash equivalents on hand of approximately $2.6$2.1 million, working capital of $5.4$4.7 million and an accumulated deficit of approximately $180.6$181.8 million at MarchJune 31,30, 2026. At September 30, 2025, we had cash and cash equivalents of $2.3 million, working capital of $3.4 million and an accumulated deficit of approximately $179.4 million.

The Company has outstanding quarterly dividend payment obligations under its Series B Convertible Preferred Stock and Series C Convertible Preferred Stock. The Series B Preferred Stock accrues dividends at a rate of 10% per annum, payable quarterly in shares of common stock (subject to the satisfaction of certain equity conditions) or in cash. The Series C Preferred Stock accrues dividends at the same rate of 10% per annum, also payable quarterly in shares of common stock (subject to the satisfaction of certain equity conditions) or in cash. If the Company fails to satisfy the applicable equity conditions, dividends on both series of preferred stock are payable in cash, which could adversely affect the Company’s liquidity position. As of MarchJune 31,30, 2026, approximately 591,207 shares of Series B Preferred Stock and 1 million1,000,000 shares of Series C Preferred Stock were outstanding. The aggregate quarterly dividend obligation, if paid in cash, would be approximately $70,000 based on stated values and the 10% per annum dividend rate.

During the sixnine months ended MarchJune 31,30, 2026 and 2025, our sources and uses of cash were as follows:

During the sixnine months ended MarchJune 31,30, 2026, net cash used by operating activities was $1.5$1.9 million compared to the cash flows used by operating activities of $0.5$1.2 million for the sixnine months ended MarchJune 31,30, 2025. The primary components of the cash used by operating activities in the sixnine months ended MarchJune 31,30, 2026 and 2025 are accounts receivable, inventory and prepaid and other operating expenses.

Cash used in investing activities was $0.1 million for the sixnine months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, respectively, and were both related to fixed asset acquisitions.

Cash provided by (used in) financing activities during the sixnine months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 of approximately $2.0$1.9 million and $0, respectively. The cash provided by financing activities during the sixnine months ended MarchJune 31,30, 2026 is attributable to the proceeds from the issuance of preferred stock.

Non-GAAP Financial Measure - Adjusted EBITDA (Unaudited)