What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-12 compared with 2025-08-13 · 100 added, 88 removed, 248 unchanged (43% of the section changed)

24 unchanged sentences

BUSINESS OVERVIEW

Charlotte's Web Holdings, Inc.

is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States.

Charlotte's Web Holdings, Inc., is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States.

The Company is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, and CBD Clinic™.

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The Company's business consists of the farming, manufacturing, marketing, and sales of hemp-derived CBD and botanical-based wellness products.

As of June 30, 2025, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, making up the majority of the revenue of the Company.

As of September 30, 2025, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, making up the majority of the revenue of the Company.

The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than to assess a lower-level unit of operations in isolation.

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Charlotte's Web believes expanding beyond CBD leverages the Company's brand recognition, intellectual property, and partnerships, including an ongoing collaboration with DeFloria LLC ("DeFloria") for botanical drug development.

As of June 30, 2025 , several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

As of September 30, 2025 , several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

Many of these states have also implemented new THC/CBD limits, age verification, testing, labeling and packaging requirements.

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For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

2025 2024 2025 2024

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Total liabilities $ 72,352 $ 89,401

For The Three Months Ended June 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors, retail and wholesale B2B customers.

For The Three Months Ended September 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors.

Service revenue is attributable to the Company and DeFloria entering into Services Agreement pursuant to which the Company is compensated for the provision of certain services to DeFloria

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Product revenue 11,428 12,513 (8.7) %

$ 12,731 $ 12,215 4.2 %

Service revenue 75 74 1.4 %

Total revenue $ 11,503 $ 12,587 (8.6) %

Total revenue for the three months ended June 30, 2025 was $12,806 , an increase of 4.2% compa red to the three months ended June 30, 2024.

Total product revenue was $12,731, representing a 4.2% year over year increase, supported by sales traction across the Company's expanded product portfolio, including functional mushroom wellness gummies, CBG Focus Gummies, and the newly launched Brightside™ hemp low-dose THC gummy collection.

Total revenue for the three months ended September 30, 2025, was $11,503 , a dec rease of 8.6% compa red to the three months ended September 30, 2024.

The decrease is driven by the Company's decision to shift the majority of the B2B business to a more margin-accretive distributor model.

This strategy provides savings in selling, general and administrative expenses and is part of the overall cost efficiency direction.

The Company saw a decrease in B2B revenues of approximately $1.1 million or 48% for the quarter compared to prior year.

Cost of Goods Sold

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The components of cost of goods sold are as follows:

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Inventory expensed to cost of goods sold 3,934 4,068 (3.3) %

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Cost of goods sold $ 7,026 $ 5,914 18.8 %

Cost of goods sold decreased 29.8% for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

For the three months ended June 30, 2024, the Company recorded a $3.8 million non-cash inventory provision related to a one-time wholesale hemp biomass transaction.

The decrease was partially offset by increased variable operating costs in the current quarter, including startup costs associated with the transition to in-house gummy production.

Depreciation and amortization expense for the three months ended June 30, 2025 and June 30, 2024 was $512 and $2,489, respectively, of which $788 and $849, respectively, was expensed to cost of goods sold.

Cost of goods sold increased 18.8% for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to increased production and depreciation costs.

The Company has experienced lower inventory turns as a result of lower revenues, this has resulted in higher inventory variances impacting our cost leverage.

Depreciation and amortization expense for the three months ended September 30, 2025 and September 30, 2024 was $1,689 and $2,523, respectively, of which $963 and $844, respectively, was expensed to cost of goods sold.

The remaining depreciation and amortization expenses of $726 and $1,679, respectively, was expensed to Selling, general, and administrative expenses.

The primary factors that can impact gross profit margins include the volume of products sold, revenue mix between DTC e-commerce and B2B, product sales mix, promotional and sales discount rate, manufacturing spend, transportation costs, and changes in inventory provisions.

Gross profit and gross profit margin are as follows:

Three Months Ended June 30, % Change

Gross profit for the three months ended September 30, 2025 and September 30, 2024 is as follows:

Three Months Ended September 30, % Change

Gross profit $ 4,477 $ 6,673 (32.9) %

Gross margin 38.9 % 53.0 % (14.1) %

Gross profit increased 132.0% for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

The increase is primarily related to the absence of a $3.8 million inventory provision that impacted the prior year quarter related to a one-time wholesale hemp biomass transaction.

The current quarter gross margin of 46.8% reflects startup costs associated with the transition to in-house gummy production, as well as the impact of related-party service and supply sales to DeFloria recorded at zero gross margin to support clinical trials.

Gross profit was $4.5 million or 38.9% of revenue for the three months ended September 30, 2025, compared to $6.7 million, or 53.0% of revenue for the the three months ended September 30, 2024.

Gross margin compression resulted from a one-time $0.5 million B2B retail chargeback reserve related to the B2B transition, as well as higher Cost of Goods Sold due to temporary scaling inefficiencies associated with the transition to in-house manufacturing operations.

Excluding these anomalies, the underlying gross profit model remains aligned with the Company's historical 50% range.

Selling, General, and Administrative Expenses

Total Selling, general, and administrative expenses are as follows:

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Selling, general, and administrative expenses $ 9,731 $ 12,693 (23.3) %

Total Selling, general, and administrative expenses for the three months ended June 30, 2025 and June 30, 2024 were $10,062 and $14,727, respectively.

The 31.7% decrease included a reduction in amortization expense of $1.9 million related to the termination of the MLB Promotional Rights Agreement.

Additionally, a decrease in personnel costs due to the cost-cutting measures undertaken by the

company between the comparable periods.

These measures included adjusting the size of the workforce to properly align with the revenue scope, as well as improving the Company's insurance program and aligning with more cost-efficient software options and improved operating efficiencies.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended June 30, 2025 was a recovery of expense of $276 due to the termination of the MLB agreement.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended June 30, 2024 was $1,640.

Total research and development costs expensed to Selling, general, and administrative expense for the three months ended June 30, 2025 and June 30, 2024 were $522 and $648, respectively.

Total Selling, general, and administrative expenses for the three months ended September 30, 2025 and September 30, 2024 were $9,731 and $12,693, respectively.

The amended MLB Promotional Rights Agreement resulted in a decrease in amortization expense related to MLB assets of approximately $1.8 million compared to the three months ended September 30, 2024.

Additionally, the decrease is due to

operating expense reductions.

The Company made additional cost cutting measures in the third quarter to further align with current revenue levels.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended September 30, 2025 and September 30, 2024 were $726 and $1,679, respectively.

The decrease was due to the decrease in amortization related to the amended MLB agreement, offset by higher depreciation for in sourcing of inventory production.

Total research and development costs expensed to Selling, general, and administrative expense for the three months ended September 30, 2025 and September 30, 2024 were $475 and $556, respectively.

Research and development expenses primarily include personnel costs related to our R&D science division as well as R&D related projects advancing hemp cannabinoid science through research programs that provide a better understanding of the possible therapeutic uses of cannabinoids.

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Total change in fair value of financial instruments is as follows:

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Change in fair value of financial instruments $ (1,200) $ 1,422 (184.4) %

Total change in fair value of financial instruments for the three months ended June 30, 2025 and June 30, 2024 was $(1,543) and $1,140, respectively.

The change in fair value of financial instruments was primarily due to a loss of $1,100 for the three months ended June 30, 2025, compared to a gain of $1,000 for the three months ended June 30, 2024 in the investment of DeFloria.

The decrease was primarily due to the financial projections extended for an additional year based on timing of completing clinical trials.

For the Six Months Ended June 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors, retail and wholesale B2B customers.

Total change in fair value of financial instruments for the three months ended September 30, 2025 and September 30, 2024 was a net loss of $1,200 and a net gain of $1,422, respectively.

For the three months ended September 30, 2025, primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a net loss of $0.9 million, compared to a net gain of $1.6 million for the three months ended September 30, 2024.

The fair value of the Company's embedded derivatives and options are revalued at each reporting date with changes impacted by variability in the Company's share price and implied debt yields.

For the Nine Months Ended September 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors.

Service revenue is attributable to the Company and DeFloria entering into the Services Agreement pursuant to which the Company is compensated for the provision of certain services to DeFloria.

Six Months Ended June 30, % Change

Nine Months Ended September 30, % Change

Product revenue $ 36,346 $ 36,541 (0.5) %

$ 24,918 $ 24,028 3.7 %

Service revenue 225 459 (51.0) %

Total revenue $ 36,571 $ 37,000 (1.2) %

Total revenue for the six months ended June 30, 2025 was $25,068, a increase of 2.7% compared to the six months ended June 30, 2024.

Total product revenue was $24,918, representing a 3.7% increase.

Revenues growth was supported by sales of the Company’s botanical wellness innovations including functional mushroom gummies, CBG Focus Gummies, and new Brightside™ low-THC hemp gummy collection.

Total revenue for the nine months ended September 30, 2025 was $36,571, a decrease of 1.2% compared to the nine months ended September 30, 2024.

Total product revenue for the nine months ended September 30, 2025 was $36,346, representing a 0.5% decrease compared to the nine months ended September 30, 2024.

The decrease is due to the Company's decision to shift the majority of the B2B business to a distribution model during the third quarter.

This channel has had declining revenue and profit margin.

B2B revenue decreased by approximately $2.4 million or 19% for the nine months ended September 30, 2025, partially offset by an increase in DTC revenue $1.6 million or 7% over the period.

Service revenue for the nine months ended September 30, 2025 was $225 or a decrease of 51.0%, compared to the nine months ended September 30, 2024.

On February 12, 2024, the Company and DeFloria entered into a Master Services Agreement ("Services Agreement") in which the Company is compensated for certain services to DeFloria.

DeFloria has concluded Phase I clinical trials, as such the service revenue has been decreased for Phase II.

Cost of Goods Sold

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The components of cost of goods sold are as follows:

Six Months Ended June 30, % Change

Nine Months Ended September 30, % Change

Inventory expensed to cost of goods sold 11,689 11,766 (0.7) %

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Cost of goods sold $ 19,874 $ 20,834 (4.6) %

Cost of goods sold decreased 13.9% for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

Cost of goods sold decreased 4.6% for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

The decrease was primarily due to the prior year period including a $3.9 million non-cash inventory provision related to wholesale hemp biomass transactions partially offset by an increase in variable operating costs in the current period, including startup costs associated with the transition to in-house gummy production and expanded product offerings.

Depreciation and amortization expense for the six months ended June 30, 2025 and June 30, 2024 was $2,961 and $4,982, respectively, of which $1,610 and $1,705, respectively, was expensed to cost of goods sold.

The decrease was partially offset by an increase in production costs related to higher inventory variances due to lower turning revenue.

Depreciation and amortization expense for the nine months ended September 30, 2025 and September 30, 2024 was $4,650 and $7,505, respectively, of which $2,573 and $2,549, respectively, was expensed to cost of goods sold.

The remaining depreciation and amortization expenses of $2,077 and $4,956, respectively, was expensed to Selling, general, and administrative expenses.

The primary factors that can impact gross profit margins include the volume of products sold, the mix of revenue between DTC e-commerce and B2B, product sales mix, promotional and sales discount rate, manufacturing spend, transportation costs, and changes in inventory provisions.

Gross profit for the six months ended June 30, 2025 and June 30, 2024 is as follows:

Six Months Ended June 30, % Change

Gross profit for the nine months ended September 30, 2025 and September 30, 2024 is as follows:

Nine Months Ended September 30, % Change

Gross profit $ 16,697 $ 16,166 3.3 %

Gross margin 45.7 % 43.7 % 4.6 %

Gross profit increased 28.7% year-over-year for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The increase is primarily related to the absence of the inventory provision of $3.9 million for the six months ending June 30, 2025.

Gross profit increased 3.3% year-over-year for the nine months ended September 30, 2025.The increase is primarily related to the absence of the inventory provision of $3.9 million for the nine months ending September 30, 2025.

Partially offset by gross margin compression resulted from a one-time $0.5 million B2B retail chargeback reserve related to the B2B transition, as well as higher Cost of Goods Sold due to temporary scaling inefficiencies associated with the transition to in-house manufacturing operations.

Selling, General, and Administrative Expenses

Total Selling, general, and administrative expenses are as follows:

Six Months Ended June 30, % Change

Nine Months Ended September 30, % Change

Selling, general, and administrative expenses $ 31,371 $ 42,700 (26.5) %

Total selling, general, and administrative expenses for the six months ended June 30, 2025 and June 30, 2024 were $21,640 and $30,007, respectively.

Total selling, general, and administrative expenses for the nine months ended September 30, 2025 and September 30, 2024 were $31,371 and $42,700, respectively.

The 26.5% decrease was primarily attributable to a reduction in amortization expense of $3.8 million related to the termination of the MLB Promotional Rights Agreement.

Additionally, a decrease in personal costs due to the cost cutting measures

undertaken by the company between the comparable periods.

The remaining decrease is due to cost cutting measures in personnel costs undertaken by the Company between the comparable periods.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the six months ended June 30, 2025 and June 30, 2024 were $1,351 and $3,277, respectively.

Total research and development costs expensed to Selling, general, and administrative expense for the six months ended June 30, 2025 and June 30, 2024 were $1,025 and $1,399, respectively.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the nine months ended September 30, 2025 and September 30, 2024 were $2,077 and $4,956, respectively.

The decrease was due to the decrease in amortization related to the amended MLB agreement.

Total research and development costs expensed to Selling, general, and administrative expense for the nine months ended September 30, 2025 and September 30, 2024 were $1,500 and $1,955, respectively.

Research and development expenses primarily include personnel costs related to the Company's R&D science division as well as R&D related projects advancing hemp cannabinoid science through research programs that provide a better understanding of the possible therapeutic uses of cannabinoids.

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Total change in fair value of financial instruments is as follows:

Six Months Ended June 30, % Change

Nine Months Ended September 30, % Change

Change in fair value of financial instruments $ (2,869) $ 702 (508.7) %

Total change in fair value of financial instruments for the six months ended June 30, 2025 and June 30, 2024 was a loss of $1,669 and a loss of $720, respectively.

The change in fair value of financial instruments was primarily due to a loss of $1,200 for the six months ended June 30, 2025, compared to a gain of $200 for the six months ended June 30, 2024 in the investment of DeFloria.

Total change in fair value of financial instruments for the nine months ended September 30, 2025 and September 30, 2024 was a loss of $2,869 and a gain of $702, respectively.

The change in fair value of financial instruments was primarily due to a loss of $1.5 million for the nine months ended September 30, 2025, compared to a gain of $0.4 million for the nine months ended September 30, 2024 in the investment of DeFloria.

The decrease was primarily due to the financial projections extended for an additional year based on timing of completing clinical trials.

Additionally, the loss was due to a change in fair value of debt conversion option of $0.8 million.

The option is valued using the Black-Scholes option pricing model and an increase in the Company share price for the nine month ending September 30, 2025 caused the change during the period.

Liquidity and Capital Resources

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In the near to mid-term, it is focused on reducing negative cash flows from operations.

As of June 30, 2025 and December 31, 2024 , the Company had total current liabilities of $10,364 and $15,936, respectively, and cash and cash equivalents of $15,268 and $22,618, respectively, to meet its current obligations.

The Company expects a reduction in overall selling, general, and administrative expenses in 2025 as a result of several actions taken in the second half of 2024, as well as additional reductions projected in the second half of 2025.

This includes improvements in operating efficiency throughout the business, cost savings from a more efficient e-commerce platform and associated information technology upgrades, and a data-driven reorganization of its B2B business and retail partnering strategies.

As of September 30, 2025 and December 31, 2024 , the Company had total current liabilities of $8,873 and $15,936, respectively, and cash and cash equivalents of $9,810 and $22,618, respectively, to meet its current obligations.

The Company expects a reduction in overall selling, general, and administrative expenses in the remainder of 2025 as a result of several actions taken in the second half of 2024, as well as additional reductions projected in the second half of 2025.

This includes improvements

in operating efficiency throughout the business, cost savings from a more efficient e-commerce platform and associated information technology upgrades, and a data-driven reorganization of its B2B business and retail partnering strategies.

Management believes that the Company's existing cash and cash equivalents, and short-term investments will provide sufficient liquidity to fund operations and planned capital expenditures for the next 12 months.

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Cash from Operating Activities

Net cash used in operating activities for the six months ended June 30, 2025 and June 30, 2024 were as follows:

Six Months Ended June 30,

Net cash used in operating activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

Net cash used in operating activities $ (12,246) $ (19,469)

For the six months ended June 30, 2025, the decrease in cash used in operations is primarily due to operating cost saving measures, as well as, a reduction in payments associated with the MLB Promotional Rights Agreement, compared to $2,500 for the six months ended June 30, 2024.

For the nine months ended September 30, 2025,the decrease in cash used in operations is primarily due to operating cost saving measures, as well as, a reduction in payments associated with the MLB Promotional Rights Agreement, compared to $5.0 million for the nine months ended September 30, 2024.

The decrease is partially offset by increased inventory cost related to the ramp on manufacturing in-sourcing and rebranding costs.

Cash from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2025 and June 30, 2024 were as follows:

Six Months Ended June 30,

Net cash used in investing activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

Net cash used in investing activities $ (528) $ (3,598)

For the six months ended June 30, 2025, the project to in-source topical and gummy production is complete resulting in a decrease in cash used in investing activities compared to the six months ended June 30, 2024.

For the nine months ended September 30, 2025, the project to in-source topical and gummy production is complete resulting in a decrease in cash used in investing activities compared to the nine months ended September 30, 2024.

Cash from Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2025 and June 30, 2024 were as follows:

Six Months Ended June 30,

Net cash used in financing activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

Net cash used in financing activities $ (34) $ (133)

For the six months ended June 30, 2025, the change was primarily due to the vesting of restricted stock units.

For the nine months ended September 30, 2025, the change was primarily due to the vesting of restricted stock units.

Off-Balance Sheet Arrangements

As of June 30, 2025 and December 31, 2024, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

As of September 30, 2025 and December 31, 2024, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

Related party transactions

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The principal and interest of the note receivable will be paid in 36 monthly installments.

As of June 30, 2025 and December 31, 2024 , the remaining note receivable of $37 and $71, respectively, is presented in other assets in the condensed consolidated balance sheets.

As of September 30, 2025 , and December 31, 2024, the remaining note receivable of $28 and $71, respectively is presented in other assets in the condensed consolidated balance sheets.

On April 6, 2023, the Company and DeFloria entered into a supply agreement in which the Company shall supply raw material that will be used in the development of the new drug.

The price charged by the Company is at cost of goods sold level.

For the three and six months ended June 30, 2025, the Company recognized $641 in revenue and cost of goods sold, respectively, related to the supply agreement with DeFloria.

For the nine months ended September 30, 2025 and September 30, 2024, the Company recognized $641 and $— in revenue and cost of goods sold, respectively, related to the supply agreement with DeFloria.

Similarly, on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria.

For the three and six months ended June 30, 2025, the Company recognized $75 and $150 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

Additionally, the Company has an accounts receivable balance due from DeFloria of $1,059 and $648 as of June 30, 2025 and December 31, 2024, respectively.

For the three and nine months ended September 30, 2025, the Company recognized $75 and $225 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

For the three and nine months ended September 30, 2024, the Company recognized $74 and $459 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

Additionally, the Company has an accounts receivable balance due from DeFloria of $1,134 and $648 as of September 30, 2025 and December 31, 2024, respectively.

On July 15, 2025, the Company entered into a promissory note, as lender, where the Company loaned $750 to DeFloria.

The note and accrued interest is due and payable by DeFloria upon the later of December 31, 2026, or the date the Company shall issue and sell units of a newly-authorized series of preferred units in a bona fide financing transaction to one or more investors for aggregate cash proceeds to DeFloria or any other convertible debt of DeFloria of not less than $10 million.

Upon any event of default by DeFloria under the note, which includes DeFloria’s failure to pay amounts within 3 business days of when due and breaches of DeFloria’s obligations pursuant to the note, the Company will be entitled to exercise its rights under the note.

The funds will be distributed monthly to DeFloria between July and November 2025, and the balance of the promissory note as of September 30, 2025 is $575.

On June 21, 2024, the Company entered into a consulting agreement with Jared Stanley, former executive of the Company, and current member of the Board of Directors.

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Stanley's services, he will receive a bi-weekly fee of $6.

On July 15, 2025, the Company entered into a promissory note, as lender, where the Company loaned $750 to DeFloria.

Upon any event of default by DeFloria under the note, which include DeFloria’s failure to pay amounts within 3 business days of when due and breaches of DeFloria’s obligations pursuant to the note, the Company will be entitled to exercise its rights under the note

Recently Adopted Accounting Principles

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The guidance was issued to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments.

The guidance is effective for the year ended December 31, 2024, and the expanded interim disclosures are effective in entities in 2025 and will be applied retrospectively to all prior periods presented.

The guidance is effective for the year ended

December 31, 2024, and the expanded interim disclosures are effective in entities in 2025 and will be applied retrospectively to all prior periods presented.

Critical Policies and Accounting Estimates

Listed below are the accounting policies and estimates we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

Please also refer to Note 2 of our notes to condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Please also refer to Note 2 of our notes to the condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Investment in Unconsolidated Entities

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As the Company was not required to consolidate the investment and does not meet any of the other scope exceptions, the Company had the ability to adopt the fair value option for the investment at inception.

The investment was remeasured at fair value after each reporting date,

with changes recognized in condensed consolidated statements of operations, as changes in fair value of financial instruments for the period.

The investment was remeasured at fair value after each reporting date, with changes recognized in the condensed consolidated statements of operations, as changes in fair value of financial instruments for the period.

The use of assumptions for the fair value determination of the investment in DeFloria included a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty.

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Impairment losses are recorded in selling, general, and administrative expense in the condensed consolidated statements of operations.

There were no impairment losses recognized for the three months ended June 30, 2025 and 2024, respectively.

There were no impairment losses recognized for the three and nine months ended September 30, 2025 and 2024, respectively.

Convertible Debenture

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The Company utilizes the asset and liability method of accounting for income taxes.

Under this method, deferred income tax assets or liabilities are computed based on the temporary difference between the financial statement and income tax basis of assets and liabilities

using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse.

Under this method, deferred income tax assets or liabilities are computed based on the temporary difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse.

Deferred income tax expense or benefit is based on the changes in the deferred income tax assets or liabilities from period to period.

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The earliest income tax year that may be subject to examination is 2019.

The Company has recorded an uncertain tax position as of June 30, 2025 and December 31, 2024.

The Company's policy is to recognize interest and penalties on taxes, if any, within the condensed consolidated statement of operations as income tax expense.

The Company has recorded an uncertain tax position as of September 30, 2025 and December 31, 2024.

The Company's policy is to recognize interest and penalties on taxes, if any, within the condensed consolidated statements of operations as income tax expense.

Revenue Recognition

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The Company recognizes revenue from customers when control of the goods or services are transferred to the customer, generally when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

Freight revenue is included in revenue on the condensed consolidated statements of operations, and is generally exempt from state sales taxes.

Freight revenue is included in revenue on the condensed consolidated statements of operations, and is generally exempt from

state sales taxes.

Sales tax collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue in the condensed consolidated statements of operations.

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Any product that does not meet the customer's expectations can be returned within the first 30 days of delivery in exchange for another product or for a full refund.

Generally, any product sold through a distributor or retailer must be returned to the original purchase location for any return or exchange.

Generally, any product sold through a distributor must be returned to the original purchase location for any return or exchange.

The Company accounts for customer returns utilizing the "expected value method." Expected amounts are excluded from revenue and recorded as a "refund liability" that represents the Company's obligation to return the customer’s consideration.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis