FreeCast, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Report. Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the Securities and Exchange Commission. Overview We currently operate primarily in the U.S., but have recently begun to provide services in certain international markets. We continue to explore opportunities for expansion into other international markets by signing licensing agreements and collaborating with international Consumer Direct Platforms (CDPs). However, we can only take advantage of these opportunities if we have sufficient capital to do so, are able to recruit the necessary staff, and are able to expand our current infrastructure. We may also face additional challenges from new competitors that may be able to launch new businesses at relatively low cost, with consumers easily being able to shift spending from one provider to another. In order to combat this, we must continue to deliver a product that is more advanced than that of competitors. Primarily as a result of our shift to a free registration subscription service, we have been able to increase the number of subscribers during our most recent 12-month period. Our subscriber numbers have increased from 934,543 on March 31, 2025, to 1,024,592 on March 31, 2026. Our revenue excluding Free Ad-Supported TV (FAST) Revenue (FAST Revenue was $169,110 and $180,405 for the nine months ended March 31, 2026, and 2025, respectively) and Ad Revenue (Ad Revenue was $130,052 and $122,697 for the nine months ended March 31, 2026, and 2025, respectively) per subscriber has decreased from $0.12 for the nine months ending March 31, 2025, compared to $0.05 for the nine months ending March 31, 2026. Our revenue excluding FAST Revenue (FAST Revenue was $68,063 & $38,921 for the three months ended March 31, 2026, and 2025, respectively) and Ad Revenue (Ad Revenue was $11,016 & $72,565 for the three months ended March 31, 2026, and 2025, respectively) per subscriber has decreased from $0.03 for the three months ending March 31, 2025, compared to $0.013 for the three months ending March 31, 2026. As of March 31, 2026, we had a cash balance of $119,302 and a working capital deficit of $7,285,937. We plan to raise additional equity financing as well, without which we will not be able to meet our obligations as they become due for the next 12 months. However, we cannot provide any assurance that additional equity financing will be available on terms that are acceptable to us, or at all. 17 Components of our Operating Results Revenue Subscription (Membership) Revenue In light of shifting consumer behaviors and constraints on big-box retail sales (especially during the pandemic), we refined our business model in 2022 to focus on B2B2C distribution. This approach leverages partnerships with multi-dwelling unit operators, hospitality providers, broadband carriers, and device manufacturers, each channel granting us immediate, large-scale user access. We believe that aligning with enterprise-level partners reduces our direct retail marketing costs, stabilizes recurring revenues, and extends the reach of our aggregator platform to tens of thousands of new users at once. As a result, we no longer generate subscription revenue through renewal sales of Rabbit TV and Rabbit TV Plus, or through Select TV and Streaming TV Kits, which operated as the successor products to Rabbit TV and Rabbit TV Plus. In October 2022, our SelectTV.com paid subscription service and packaged SelectTV Streaming TV Kits were discontinued. We rebranded to the corporate namesake FreeCast.com and relaunched our SmartGuide as a free registration subscription service. SmartGuide is our internet distributed streaming media guide that searches and aggregates media content on the web and facilitates access to our customers through Wi-Fi-enabled devices that support streaming video. We do, however, sell monthly subscriptions for premium content purchased through our SmartGuide for varying fees for different content. Revenue from such premium subscription fees is recognized on a gross basis over the service period as we are deemed to be the principal in the relationship with the end user. We control the content before transferring it to the end user and have latitude in establishing pricing. We both retransmit and “ingest” and distribute content. Subscription revenue is derived from online sales through search engine optimization, search engine marketing, various marketing advertising services, the utilization of resellers in the form of publishers that promote upcoming retail promotions and packages, as well as direct sales to subscribers of our Value Channels subscription service. Value Channels subscription contains 17 cable channels and sells on a monthly subscription or annual fee. Value Channels is integrated into the initial FreeCast.com free registration and then offered as an upgrade. Both FreeCast.com (free registration) and Value Channels are available in various streaming Smart TV models (Google TV’s, Amazon Fire TV’s, LG, Samsung, TCL, Sony, and others), plus Streaming Devices (Amazon Fire, Google ChromeCast, Apple TV), PC’s/Laptops and mobile apps for Android and iOS devices. Subscription revenue is recognized ratably on a straight-line basis over the duration of the subscription period, generally ranging from one month to five years. If the subscriber renews early, then the expiration date is extended by the renewal period, and the additional subscription fee is deferred and amortized over the additional months purchased by the subscriber. We no longer offer SelectTV lifetime subscriptions, which were initially deferred and recognized over a five-year period. All subscription fees are collected at the time of purchase. FAST (Free Ad-Supported TV) We provide FAST channel buildouts that include post-production editing, motion graphics, channel assembly and content acquisitions. We charge the customers based on time incurred for the services plus a reasonable margin in addition to any additional out of pocket cost incurred that is charged at cost to us. In addition, we split the advertising revenue. Revenue is recognized when services are performed. We charge a monthly platform fee for distributing the FAST channel on its platform. Revenue is recognized at the point in time when the content is available on the digital platform. In June 2023, we entered into verbal arrangements with two related party entities, Test Drive Live Inc. and Celebrity Cigars, Inc. William A. Mobley, Jr. serves as the President of both companies and is the sole director for Celebrity Cigars. Mr. Mobley’s son, Sean Mobley, is part of the management team of Celebrity Cigars. We provided FAST channel buildout services relating to the development and buildout of their respective channels. We also provide the platform on an ongoing basis for each company to stream their content. We charge each company a monthly fee based on a 15% or 30% markup of our cost of production, depending on the level of supervision required to provide our services, which include labor, rent, etc. We also charge for any out-of-pocket costs, which vary from month-to-month. We are currently negotiating with each company on a potential advertising revenue-sharing arrangement. 18 Ad Platform Revenue We are an agent in transactions on our Ad Exchange platforms. We act as an intermediary between DSPs and non-owned and operated publishers by providing access to a platform that allows both parties to transact in the buying and selling of ad inventory. The transaction price is determined by a real-time auction, and the Company has no pricing discretion or obligation related to the fulfillment of the advertising delivery. We generally invoice buyers at the end of each month for the full purchase price of ad impressions monetized in that month. Accounts receivables are recorded at the amount of gross billings for the amounts we are responsible for collecting, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis. Ad Agency Revenue (Launch That and Similar Contracts) We earn revenue from direct client service contracts for marketing and campaign execution, such as the Launch That agreement. These contracts typically involve two distinct phases: ● Phase 1: Discovery and Development Services (data research, audience analysis, creative development). Revenue is recognized over time using an input method based on the proportion of costs incurred relative to total estimated costs for Phase 1. ● Phase 2: Test Media Distribution Services (media placement, outreach, KPI reporting). Revenue is recognized upon delivery of the performance evaluation report specified in the contract. Revenue from such contracts is presented separately from “Other Revenue” due to its materiality and distinct nature. Deferred Revenue – Ad Agency Revenue (Launch That and Similar Contracts) For the Ad Agency revenue stream, we provide demand partners with access to the FreeCast Ad Platform, enabling real-time bidding on advertising inventory. Revenue is recognized at a point in time when a transaction is completed—specifically, when a bid is won and the client’s purchase occurs through the platform. Amounts invoiced in advance of the completion of these transactions are recorded as deferred revenue and recognized as revenue when our performance obligation is satisfied. Other Revenue Other revenue includes product, licensing, and referral fee revenue. We generate revenue through free registrations of FreeCast.com by signing licensing agreements and collaborating with CDPs. A FreeCast.com license is freely provided per registered consumer marketed by distributors in exchange for a negotiated revenue sharing percentage with each distributor on a case-by-case basis. Affiliate commissions are earned and then shared from third-party advertisement service providers, pay-per-view movie or series distributors, and live events tickets sales for such things as professional boxing or concerts. These license arrangements have not resulted in significant revenue to date. Beginning in 2024, in conjunction with the release of our new product FreeCast Home, we started recognizing contracts with customers from product sales requiring performance up to delivery, as well as contracts with customers that contain a subscription portion that causes revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. For our physical product sales, our performance obligations are satisfied at that time. Referral fee revenue is generated through premium services which are also available on our platform, for an additional fee, to allow single or time-limited use of private, decrypted viewing of movies, sporting events, concerts or other types of events. 19 Deferred Revenue Deferred revenue consists principally of both prepaid but unrecognized subscription revenue and advertising fees received or billed in advance of the delivery or completion of the delivery of services. We may pay sales incentives, in cash or by issuing equity instruments, to distributors of our subscriptions. Such sales incentives are not recognized as deferred revenue. Rather, sales incentives are recognized in current operations when issued, regardless of amounts in deferred revenue, which may have resulted from the distributor’s efforts. Deferred revenue consists primarily of subscriptions for multiple months purchased upfront and recognized ratably over the term of the subscription. Cost of Revenue Cost of revenue consists primarily of subscription costs and FAST streaming costs, such as third-party hosting costs, infrastructure costs and salaries and benefits related to employees for our customer support. We make payments to third-party ad servers in the period in which the advertising impressions are delivered, or click-through actions occur, and accordingly record this as a cost of revenue in the related period. Hosting costs consist of content streaming, maintaining our internet service and creating and serving advertisements through third-party ad servers. Cost of revenue also consists of FAST channel buildout costs such as the salaries and benefits related to employees, facility related expenses and information technology associated with supporting these buildouts. Operating Expenses Compensation and Benefits Compensation and benefits consist primarily of employee-related costs, including salaries and benefits related to employees in finance, accounting, internal information technology and other administrative personnel and stock-based compensation. Sales and Marketing Sales and marketing consist primarily of employee-related costs, including salaries, commissions and benefits related to employees in sales, sales support and marketing departments. In addition, sales and marketing expenses include external sales and marketing expenses such as third-party marketing, TV Infomercials, branding, advertising, public relations expenses, commissions, facilities-related expenses, and infrastructure costs. General and Administrative General and administrative expenses include professional services costs for outside legal and accounting services, facilities-related expenses, travel costs, third party customer support, and credit card fees. Three and Nine Months Ended March 31, 2026, Compared to Three and Nine Months Ended March 31, 2025 Revenue Our primary sources of revenue are subscription revenue and FAST revenue. Additionally, we have several other revenue streams: product sales revenue, channel streaming, advertising revenue, and other revenue, which encompasses earnings from licensing and referral fees. Subscription revenue decreased by 61%, or $19,387, to $12,430, in the three months ended March 31, 2026, as compared to $31,817 for the three months ended March 31, 2025. Subscription revenue decreased by 54%, or $58,771, to $50,237, in the nine months ended March 31, 2026, as compared to $109,008 for the nine months ended March 31, 2025. The decrease in subscription revenue is primarily attributable to our shift to a free registration subscription service that is supported with advertising revenue. 20 FAST revenue increased by 75%, or $29,142, to $68,063, in the three months ended March 31, 2026, as compared to $38,921 for the three months ended March 31, 2025. FAST revenue decreased by 6%, or $11,295, to $169,110, in the nine months ended March 31, 2026, as compared to $180,405 for the nine months ended March 31, 2025. The decrease was primarily due to lower production activity and reduced related-party channel buildout services compared to the prior year. While we continued to provide platform distribution services, fewer new channel buildouts were completed in the six months ended December 31, 2025; however, this slightly increased back to higher production activity during the three months ended March 31, 2026, which resulted in higher FAST revenue for the three-month period but lower FAST revenue for the nine-month period. Ad revenue decreased by 85% or $61,549 to $11,016, in the three months ended March 31, 2026, as compared to $72,565 for the three months ended March 31, 2025. The decrease was related to minimal demand in the current quarter. Ad revenue increased by 6% or $7,355 to $130,052, in the nine months ended March 31, 2026, as compared to $122,697 for the nine months ended March 31, 2025. The increase was related to revenue from the “Launch That” contract. We are strategically reinvesting in our proprietary Platform-as-a-Service (PaaS) infrastructure and broader ecosystem to enhance long-term enterprise value and deepen monetization opportunities for both us and our partners. Our recent decline in advertising revenue is transitional rather than structural, driven by the migration from Spring Serve/Magnite to our own proprietary, completed and recently launched in-house Zer0Gap Ads platform. The shift introduced temporary delivery inefficiencies, demand disruption and onboarding friction, resulting in short-term monetization gaps. As the platform integration stabilizes, revenue performance is expected to better reflect the underlying economics of a vertically integrated advertising model with early signs of recovery, as we have secured new commercial relationships with major media spenders such as Launch That, NHK and Del-Air. The connected TV (CTV) advertising ecosystem led by demand-side platforms like The Trade Desk is under scrutiny for its lack of transparency and complex fee structures. Advertisers struggle to trace how much of their spending actually reaches publishers, with multiple intermediaries taking cuts along the programmatic supply chain. This opacity, combined with concerns about data quality and measurement consistency, has put pressure on traditional ad tech platforms to justify their value. As brands demand clearer attribution and more efficient media buying, the perceived inefficiencies of third-party platforms are becoming a growing point of friction. At the same time, major streaming platforms such as Roku, Netflix and Amazon are building and expanding their own first-party advertising ecosystems. By owning both the content distribution and ad inventory, these companies can offer advertisers more direct access to audiences, better data integration and improved transparency. This vertical integration reduces reliance on external intermediaries and allows streaming providers to capture a greater share of ad revenue while delivering more measurable outcomes for brands. In this shifting landscape, our ZeroGap Ads strategy positions us to benefit long term by aligning with this broader industry trend. By creating and recently launching our own internal ad platform, we are able to directly serve advertising across our network of content partners while also enabling co-branded telecom and MDU partners to monetize their customer bases within the same ecosystem. This dual-sided approach enhances revenue potential, strengthens partner relationships and provides greater control over data and pricing. As transparency and efficiency become critical differentiators in CTV advertising, our integrated model could offer a more streamlined and scalable alternative to traditional programmatic platforms. Other revenue increased by 141% or $818, to $1,400 in the three months ended March 31, 2026, as compared to $582 for the three months ended March 31, 2025. Other revenue decreased by 15% or $267, to $1,460 in the nine months ended March 31, 2026, as compared to $1,727 for the nine months ended March 31, 2025. The following table presents our revenue on a disaggregated basis: For the three months ended March 31, 2026 2025 Membership (1) $ 12,430 $ 31,817 FAST Revenue – related parties (2) 68,063 38,921 Ad Revenue (3) 11,016 72,565 Other Revenue 1,400 582 Total $ 92,909 $ 143,885 21 For the nine months ended March 31, 2026 2025 Membership (1) $ 50,237 $ 109,008 FAST Revenue – related parties (2) 169,110 180,405 Ad Revenue (3) 130,052 122,697 Other Revenue 1,460 1,727 Total $ 350,859 $ 413,837 (1) Membership sales refer to customers purchasing premium content through our SmartGuide for varying fees and recognized on a gross basis over the service period determined. (2) We provide end-to-end software solutions for development of FAST (Free Ad-Supported TV) channels to customers such as content creation, production, video studio rental, etc. to aid in the creation of content for their channels and a platform fee for distributing the channel. Revenue is recognized at the point in time the services are performed for the development of FAST channels. We charge a monthly platform fee for distributing the FAST channel on our platform. (3) During the period from July 1, 2025, through March 31, 2026, we recognized $130,052 of ad revenue from the buying and selling of advertising space on other content platform providers. Of this amount, $125,000 was recognized as Ad Agency Revenue under the Launch That Experimental Media Plan Agreement, representing revenue from the provision of discovery, development, and test media distribution services for a client campaign. The remaining was related to a new customer from the buying and selling of advertising space via the FreeCast Ad Platform. Cost of Revenue Cost of revenue decreased by 63%, or $59,298, to $34,416 in the three months ended March 31, 2026, as compared to $93,714 for the three months ended March 31, 2025. Cost of revenue decreased by 53%, or $143,743, to $126,157 in the nine months ended March 31, 2026, as compared to $269,900 for the nine months ended March 31, 2025. The decrease in cost of revenue is primarily attributed to lower revenue, paired with an inventory write-off during the prior period related to moving away from product sales. Operating Expenses Operating expenses increased by 33%, or $1,122,901 to $4,480,359 in the three months ended March 31, 2026, as compared to $3,357,458 for the three months ended March 31, 2025. The change in operating expenses is attributed to a $222,363 increase in general and administrative expenses and an increase in compensation and benefits expense of $962,781. The increase in compensation and benefits was primarily the result of an increase to stock-based compensation. The increase in general and administrative expenses was primarily the result of increased professional fees. Operating expenses decreased by 6%, or $645,456 to $10,204,003 in the nine months ended March 31, 2026, as compared to $10,849,459 for the nine months ended March 31, 2025. The change in operating expenses is attributed to a $974,446 decrease in general and administrative expenses, partially offset by an increase in compensation and benefits expense of $432,498. The increase in compensation and benefits was primarily the result of Maxim Partners’ stock-based compensation. The decrease in general and administrative expenses was primarily the result of decreased website development. Other (Expense ) Income Other expense was $112,108, for the three months ended March 31, 2026, as compared to other expense of $73,240 for the three months ended March 31, 2025. Other expense was $201,004, for the nine months ended March 31, 2026, as compared to other expense of $164,328 for the nine months ended March 31, 2025. The change was principally caused by an increase in interest expense of $38,784 and $37,419 for the three and nine months, respectively. Liquidity and Capital Resources Since inception, we have financed our operations from a combination of: ● issuance and sales of our Class A common stock; ● issuance of notes payable with related and non-related parties; ● issuance of convertible notes payable with related and non-related parties; 22 ● borrowing under our revolving convertible notes payable with related party; ● cash advances from related parties; and ● cash generated from operations. We have experienced operating losses since our inception and had a total accumulated deficit of $205,415,506 as of March 31, 2026. We expect to incur additional costs and require additional capital as we continue to implement our expansion plan. During the nine months ended March 31, 2026, and 2025, our cash used in operations was $8,002,935 and $9,958,164, respectively. Our primary short-term cash requirements are to fund working capital, lease obligations and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of additional development expenses. Our ability to fund our cash needs will depend, in part, on our ability to generate cash in the future, which depends on future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred recurring losses and as of March 31, 2026, had an accumulated deficit of $205,415,506 . For the three months ended March 31, 2026, and 2025, we sustained a net loss of $4,533,974 and $3,380,527, respectively. For the nine months ended March 31, 2026, and 2025, we sustained a net loss of $10,180,305 and $10,869,850, respectively. These factors, among others, raise substantial doubt about our ability to continue as a going concern for the next twelve months from the date these financial statements were issued. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern. Our continuation as a going concern is contingent upon our ability to obtain additional financing and to generate revenue and cash flow to meet our obligations on a timely basis. We will continue to seek to raise additional funding through debt or equity financing during the next twelve months. Management believes that actions presently being taken to obtain additional funding provide the opportunity for us to continue as a going concern. There is no guarantee we will be successful in achieving these objectives. We cannot be sure that future funding will be available to us on acceptable terms, or at all. Due to the often volatile nature of the financial markets, equity and debt financing may be difficult to obtain. We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights or future revenue streams on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings, the ownership interest of our existing shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our shareholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Equity Line of Credit On December 8, 2025, we entered into an Equity Purchase Agreement, which was subsequently amended on March 30, 2026, (together, the “EPA”) with Amiens Technology Investments LLC, a Delaware limited liability company (the “Investor”), pursuant to which the Investor committed to purchase up to $50 million of shares of our Class A common stock (the “ELOC Shares” and such financing, the “ELOC Financing”), subject to certain limitations and conditions set forth in the EPA. During the Commitment Period (as defined in the EPA), we may from time to time, by written notice delivered by us to the Investor (each, an “Advance Notice”), direct the Investor to purchase a number of shares of our Class A common stock up to the Maximum Advance Amount (as defined in the EPA) as set forth in the Advance Notice, subject to limitations and adjustments as set forth in the EPA. Shares issued pursuant to an Advance Notice are priced at 95% of the VWAP (volume-weighted average price) for the five-trading day period immediately following the delivery of the Advance Notice. 23 We have filed a registration statement, which has been declared effective as of May 6, 2026, that registers the resale of up to 5,750,000 shares of our Class A common stock, based on the assumption that we may deliver Advance Notices to the Investor for an aggregate of $21,735,000 under the EPA at an assumed purchase price of $3.78 per share. The actual number of shares of our Class A common stock issuable by us in connection with the ELOC Financing will vary depending on the then-current market price of the shares of our Class A common stock sold to the Investor pursuant to the EPA and we expect that the number of shares currently registered will not be sufficient to register the full $50 million facility in the ELOC Financing and the ELOC Commitment Shares (as defined herein). We may be required to file one or more additional registration statements in order to deliver future Advance Notices to the Investor to access the full $50 million commitment under the EPA. As consideration for the Investor’s commitment to purchase the ELOC Shares in accordance with the EPA, we agreed to pay a commitment fee in an amount equal to $750,000, by the issuance to the Investor of a number of shares of Class A common stock (the “ELOC Commitment Shares”) as follows: (1) one-third of the ELOC Commitment Shares are to be issued to the Investor on the occurrence of the first closing under the EPA; (2) one-third of the ELOC Commitment Shares are to be issued to the Investor on the date the Investor has purchased an aggregate of $15 million of ELOC Shares; and (3) the remaining one-third of the ELOC Commitment Shares are to be issued to the Investor on the date the Investor has purchased an aggregate of $30 million of ELOC Shares. The number of ELOC Commitment Shares issued to the Investor on each required date will be equal to $250,000 divided by the lower of: (i) $10.00; and (ii) the lowest daily VWAP of our Class A common stock during the five trading days immediately preceding the applicable issuance due date. The issuance of the ELOC Commitment Shares will result in dilution to existing shareholders, independent of any sales of shares under the EPA. We will not receive any of the proceeds from the resale or other disposition of the shares of our Class A common stock by the Investor; however, we may receive gross proceeds of up to $50 million from the sale of the ELOC Shares from time to time, in our discretion, over a 36-month period. The 36-month period began on March 11, 2026, and ends on April 1, 2029. We have the right to control the timing and amount of any sales of shares of our Class A common stock to the Investor under the EPA, subject to certain limitations described in the EPA. We will bear all fees and expenses incident to our obligation to register the offer and sale of the shares of Class A common stock. The Investor has no right to require us to sell any shares of our Class A common stock under the EPA and has no obligation to purchase shares unless and until we deliver a valid Advance Notice in accordance with the EPA, at which time, subject to the terms and conditions of the EPA, the Investor is contractually obligated to purchase the applicable shares. Consistent with the applicable Nasdaq listing rules, the aggregate number of shares of our Class A common stock that we may issue to the Investor under the EPA may not exceed 19.99% of the shares of Class A common stock issued and outstanding as of the execution date of the EPA (the “Exchange Cap”), unless we first obtain shareholder approval to issue shares of our Class A common stock in excess of the Exchange Cap in accordance with applicable Nasdaq listing rules. Additionally, we may not direct the Investor to purchase any shares of our Class A common stock under the EPA if such purchase, when aggregated with all other shares of our Class A common stock then owned by the Investor and its affiliates beneficially, would result in the Investor and its affiliates beneficially owning (on an aggregated basis) more than 4.99% of the then outstanding voting power or number of shares of our Class A common stock; provided that, Investor may increase or decrease this ownership limitation, upon notice to us, which notice for any increase will not be effective until the 61st day following the date such notice is delivered, not to exceed 9.99% of the number of shares of our Class A common stock outstanding immediately after giving effect to the issuance of shares of our Class A common stock held by the Investor. The EPA contains customary representations, warranties, conditions and indemnification obligations of the parties. We have the right to terminate the EPA at any time effective five trading days after providing written notice to the Investor, at no cost or penalty, provided that there are no outstanding Advance Notices, the shares of Class A common stock under which have yet to be issued, and we have paid all amounts owed to the Investor pursuant to the EPA. We are required to use commercially reasonable efforts to continuously maintain the effectiveness of the registration statement until all of the Commitment Shares and the shares of our Class A common stock to be issued from time to time under the EPA pursuant to an Advance Notice have been sold or may be sold without restriction pursuant to Rule 144. 24 Convertible Note Payable – Related Party In June 2016, William A. Mobley, Jr., our founder, Chief Executive Officer and Chairman, loaned us $111,000, at an interest rate of 12% per annum, and due and payable at June 30, 2024. The note was convertible into shares of our Class B common stock at a conversion price of $0.50 per share. The note was converted on March 29, 2024. As of March 29, 2024, and June 30, 2023, accrued interest charges related to this loan were $25,020 and $19,003, respectively. On March 29, 2024, the outstanding principal and accrued interest balance of $92,068 was converted into 184,136 shares of our Class B common stock. On May 3, 2024, we signed a convertible promissory note with Nextelligence in the principal amount of $1,000,000. Outstanding principal accrued interest at 12% per annum and was due and payable no later than May 3, 2025. In lieu of repayment, at Nextelligence’s option, all or part of the outstanding principal and accrued interest was convertible into shares of our Class A common stock at a conversion price of $8.00 per share. Between May 30, 2024, and June 26, 2024, we borrowed an additional $1,075,000 from Nextelligence. On July 1, 2024, we repaid $1,075,000 on the convertible promissory note with related party Nextelligence. Between October 31, 2024, and December 11, 2024, we borrowed an additional $1,395,000 from Nextelligence. On December 13, 2024, we renewed and modified the May 3, 2024, note to include the additional loans. Between December 31, 2024, and June 3, 2025, we borrowed an additional $1,557,000 and made payments of $150,000 to Nextelligence. On July 26, 2025, Nextelligence converted the outstanding principal and accrued interest balance of $4,076,051 into 509,507 shares of our Class A common stock. Between October 9, 2025, and November 21, 2025, Nextelligence, a related party, majority owned by our CEO, provided aggregate funding to us totaling $1,500,000. Of this amount, $191,023 was remitted by Nextelligence on behalf of Celebrity Cigars, Inc. and Test Drive Live Inc. to fully satisfy their outstanding accounts receivable balances with the Company. As these entities are under common control, Nextelligence agreed to assume the obligations of both Celebrity Cigars, Inc. and Test Drive Live Inc. The remaining $1,308,977 was recorded as a revolving convertible note payable to Nextelligence, for a total of $1,308,977. The Company and Nextelligence entered into an agreement on November 21, 2025, to place terms on this revolving convertible note payable. The new outstanding revolving convertible note payable has an interest rate of 12%, a maturity date of June 30, 2026, and is convertible at Nextelligence’s discretion for $8 per share of Class A common stock. The terms specify a maximum advance amount of $5,000,000. Additionally, the agreement capitalized all unpaid accrued interest as of November 21, 2025, for $6,575, which resulted in an “original principal balance” of $1,315,552. Between the date of the executed agreement and March 31, 2026, the Company has received an additional $3,573,500. As of March 31, 2026, the total outstanding principal is $4,889,052 and the accrued interest balance is $126,778 for a total outstanding balance of $5,015,830. Notes Payable – Related Party On March 12, 2026, we entered into a premium finance agreement for a Director’s and Officer’s Insurance policy, which required a downpayment of $80,991. We received a loan from our CEO for the full $80,991 in order to pay this down payment. There were no official terms to this loan. The full principal balance was recorded as Notes payable – related party on the condensed balance sheet. Notes Payable On March 12, 2026, we entered into an agreement with Capital Premium Financing to provide financing in an aggregate amount of $143,949 for the insurance premium associated with a D&O policy. The policy commenced March 12, 2026, and provided coverage for the next 12 months, expiring March 12, 2027. The loan bears interest at a 13.5% rate per annum. We are required to pay monthly principal and interest of approximately $24,977 paid over 6 months, with the final payment on September 12, 2026. Cash Flows The following tables provide detailed information about our net cash flows for the periods indicated: For the Nine Months Ended March 31, 2026 2025 Net cash used in operating activities $ (8,083,926 ) $ (9,958,164 ) Net cash used in investing activities (16,064 ) (21,622 ) Net cash provided by financing activities 7,670,043 4,863,009 Net (decrease) increase in cash and cash equivalents $ (429,947 ) $ (5,116,777 ) 25 Operating Activities For the nine months ended March 31, 2026, cash used in operating activities decreased by $1,874,238 or 19% due primarily to our decrease in net loss of $689,545, which comprised of a non-cash increase in stock-based compensation of $375,633, and a net increase in working capital of $829,922. Investing Activities For the nine months ended March 31, 2026, cash used in investing activities decreased by $5,558 or 26%. The change was attributed to a decrease in the cash used to purchase property and equipment. Financing Activities For the nine months ended March 31, 2026, cash provided by financing activities increased by $2,807,034 or 58%. The change was primarily due to an increase in proceeds from convertible notes payable – related party of $3,264,052 and a decrease to payments on the revolving convertible note payable – related party of $1,161,445, partially offset by a decrease to proceeds from issuance of Class A common stock of $1,700,000. Critical Accounting Policies and Estimates Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the application of the stock split accounting as of the date these financial statements are ready to be issued and the reported amounts of revenue and expenses during the periods presented. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on the information currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As of March 31, 2026, our previous estimates had not materially deviated from our results. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made; if different estimates reasonably could have been used; or if changes in the estimate that are reasonably likely to occur periodically could materially impact the financial statements. While our significant accounting policies are described in more detail in the notes to our financial statements included in this Quarterly Report on Form 10-Q, we believe the following accounting policies to be critical to the estimates and assumptions used in the preparation of our financial statements. Revenue Recognition Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services, in accordance with ASC 606. Our contracts include various products or services or a combination of both, which are generally capable of being distinct and are accounted for as separate performance obligations. Our contracts may contain multiple distinct performance obligations. The transaction price of a contract is estimated based on the expected value for which a significant reversal of revenue is not expected to occur. Stand-alone selling prices are generally determined based on prices charged to customers. In arrangements with multiple performance obligations, the estimated transaction price is allocated to each distinct performance obligation based on relative stand-alone selling price (“SSP”). Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Our cash and cash equivalents are exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheet. The cash accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2026, the Company’s cash balance did not exceed the FDIC insured limit. As of March 31, 2026, the Company had two customers, SportX LLC and related party Celebrity Cigars representing 76.9% and 23.3% of the Company’s receivables, respectively. As of March 31, 2025, the Company had two related party customers, Test Drive Live Inc. and Celebrity Cigars, Inc., representing 16.2% and 21.5%, respectively, and one non related party representing 56.4% of our receivables. 26 As of March 31, 2026, the Company had three customers, Launch That., related party customer Celebrity Cigars, Inc., and Ignite, representing 33.9%, 37.8%, and 12.83%, respectively, of the Company’s revenues. As of March 31, 2025, the Company had two related party customers, Test Drive Live Inc. and Celebrity Cigars, Inc., representing 18.1% and 24.0%, respectively, of our revenues. Fair Value of Financial Instruments We account for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows: Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and Level 3 — assets and liabilities whose significant value drivers are unobservable. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the financial statements. The carrying amounts reported in the financial statements for cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short-term nature. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of our common stock by the weighted average number of shares of all classes of our common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive. The following table provides the number of Class A common stock equivalents not included in diluted income per share, because the effects are anti-dilutive, for the nine months ended March 31, 2026, and 2025, respectively. For the Nine Months Ended March 31, 2026 2025 Convertible debt and liabilities 626,979 320,013 Options 926,373 993,270 Warrants 687,500 8,056,087 Total 2,240,852 9,369,370 Stock Based Compensation Stock-based compensation issued is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis. The Company will recognize compensation expense measured as the fair value of the stock-based compensation on grant date, when a performance condition is considered probable to occur. For purposes of determining the variables used in the calculation of stock-based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, the Company uses these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of warrants granted, any fluctuations in these calculations could have a material effect on the results presented in the Company’s Statements of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on the Company’s financial statements. In accounting for modifications of equity-classified warrants held by employees, it is the Company’s policy to determine the impact by analogy to the share-based compensation guidance of ASC 718, Compensation - Stock Compensation (“ASC 718”). The model for a modified share-based payment award that is classified as equity and remains classified in equity after the modification is addressed in ASC 718-20-35-3. Pursuant to that guidance, the incremental fair value from the modification is recognized as stock-based compensation expense in the statements of operations to the extent the modified instrument has a higher fair value. The Company modified certain equity-classified warrants held by employees in the year 2023. 27 Loss Contingencies Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, our legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. Modifications to Equity-classified Instruments A change in the terms or conditions of a warrant is accounted for as a modification. For a warrant modification accounted for under ASC 815, the effect of a modification shall be measured as the difference between the fair value of the modified warrant and the fair value of the original warrant immediately before its terms are modified, with each measured on the modification date. The accounting for incremental fair value of the modified warrants over the original warrants is based on the specific facts and circumstances related to the modification. When a modification is directly attributable to an equity offering, the incremental change in fair value of the warrants is accounted for as an equity issuance cost. When a modification is directly attributable to a debt offering, the incremental change in fair value of the warrants is accounted for as a debt discount or debt issuance cost. For all other modifications accounted for under ASC 815, the incremental change in fair value is recognized as a deemed dividend. Redeemable Series A Preferred Stock We apply the guidance enumerated in ASC 480, when determining the classification and measurement of preferred stock. Preferred stock subject to mandatory redemption, if any, is classified as a liability and is measured at fair value. We classify conditionally redeemable preferred stock, which includes preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as mezzanine equity. At all other times, we classify its preferred stock in stockholders’ equity. We subsequently measure mezzanine equity to redemption value when the instrument is currently redeemable or when it is probable the instrument will become redeemable. Initially, the redemption rights were not solely within our control because our Chief Executive Officer (CEO), William Mobley, was able to force us to redeem the shares for cash. Therefore, we classified the Series A Preferred Stock as mezzanine equity pursuant to ASC 480-10-S99. We had adjusted the value of the Series A Preferred shares to its maximum redemption amount as the instrument was redeemable. 28 On December 26, 2024, we amended the terms and conditions of the Series A Preferred Stock to replace the deemed liquidation triggered by a change in control with an ordinary liquidation. In conjunction with this amendment, we reclassified the Series A Preferred Stock from mezzanine equity to permanent equity because the features giving rise to mezzanine equity classification, the redemption right and the deemed liquidation, have been removed as part of the amendment. Recently Issued Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that we adopt as of the specified effective date. We do not believe that the impact of recently issued standards that are not yet effective will have a material impact on our financial position or results of operations upon adoption. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide the information required by this Item.