rym-20260630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026

☐ 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: 001-39946

RYTHM INC.

(Exact name of registrant as specified in its charter)

Nevada		30-0943453
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2220 Hicks Road Suite 210

Rolling Meadows, IL 60008

(Address of principal executive offices, including zip code)

(855) 420-0020

(Registrant’s telephone number, including area code)

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 Stock, par value $0.001 per share		RYM		Nasdaq Capital Market

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, a 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 Exchange Act). YES ☐ NO ☒

As of August 4, 2026, the registrant had 2,179,128 shares of Common Stock, $0.001 par value per share outstanding.

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to the Condensed Consolidated Financial Statements	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	42

PART II OTHER INFORMATION		43

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	43

ITEM 4.	MINE SAFETY DISCLOSURES	43

ITEM 5.	OTHER INFORMATION	43

ITEM 6.	EXHIBITS	43

SIGNATURES		44

Item 1. Financial Statements

RYTHM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

	June 30, 2026			December 31, 2025
Assets
Current assets:
Cash and cash equivalents	$	41,915		$	32,218
Accounts receivable, net⁽¹⁾		7,920			9,317
Inventory, net⁽²⁾		2,747			4,045
Prepaid expenses and other current assets		3,813			1,970
Total current assets		56,395			47,550
Goodwill		9,713			9,713
Related party prepaid license rights		42,475			49,400
Deferred tax assets		26,798			—
Non-current assets associated with discontinued operations		—			14
Total assets	$	135,381		$	106,677
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable⁽³⁾	$	2,671		$	2,340
Accrued expenses and other current liabilities⁽⁴⁾		10,133			7,917
Long-term debt, current		8,623			3,621
Related party debt, current		72,000			27,000
Current liabilities associated with discontinued operations		2,043			2,082
Total current liabilities		95,470			42,960
Warrant liabilities⁽⁵⁾		824			697
Long-term debt, net of current		—			5,000
Related party debt, net of current		—			45,000
Total liabilities		96,294			93,657
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common Stock, $0.001 par value per share, 35,000,000 shares authorized; 2,179,128 and 2,149,128 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively.		2			2
Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding		—			—
Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding		—			—
Additional paid-in capital		358,779			353,818
Accumulated deficit		(319,694	)		(340,800	)
Total stockholders’ equity		39,087			13,020
Total liabilities and stockholders’ equity	$	135,381		$	106,677

(1)

Includes $5.9 million and $7.0 million from related parties as of June 30, 2026 and December 31, 2025, respectively.

(2)

Includes $407 thousand and $392 thousand from a related party as of June 30, 2026 and December 31, 2025, respectively.

(3)

Includes $221 thousand and $152 thousand due to related parties as of June 30, 2026 and December 31, 2025, respectively.

(4)

Includes $4.3 million and $4.7 million due to related parties as of June 30, 2026 and December 31, 2025, respectively.

(5)

As of June 30, 2026 and December 31, 2025, the number of outstanding warrants subject to liability classification was 40,017, of which 15,394 were held by RSLGH, LLC (“RSLGH”) a related party.

The accompanying notes are an integral part of these condensed consolidated financial statements.

RYTHM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

	Three months ended June 30,						Six months ended June 30,
	2026			2025			2026			2025
Revenue⁽¹⁾	$	23,021		$	2,042		$	36,307		$	2,580
Cost of goods sold		4,485			1,360			7,374			1,808
Gross profit		18,536			682			28,933			772

Selling, general and administrative⁽²⁾		16,600			7,480			31,031			11,271
Total operating expenses		16,600			7,480			31,031			11,271

Operating income (loss) from continuing operations		1,936			(6,798	)		(2,098	)		(10,499	)

Interest expense, net⁽³⁾		(1,727	)		(291	)		(3,469	)		(290	)
(Loss) gain in fair value of warrant liabilities		(232	)		(115	)		(127	)		292
Other income (expense), net		2			(1	)		2			18
Total other (expenses) income, net		(1,957	)		(407	)		(3,594	)		20

Loss from continuing operations before income taxes		(21	)		(7,205	)		(5,692	)		(10,479	)
Income tax benefit		1,205			—			26,798			—
Income (loss) from continuing operations, net of income taxes		1,184			(7,205	)		21,106			(10,479	)

Loss from discontinued operations		—			(123	)		—			(2,041	)
(Loss) gain on disposal of Extraction business		—			(32	)		—			3,534
Loss (income) from discontinued operations, net of income taxes		—			(155	)		—			1,493

Net income (loss)		1,184			(7,360	)		21,106			(8,986	)

Net income (loss) per share:
Basic income (loss) per share
Continuing operations	$	0.09		$	(3.66	)	$	1.61		$	(5.35	)
Discontinued operations		—			(0.08	)		—			0.76
Net income (loss) per share attributable to Common Stockholders – basic	$	0.09		$	(3.74	)	$	1.61		$	(4.59	)

Diluted income (loss) per share
Continuing operations	$	0.09		$	(3.66	)	$	1.49		$	(5.35	)
Discontinued operations		—			(0.08	)		—			0.76
Net income (loss) per share attributable to Common Stockholders – diluted	$	0.09		$	(3.74	)	$	1.49		$	(4.59	)

Weighted average common shares outstanding - basic		2,155,721			1,965,425			2,152,443			1,958,724
Weighted average common shares outstanding - diluted		2,283,971			1,965,425			5,252,126			1,958,724

(1)

Includes $17.7 million and $27.7 million for the three and six months ended June 30, 2026, and $264 thousand and $265 thousand for the three and six months ended June 30, 2025, in each case from related parties.

(2)

Includes $5.9 million and $10.2 million for the three and six months ended June 30, 2026, and $2.8 million and $4.2 million for the three and six months ended June 30, 2025, in each case from related parties.

(3)

Includes $1.8 million and $3.6 million of interest expense for the three and six months ended June 30, 2026, and $548 thousand and $798 thousand for the three and six months ended June 30, 2025, in each case from a related party.

The accompanying notes are an integral part of these condensed consolidated financial statements.

RYTHM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)

	Common Stock					Additional Paid-In-		Accumulated			Total Stockholders’
	Shares			Amount		Capital		Deficit			Equity
Balance at January 1, 2025		1,952,032		$	2	$	335,400	$	(307,313	)	$	28,089
Stock-based compensation		—			—		589		—			589
Cancellation of common shares		(18	)		—		—		—			—
Impairment of non-controlling interests		—			—		—		(230	)		(230	)
Net loss		—			—		—		(1,626	)		(1,626	)
Balance at March 31, 2025		1,952,014		$	2	$	335,989	$	(309,169	)	$	26,822
Stock-based compensation		—			—		515		—			515
Issuance of vested RSUs, net of shares held back to offset tax		50,554			—				—			—
Issuance and accrual of pre-funded warrants in lieu of cash interest payments on related party debt		—			—		510		—			510
Issuance and accrual of pre-funded warrants in lieu of cash interest payments		—			—		476		—			476
Net loss		—			—		—		(7,360	)		(7,360	)
Balance at June 30, 2025		2,002,568		$	2	$	337,490	$	(316,529	)	$	20,963

	Common Stock				Additional Paid-in-		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance at January 1, 2026		2,149,128	$	2	$	353,818	$	(340,800	)	$	13,020
Stock-based compensation		—		—		570		—			570
Issuance and accrual of pre-funded warrants in lieu of cash interest payments on related party debt		—		—		2,988		—			2,988
Issuance and accrual of pre-funded warrants in lieu of cash interest payments		—		—		75		—			75
Net income		—		—		—		19,922			19,922
Balance at March 31, 2026		2,149,128	$	2	$	357,451	$	(320,878	)	$	36,575
Stock-based compensation		—		—		578		—			578
Issuance of vested RSUs, net of shares held back to offset tax		30,000		—		—		—			—
Issuance or accrual of pre-funded warrants in lieu of cash interest payments on related party debt		—		—		675		—			675
Issuance or accrual of pre-funded warrants in lieu of cash interest payments		—		—		75		—			75
Net income		—		—		—		1,184			1,184
Balance at June 30, 2026		2,179,128	$	2	$	358,779	$	(319,694	)	$	39,087

The accompanying notes are an integral part of these condensed consolidated financial statements.

RYTHM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	For the six months ended June 30,
	2026			2025
Cash flows from operating activities:
Net income (loss)	$	21,106		$	(8,986	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		6,925			735
Non-cash interest expense		1,502			164
Non-cash tax benefit from release of valuation allowance		(26,798	)		—
Lease expense		14			85
Impairment of right-of-use assets		—			24
Stock-based compensation expense		1,148			1,104
Change in fair value of warrant liabilities		127			(292	)
Change in provision for credit losses, net		(25	)		52
Change in provision for inventory		137			112
Gain on disposal of property and equipment		—			(2	)
Gain on disposal of Extraction business		—			(3,534	)
Changes in operating assets and liabilities:
Accounts receivable		230			(812	)
Accounts receivable - related party		1,092			—
Inventory		1,161			(610	)
Prepaid expenses and other current assets		(1,843	)		(903	)
Accounts payable		(221	)		(324	)
Accounts payable - related party		69			—
Accrued expenses and other current liabilities		1,690			(943	)
Accrued expenses and other current liabilities - related party		3,421			—
Operating lease liabilities		(38	)		(104	)
Contract liabilities		—			(1,167	)
Other liabilities		—			263
Net cash and cash equivalents provided by (used in) operating activities		9,697			(15,138	)

Cash flows from investing activities:
Related party acquisition of MC Brands		—			(5,075	)
Net cash and cash equivalents used in investing activities		—			(5,075	)

Cash flows from financing activities:
Proceeds from related party notes		—			27,000
Proceeds from notes payable		—			3,000
Repayments of notes payable		—			(1	)
Net cash and cash equivalents provided by financing activities		—			29,999

Net increase in cash and cash equivalents		9,697			9,786
Cash and cash equivalents at the beginning of period		32,218			31,170
Cash and cash equivalents at the end of period	$	41,915		$	40,956

Supplemental disclosures
Cash paid for interest		257			518
Supplemental disclosure of non-cash investing and financing activities
Issuance of pre-funded warrants in lieu of related party cash interest	$	2,313		$	510
Accrued pre-funded warrants in lieu of cash interest	$	—		$	476
Reclassification of accounts payable to notes payable	$	—		$	99

The accompanying notes are an integral part of these condensed consolidated financial statements.

RYTHM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Overview, Basis of Presentation and Significant Accounting Policies

Description of Business

RYTHM, Inc. (formerly Agrify Corporation) (together with its subsidiaries, the “Company” or “RYTHM”) delivers well-being to consumers through its portfolio of hemp-derived tetrahydrocannabinol (“THC”) products and iconic licensed brands. The Company’s portfolio of consumer-packaged goods brands includes RYTHM, incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita. The Señorita brand offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages that mirror well-known cocktails like a margarita – in four flavors – classic Lime Jalapeño Margarita, Mango Margarita, Paloma and Ranch Water. Known for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita offers a low-sugar, low-calorie alternative to alcoholic beverages and is available in eighteen U.S. states and Canada including at top retailers such as Total Wine, ABC Fine Wine & Spirits, and Binny’s. The RYTHM branded beverage comes in two fruit-driven flavors with effect-based ingredients. Both Señorita and RYTHM hemp-derived beverages are available at Chicago’s iconic United Center, based on a partnership announced in January 2026, establishing the Company as the venue’s official THC sponsor. Other hemp-derived products including incredibles and Beboe edible products are primarily sold online and through direct-to-retail partnerships. In addition to the sale of hemp-derived products (“Non-licensing Revenue”), the Company licenses its brands to be manufactured and distributed in exchange for a licensing fee (“Licensing Revenue”). Throughout these unaudited condensed consolidated financial statements, the terms “intellectual property”, “intellectual property rights”, “brands”, “trademarks”, “tradenames”, “brand rights” and “Prepaid License Rights” are used interchangeably.

The Company was historically a leading provider of innovative cultivation and extraction solutions for the cannabis industry. Prior to the exit of the extraction business on March 30, 2025, the Company’s comprehensive extraction product line (“the Extraction Business”), which included hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowered cannabis producers to maximize the quantity and quality of extract required for premium concentrates. Additionally, prior to its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce high quality products.

The Company was formed in the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation. On August 27, 2025, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company with the Secretary of State of Nevada, to effect a change in the Company’s name from Agrify Corporation to RYTHM, Inc., effective as of September 2, 2025. In connection with the name change, the Company’s trading symbol on the Nasdaq Capital Market changed from “AGFY” to “RYM” effective as of the open of trading on September 2, 2025. The Company is sometimes referred to herein by the words “we,” “us,” “our,” and similar terminology.

The Company has thirteen wholly-owned consolidated subsidiaries, which are collectively referred to as the “Subsidiaries,” seven of which are included in discontinued operations.

On December 12, 2024, the Company acquired certain assets from Double or Nothing, LLC (“Double or Nothing”), the owner and creator of the Señorita brand of hemp-derived drinks as part of the Company’s strategic plan to reposition itself as a distributor of hemp-derived THC beverages and similar products.

On December 31, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond Chang, the Company’s former Chairman and Chief Executive Officer. Under the Purchase Agreement, CP acquired assets from the Company relating to the Company’s VFUs, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights^TM software solutions (collectively the “Cultivation Business”). The sale of the Cultivation Business occurred following signing on December 31, 2024. The results of the Cultivation Business are presented as discontinued operations in the Condensed Consolidated Statements of Operations and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of the Cultivation Business associated with discontinued operations in the Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025. For further discussion on the discontinued operations, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

On March 30, 2025, the Company approved the winding down of the Extraction Business by March 31, 2025, including but not limited to, the sale or other disposal of all remaining assets constituting the Extraction Business, the cessation of all business operations related to the Extraction Business, the termination of any outstanding contracts related to the Extraction Business, and termination of any employees primarily involved in the Extraction Business. The results of the Extraction Business are presented as discontinued operations in the Condensed Consolidated Statements of Operations and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of the Extraction Business associated with discontinued operations in the Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025. For further discussion on the discontinued operations, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

On May 20, 2025, the Company acquired from VCP IP Holdings, LLC (“VCP”) an indirect wholly-owned subsidiary of Green Thumb Industries Inc., a related party (“Green Thumb”), 100% of the equity interests of MC Brands, LLC pursuant to which the Company obtained rights relating to MC Brands, LLC and its wholly-owned subsidiary Core Growth LLC (together referred to as “MC Brands”). The assets of MC Brands consist primarily of intellectual property rights associated with the incredibles brand. Concurrent with the transaction, the Company entered into a license agreement with GTI Core, LLC (“GTI Core”), an indirect subsidiary of Green Thumb, pursuant to which GTI Core was granted the right to use the incredibles brand in connection with its existing businesses. Consideration payable by GTI Core under the license agreement consists of a monthly license fee payable in cash. The Company began recognizing Licensing Revenue under this agreement in May 2025.

On August 27, 2025, the Company acquired from VCP23, LLC an indirect wholly-owned subsidiary of Green Thumb (“VCP23”), 100% of the equity interests of VCP pursuant to which the Company obtained rights relating to VCP. The assets of VCP, consist primarily of intellectual property rights to the RYTHM, Beboe, Dogwalkers, Doctor Solomon’s, & Shine, and Good Green brands (these rights, together with the incredibles brand rights, referred to as “Brand Rights”). Concurrent with the transaction, the Company entered into a license agreement with GTI Core pursuant to which GTI Core was granted the right to use the Brand Rights in connection with its existing businesses. Consideration payable by GTI Core under the license agreement consists of a monthly license fee payable in cash. The Company began recognizing Licensing Revenue under this agreement in November 2025.

On March 31, 2026, the Company amended the license agreements with GTI Core described above to replace sales-based royalty consideration with fixed annual fees, effective April 1, 2026. Under the amended terms, the Company is entitled to aggregate fixed payments of $70 million per year, subject to annual escalation based on a 2x multiple of changes in the Consumer Price Index (“CPI”) beginning January 1, 2027, subject to a maximum year-over-year increase of 10%. The Company recognizes this revenue on a ratable basis over the license term as the customer receives continuous access to the intellectual property.

Although we believe there is currently a growing market for hemp-derived THC products as consumers continue to migrate away from traditional beer and wine products, the regulatory landscape governing such products is becoming increasingly complex and uncertain across multiple dimensions. At the federal level, legislation passed on November 12, 2025 to reopen the U.S. federal government, the Continuing Appropriations and Extensions Act of 2026, contained a provision that would materially alter the federal definition of hemp-derived products. Upon effectiveness (November 12, 2026), such products may not contain more than 0.4 milligrams of total THC per container. Our current hemp-derived THC products exceed these limits and, unless this legislation is amended prior to its effective date, we believe it could require us to significantly reformulate or discontinue our current hemp-derived THC product lines or move to produce the products in Drug Enforcement Administration (“DEA”) registered state-licensed medical marijuana facilities deemed legal under federal law, which would significantly increase our expenses and limit our distribution channels.

Federal cannabis rescheduling developments also introduce additional complexity. The DEA’s April 2026 actions placed certain Federal Drug Administration-approved marijuana products and qualifying state-licensed medical marijuana products in Schedule III of the Controlled Substances Act (“CSA”) but expressly left hemp outside its scope. Ongoing Administrative Law Judge proceedings addressing the broader scheduling status of marijuana, including marijuana products and activities not covered by the April 2026 actions, could further alter the federal regulatory framework in ways that may have downstream implications for hemp-derived THC products that are difficult to predict. Concurrently, states and municipalities are increasingly enacting or enforcing laws governing hemp-derived THC products, including potency caps, labeling requirements, age restrictions, and outright prohibitions, creating additional operational and compliance uncertainty for the Company. The ultimate impact of these federal legislative, regulatory, and state and local developments on the Company’s hemp-derived THC product lines will depend on future legislative and administrative action at each level of government and remains uncertain at this time.

Basis of Presentation and Principles of Consolidation

These interim condensed consolidated financial statements of the Company are unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”).

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates estimates, which include estimates related to accruals, stock-based compensation expense, reported amounts of revenues during the reported period, fair value of warrant liabilities, sales tax liabilities, valuation of deferred tax assets, net realizable value of inventory and collectability of trade accounts, intangible assets, other assets (Prepaid License Rights), goodwill, and litigation. Management bases their estimates on historical experience and other market-specific or other relevant assumptions that they believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

The Company regularly evaluates its assets, including asset groups or reporting units, for impairment in accordance with GAAP. The Company is aware of the impact that prolonged net losses can have on the fair value of underlying assets and the overall company. The Company is committed to ensuring that the carrying amounts of its assets are appropriately assessed and adjusted for any impairment, reflecting a true and fair view of its financial position.

Discontinued Operations

On December 31, 2024, the Company entered into and closed the Purchase Agreement with CP. Under the Purchase Agreement, CP acquired assets from the Company relating to the Cultivation Business. On March 30, 2025, the Company discontinued the Extraction Business (together with the Cultivation Business, the “Discontinued Operations”).

As the sale of the Cultivation Business and the exit of the Extraction Business represented strategic shifts that will have a major effect on the Company’s operations and financial results, they have been presented in discontinued operations in accordance with Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, separate from continuing operations for the three months and six months ended June 30, 2026 and 2025, in the Company’s condensed consolidated statement of operations and applicable footnotes, and as of June 30, 2026 and December 31, 2025, in the Company’s condensed consolidated balance sheets, as applicable. For further discussion, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

Accounts Receivable, Net

Accounts receivable, net, primarily consists of amounts for goods and services that are billed and currently due from customers. In accordance with the current expected credit loss (“CECL”) impairment model under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), accounts receivable balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that may not be collectible. In determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience, and any specific risks identified in customer or borrower collection matters, including the aging of unpaid accounts receivable and changes in customer or borrower financial conditions. Accounts receivable balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the unaudited condensed consolidated statements of operations.

Concentration of Credit Risk and Significant Customer

Financial instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable. Cash equivalents primarily consist of money market funds with original maturities of three months or less, which are invested primarily with U.S. financial institutions. Cash deposits with financial institutions generally exceed federally insured limits. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts.

For the three months ended June 30, 2026, the Company had one related party customer that accounted for 77% of the total revenue from continuing operations. For the three months ended June 30, 2025, one related-party customer and one third-party customer each accounted for 10% or more of total revenue from continuing operations, representing 13% and 38% of total revenue from continuing operations, respectively.

For the six months ended June 30, 2026, one related-party customer accounted for 76% of total revenue from continuing operations. For the six months ended June 30, 2025, three third-party customers each accounted for 10% or more of total revenue from continuing operations, representing between 11% and 30% of total revenue from continuing operations.

As of June 30, 2026 and December 31, 2025, one related-party customer accounted for 73% and 75% of the Company’s accounts receivable, respectively.

Inventories

The Company values all its inventories, which consist primarily of finished goods and raw materials, at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method. Write-offs of potentially slow-moving or damaged inventory are recorded through specific identification of obsolete or damaged material. The Company takes a physical inventory count at least once annually at all significant inventory locations.

Goodwill

Goodwill is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired. A goodwill impairment charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market value as a result of a significant sustained decline in the Company’s stock price.

Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate there might be an impairment. An impaired asset is written down to its estimated fair value based upon the most recent information.

Impairment of Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance. When evaluating long-lived assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. The impairment is the excess of the carrying value over the fair value of the asset.

Warrant Liabilities

The Company evaluates all its financial instruments, including issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions for equity classification.

Issued or modified warrants that meet all of the criteria for equity classification are recorded as a component of additional paid-in capital at the time of issuance. Issued or modified warrants that are precluded from equity classification are recorded as a liability at their initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the unaudited condensed consolidated statements of operations.

Convertible Notes Payable

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC 815. ASC 815 requires that the Company identify and record certain embedded conversion options, certain variable-share settlement features, and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as an unrealized non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded conversion options, variable-share settlement features, and any related freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the respective note using the effective interest method.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, operating lease liabilities, long-term debt, related-party debt, and warrant liabilities. Refer to Note 4 - Fair Value Measures, included elsewhere in the notes to the unaudited condensed consolidated financial statements for details of the Company’s financial instruments.

Stock-Based Compensation

The Company measures restricted stock units and stock options awards granted to employees, directors and consultants based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are recognized as incurred. Historically, the Company has issued restricted stock units and stock options to employees, directors and consultants with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies stock-based compensation expense within the unaudited condensed consolidated statements of operations based on the function performed by the award recipient, consistent with the classification of the recipient’s other compensation costs.

The Company estimates the fair value of each stock option grant on the date of the grant using the Black-Scholes option-pricing model. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations and Asset Acquisitions

The Company follows the guidance in ASC Topic 805, Business Combinations (“ASC 805”), for determining the appropriate accounting treatment for asset acquisitions. ASU 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to be a business, the purchase method of accounting is applied. The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, is determined using established valuation techniques. A fair value measurement is determined as the price received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the context of purchase accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. The estimated fair values reflected in the purchase accounting rely on management’s judgment and the expertise of a third-party valuation firm engaged to assist in concluding on the fair value measurements. In determining the fair value of all identifiable assets and liabilities acquired, the most significant estimates relate to intangible assets. For the intangible assets identified, depending on the type of intangible asset and the complexity of determining its fair value, the fair value is developed using appropriate valuation techniques, taking into account assumptions such as the expected future revenue, expected use of the asset, market conditions, uncertainty factors, the estimated useful life, and discount rate, among other factors. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.

If the transaction is deemed to be an asset acquisition, the cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair values. For the allocation of intangible assets identified, depending on the type of intangible asset and the complexity of determining its relative fair value, an independent valuation expert or management may allocate the relative fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows and takes into consideration other significant assumptions such as the expected use, market uncertainty, marketing or sales support requirements and the intangible asset useful lives.

Prepaid License Rights

If a sale arrangement includes terms—such as repurchase features or other provisions—that prevent the buyer from obtaining control of the business or assets, the Company concludes that control has not transferred. In those circumstances, the arrangement is accounted for based on its substance under other applicable GAAP. In connection with such arrangements, amounts paid for licensing rights are deferred and recorded as prepaid licensing rights on the Company’s unaudited condensed consolidated balance sheets. These amounts are recognized in expense over the period in which the related rights are utilized or otherwise as the underlying economic benefit is consumed.

Revenue Recognition

Overview

The Company generates revenue from continuing operations through the sale of hemp-derived THC products (Non-licensing Revenue) and Licensing Revenue. The Company licenses intellectual property to a related party. Prior to April 1, 2026, these arrangements provided for sales-based royalties and licensing revenue was recognized in accordance with ASC Topic 606 Revenue Recognition (“ASC 606”), specifically, the sales-based royalty exception, through March 31, 2026.

Through March 31, 2026, in accordance with ASC 606-10-55-65 through 55-65B, Licensing Revenue is recognized only when the underlying sale by the licensee occurs, and the performance obligation has otherwise been satisfied. This approach ensures that revenue is recognized in the period in which it is earned and determinable, consistent with the transfer of control of the intellectual property to the licensee.

Effective April 1, 2026, the Company amended its licensing agreements with subsidiaries of Green Thumb to replace sales-based royalty consideration with fixed annual fees. Under the amended terms, the Company is entitled to aggregate fixed payments of $70 million per year, subject to annual escalation based on a two times multiple of changes in the CPI beginning January 1, 2027, subject to a maximum year-over-year increase of 10%. The Company recognizes this revenue on a ratable basis over the license term as the licensees receive continuous access to the intellectual property.

For the purposes of ASC 606, the transaction price for these arrangements includes fixed consideration and variable consideration related to CPI-based adjustments. Per ASC 606, variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of cumulative revenue will not occur. As of June 30, 2026, CPI-based adjustments are considered constrained and are therefore excluded from the transaction price and will be recognized as revenue in the period in which the uncertainty is resolved.

Effective April 1, 2026, in accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. The Company excluded variable consideration related to CPI-based fee escalators from the total remaining performance obligations, as such amounts are not included in the transaction price due to the application of the constraint. The Company expects to recognize such variable consideration in the period in which the related uncertainty is resolved. Actual amounts and timing of revenue recognition may differ from these estimates due to contract modifications, CPI-based price increases, or the exercise of contractual repurchase rights by Green Thumb.

In accordance with ASC 606, revenue for hemp-derived THC products (non-licensing) is recognized through a five-step model, as outlined below:  

	●	Identify the customer contract: A customer contract is identified when there is mutual approval and commitment between the Company and its customer, the rights and obligations are clear, payment terms are set, the contract has commercial substance, and collectability is probable. Written or electronic signatures on contracts and purchase orders are obtained if such orders are issued in the normal course of business by the customer.

●

Identify performance obligations that are distinct: The Company identifies distinct performance obligations in each contract. A performance obligation is considered distinct if the customer can benefit from the good or service on its own or with readily available resources, and if it is separately identifiable from other promises in the contract. The Company’s revenue-generating activities typically have a single performance obligation.

	●	Determine the transaction price: The transaction price is the amount of consideration the Company expects to receive in exchange for the sale of the product. This amount is determined excluding sales taxes collected on behalf of government agencies and net of any sales discounts, incentives, and returns.

	●	Allocate the transaction price to distinct performance obligations: The transaction price is allocated to each distinct performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services provided. If a contract involves multiple performance obligations, each is accounted for separately if distinct, and the SSP reflects the price the Company would charge if the good or service were sold separately in similar circumstances and to similar customers.

●

Recognize revenue as the performance obligations are satisfied: Revenue from the sale of hemp-derived THC products (non-licensing) is recognized when control of the product transfers to the customer, typically upon delivery or shipment, as the customer assumes the risks and rewards of ownership. Payment terms vary by customer, but the time between revenue recognition and payment due is generally not significant. For products sold under consignment arrangements, revenue is recognized only when control is transferred to the end customer. Payments for slotting, listing fees, or other marketing or promotional activities, where legally permitted, are recorded as a reduction in revenue unless a distinct good or service is received in exchange.

Rights of Return

In connection with the pending federal ban on hemp-derived THC products effective November 12, 2026, the Company is monitoring the potential effect on its distribution agreements. Under the Company’s distribution agreements, distributors retain the contractual right to require the Company to repurchase product in the event of a regulatory recall or product ban, which represents variable consideration under ASC 606. Consistent with ASC 606-10-55-23, the Company recognizes revenue only to the extent it is probable that a significant reversal in cumulative revenue recognized will not occur. The Company recognizes a refund liability representing the portion of consideration received that it expects to refund. Management is currently evaluating the timing and measurement of expected repurchases under these contractual provisions. Management evaluated the timing and measurement of expected repurchases under these contractual provisions and determined that no liability was required as of June 30, 2026.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC Topic 740, Income Taxes (“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. 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 tax asset will not be realized.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the unaudited condensed consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company has recorded liabilities for unrecognized tax benefits related to research and development tax credits.

The Company recognizes the benefit of a tax position when it is effectively settled. ASC 740, provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. ASC 740 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority. For tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.

The Company’s provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented. To determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective tax rate for the full year may differ from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations.

The provision for income taxes represents federal, state and local income taxes. The effective rate differs from statutory rates due to the Company’s release of valuation allowance during the six months ended June 30, 2026 that was previously offsetting deferred tax assets. Our effective tax rate may change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes. In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change.

Tax contingencies are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures could result from applications of various statutes, rules, regulations and interpretations. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

Net Income (Loss) Per Share

The Company presents basic and diluted net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Basic income (loss) per share is computed using the two-class method, under which net income is allocated to common stockholders and participating securities based on their respective rights to receive dividends. The Company’s participating securities consist of pre-funded warrants. Accordingly, net income attributable to its Common Stockholders may differ from reported net income in periods of net income.

Basic income (loss) per share is calculated by dividing net income (loss) attributable to Common Stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into common stock. The Company determines diluted income (loss) per share by applying the most dilutive method for each class of potentially dilutive securities. The treasury stock method is applied to stock options and restricted stock units, the if-converted method is applied to convertible notes, and the two-class method is applied to participating securities. For instruments subject to the two-class method, the Company applies a hybrid approach in which income is allocated after giving effect to adjustments from other dilutive securities.

In periods of net income, a portion of income is allocated to participating securities and deducted in determining income attributable to Common Stockholders. In periods of net loss, losses are not allocated to participating securities, as they do not have a contractual obligation to share in losses. In such periods, basic and diluted net loss per share are the same, as potentially dilutive securities are anti-dilutive. See Note 14 – Net Income (Loss) Per Share for details.

Recently Adopted Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-04, Debt with Conversion and Other Options (“ASU 2024-04”), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity. The Company adopted this new standard on January 1, 2026 on a prospective basis and the adoption of ASU 2024-04 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Recently Announced Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. This guidance requires additional disclosure of certain amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. This ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270) (“ASU 2025-11”), Narrow-Scope Improvements, to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in ASU 2025-11 result in a comprehensive list of interim disclosures that are required by GAAP. The amendments in ASU 2025-11 also include a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments in ASU 2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 and early adoption is permitted. The amendments in ASU 2025-11 can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the disclosure impact that ASU 2025-11 may have on its financial statement presentation and disclosures.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements (“ASU 2025-12”), which includes various amendments to the FASB Accounting Standards Codification intended to clarify, correct, and improve existing guidance. ASU 2025-12 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2025-12 may have on its financial statement presentation and disclosures.

Other recent accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements.

Liquidity and Capital Resources

The Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the condensed consolidated financial statements are issued.

The Company has a history of recurring net losses and negative cash flow in operating activities. However, for the six months ended June 30, 2026, the Company generated positive cash flow from operating activities and reported net income primarily as a result of a non-cash income tax benefit. Management believes that the Company’s $41.9 million of cash and cash equivalents, anticipated contractual Licensing Revenue and ability to address outstanding Convertible Notes will be sufficient to meet its cash requirements through at least the 12-month period following the date that these condensed consolidated financial statements were issued.

Convertible Notes maturities of $80 million exist through February 2027, with $72.0 million held by Green Thumb, a related party. The ability for the holders of these notes to elect to be repaid in cash upon maturity could raise substantial doubt about the Company’s ability to continue as a going concern. However, while these contractual maturities require management attention, management believes it is probable that the obligations will be addressed through extension or conversion consistent with historical practice. As such, the Company’s financial statements have been prepared on a going concern basis.

Note 2 — Revenue

Revenue

The Company generates revenue from continuing operations from Non-licensing Revenue and Licensing Revenue.

For the three and six months ended June 30, 2026, the Company generated revenue from continuing operations from hemp-derived product sales (Non-licensing Revenue) and Licensing Revenue. Hemp-derived product sales revenue is recognized at a point-in-time when control transfers to the customer.

Licensing Revenue prior to April 1, 2026 was sales-based and recognized over time as the underlying sales occurred in accordance with the terms of the related party license agreements, which commenced in May 2025. Effective April 1, 2026, the licensing arrangements were amended to provide for a fixed annual fee and Licensing Revenue is recognized on a ratable basis over the license term. For the three and six months ended June 30, 2025, Non-Licensing Revenue from continuing operations is transferred at a point-in-time and relates to hemp-derived beverages.

The following table provides the Company’s revenue from continuing operations disaggregated by revenue type:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2026		2025		2026		2025
Non-licensing Revenue	$	5,521	$	1,794	$	8,832	$	2,332
Licensing Revenue		17,500		248		27,475		248
Total revenue	$	23,021	$	2,042	$	36,307	$	2,580

As of June 30, 2026, the aggregate amount of contractual Licensing Revenue allocated to remaining performance obligations is approximately $290.9 million. This represents fixed fees through August 27, 2030, reflecting the period prior to which neither party may terminate unilaterally; mutual termination remains available throughout the term. The Company expects to recognize this amount as revenue ratably over that period. The Company excluded variable consideration related to CPI-based fee escalators from the total remaining performance obligations.

Note 3 — Supplemental Condensed Consolidated Balance Sheet Information

Accounts Receivable, Net

Accounts receivable, net, consisted of the following as of June 30, 2026 and December 31, 2025:

(In thousands)	June 30, 2026			December 31, 2025
Accounts receivable, gross	$	8,277		$	9,699
Less allowance for credit losses		(357	)		(382	)
Accounts receivable, net	$	7,920		$	9,317

The movement of the Company’s credit losses accounts were as follows:

(In thousands)	Six months ended June 30, 2026			Year ended December 31, 2025
Allowance for credit losses - beginning of period	$	382		$	—
(Recovery of) Provision allowance for credit losses		(25	)		382
Write-offs of uncollectible accounts		—			—
Allowance for credit losses - end of period	$	357		$	382

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of June 30, 2026 and December 31, 2025:

(In thousands)	June 30, 2026		December 31, 2025
Prepaid marketing	$	3,057	$	1,259
Prepaid expenses, other		572		589
Income tax receivable		132		—
Prepaid insurance		52		122
Total prepaid expenses and other current assets	$	3,813	$	1,970

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of June 30, 2026 and December 31, 2025:

	June 30,		December 31,
(In thousands)	2026		2025
Accrued consulting fee	$	3,654	$	3,118
Accrued marketing fee		3,336		1,021
Accrued interest expense		1,667		1,736
Compensation related fees		294		522
Accrued professional fees		238		248
Litigation reserve		223		570
Accrued distributor termination fee		160		—
Accrued fulfillment and manufacturing related costs		124		342
Other current liabilities		437		360
Total accrued expenses and other current liabilities	$	10,133	$	7,917

Note 4 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance with ASC Topic 820, Fair Value Measurement, the Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Level 3: Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

The Company has certain financial instruments which consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, operating lease liabilities, long-term debt, related party debt, and warrant liabilities. Fair value information for each of these instruments as well as other balances of the Company are as follows:

	●	Cash and cash equivalents, accounts payable, and accrued expenses approximate their fair value based on the short-term nature of these instruments.

	●	Accounts receivable are presented net of an allowance for estimated credit losses, which approximates fair value.

	●	The carrying value of lease liabilities approximates fair value due to the implicit discount rates used in the determination of the lease liabilities being consistent with the Company’s incremental borrowing rates at the time of lease inception and accounting for the duration of the leases.

	●	Long-term debt and related party debt, including the debt that has undergone troubled debt restructuring, is carried at amortized cost, dictated by the prevailing market interest rates at the time of each transaction in accordance with ASC Topic 470, Debt (“ASC 470”).

●

The Company’s warrant liabilities are marked-to-market for each reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying unaudited condensed consolidated statements of operations until the warrants are exercised. The fair value of the warrant liabilities are estimated using a Black-Scholes option-pricing model.

At June 30, 2026 and December 31, 2025, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

	June 30, 2026								December 31, 2025
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liabilities	$	—	$	—	$	824	$	824	$	—	$	—	$	697	$	697
Total liabilities	$	—	$	—	$	824	$	824	$	—	$	—	$	697	$	697

Warrant Liabilities

The estimated fair value of the warrant liabilities on June 30, 2026 and December 31, 2025 is determined using Level 3 inputs. Inherent in a Black-Scholes option-pricing model are assumptions used in calculating the estimated fair values that represent the Company’s best estimate. The volatility rate is determined utilizing the Company’s own share price and the share price of competitors over time. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.

The following table summarizes the Company’s assumptions used in the valuations as of June 30, 2026 and December 31, 2025:

	June 30, 2026	December 31, 2025
Stock price	$25.48	$21.34
Exercise price	$0.14 - $22,440	$0.14 - $22,440
Expected term (in Years)	0.58 - 1.64	1.08 - 2.14
Volatility	159.4%	163.0%
Discount rate - treasury yield	3.98 - 4.06%	3.47 - 3.48%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the six months ended June 30, 2026 and for the year ended December 31, 2025:

	Six months ended June 30, 2026		For the year ended December 31, 2025
Warrant liabilities - beginning of period	$	697	$	996
Change in estimated fair value		127		(299	)
Warrant liabilities end of period	$	824	$	697

As of June 30, 2026 and December 31, 2025, the number of outstanding warrants subject to liability classification was 40,017, of which 15,394 are held by RSLGH, LLC (“RSLGH”), a related party and wholly-owned subsidiary of Green Thumb.

Note 5 — Inventory, Net

Inventories are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method. Such costs include the acquisition cost for raw materials and operating supplies. The Company’s standard payment terms with suppliers may require making payments in advance of delivery of the Company’s products.

Inventory consisted of the following related to hemp-derived THC products as of June 30, 2026 and December 31, 2025:

(In thousands)	June 30, 2026			December 31, 2025
Finished goods	$	2,267		$	3,108
Raw materials		662			947
Packaging materials		507			542
Inventory, gross		3,436			4,597
Inventory reserves		(689	)		(552	)
Total inventory, net	$	2,747		$	4,045

Inventory Reserves

The Company establishes an inventory reserve for obsolete, slow moving, and defective inventory. The Company calculates inventory reserves for obsolete, slow moving, or defective items as the difference between the cost of inventory and its estimated net realizable value. The reserves are based upon management’s expected method of disposition.

Note 6 — Discontinued Operations

Cultivation Business Discontinued Operations

On December 31, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP, an entity affiliated with Raymond Chang, the Company’s former Chairman and Chief Executive Officer. Under the Purchase Agreement, CP acquired assets from the Company relating to the Company’s vertical farming unit business, including the related “Cultivation Business”. The consideration for the sale included the assumption by CP of certain secured indebtedness and other liabilities related to the Cultivation Business. The disposition resulted in a loss on sale of $11.9 million, which was recorded in net loss from discontinued operations for the year ended December 31, 2024. As of June 30, 2026, the Company has no material remaining assets or liabilities, nor any ongoing involvement related to the Cultivation Business. For the three and six months ended June 30, 2026, the Company has no material results of operations related to the Cultivation Business.

Extraction Business Discontinued Operations

On March 30, 2025, the Company approved the discontinuation and wind down of its extraction product line, which included hydrocarbon, alcohol, solventless, post-processing, and lab equipment (the “Extraction Business”). The wind down was completed during 2025 and included the cessation of operations, termination of contracts, and disposal of related assets. The Company recognized a gain of approximately $3.5 million in income from discontinued operations for the year ended December 31, 2025. The operating results of the Extraction Business were reported as discontinued operations in the condensed consolidated financial statements for all prior periods presented.

In connection with the discontinuation of its legacy Extraction Business, the Company continues to carry certain liabilities, including accounts payable and other current liabilities of $0.6 million and $1.5 million, respectively, as of June 30, 2026. These balances represent historical obligations for which there has been limited collection activity. The Company believes the amounts may be owed and therefore has classified them as current liabilities; however, the timing and likelihood of settlement remain uncertain. The Company evaluates these balances periodically and will derecognize such obligations when it determines that settlement is no longer probable, including consideration of applicable statutes of limitations, which may extend for several years.

For the three and six months ended June 30, 2026, the Company has no material results of operations related to the Extraction Business.

As of December 31, 2025, assets associated with Discontinued Operations consisted of operating lease right-of-use assets of $14 thousand. Liabilities associated with Discontinued Operations totaled $2.1 million, consisting of accounts payable of $0.6 million, accrued expenses and other current liabilities of $1.5 million, and current operating lease liabilities of $38 thousand.

The following table summarizes the Company’s income from Discontinued Operations for the three and six months ended June 30, 2025:

	Three months ended June 30, 2025			Six months ended June 30, 2025
Revenue	$	18		$	1,187
Cost of goods sold		15			1,835
Gross profit (loss)		3			(648	)

Selling, general and administrative		126			1,371
Impairment of right-of-use assets		—			24
Gain on disposal on property and equipment		—			(2	)
Total operating expenses		126			1,393

Operating loss from discontinued operations		(123	)		(2,041	)

Other (Expense) Income
(Loss) gain on disposal of Extraction business		(32	)		3,534
Total other (expense) income		(32	)		3,534

Net (loss) income from discontinued operations		(155	)		1,493
Income tax effect on discontinued operations		—			—
Loss (Income) from discontinued operations, net of income taxes		(155	)		1,493

The condensed consolidated statements of cash flows include continuing operations and discontinued operations. The following table summarizes the depreciation and amortization of long-lived assets and change in provision for credit losses related to Discontinued Operations for the three and six months ended June 30, 2025:

	Six months ended June 30, 2025
Depreciation and amortization	$	52
Change in provision for credit losses, net		53

Note 7 — Prepaid License Rights

The Company evaluates transactions involving the acquisition of intellectual property and other assets to determine the appropriate accounting treatment based on applicable GAAP, including ASC 805, and ASC Topic 340 – Other Assets and Deferred Costs (“ASC 340”). Certain transactions may not meet the criteria for either a business combination or an asset acquisition and are accounted for under other applicable GAAP.

Prepaid License Rights relate to arrangements entered into in 2025 with affiliates of Green Thumb, as further described in Note 8 below.

As of June 30, 2026 and December 31, 2025, prepaid license rights were comprised of the following:

June 30, 2026

Estimated

Gross

Net

Useful Life

Carrying

Accumulated

Carrying

(In thousands)

in Years

Amount

Amortization

Amount

Prepaid License Rights, related party

2 - 5

54,500

(12,025

)

42,475

December 31, 2025

Estimated

Gross