RYTHM, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information contained in this Quarterly Report is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities And Exchange Commission (the “SEC”) on March 21, 2025, as amended on March 28, with Items 7 and 9 from such Annual Report having been recast to retrospectively reflect discontinued operations as reflected in the Current Report on Form 8-K filed with the SEC on October 8, 2025 (collectively, the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in the Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report. The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Quarterly Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this Quarterly Report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the risk factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this Quarterly Report. The following should also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this Quarterly Report. Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report to “we,” “us,” “our,” “Company,” and “RYTHM” refer to RYTHM Inc., a Nevada corporation and its consolidated subsidiaries. Overview RYTHM delivers well-being to customers through its portfolio of hemp-derived THC products and iconic licensed brands. The Company’s portfolio of consumer-packaged goods brands includes RYTHM, incredibles , Dogwalkers, Beboe, &Shine, Doctor Solomon’s and Good Green, in addition to our Señorita brand which 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 at top retailers including Total Wine, ABC Fine Wine & Spirits, and Binny’s in eleven U.S. states and Canada, with plans for expansion and future availability in premier on-premises destinations. 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”), we license our brands to be manufactured and distributed in exchange for a licensing fee (“Licensing Revenue”). In addition to hemp-derived products (non-licensing) and Licensing Revenue, RYTHM has also historically been a leading provider of innovative cultivation and extraction solutions for the cannabis industry (the “Extraction Business”). Prior to our exit of the Extraction Business on March 30, 2025, our comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowered producers to maximize the quantity and quality of extract required for premium concentrates. Additionally, prior to its sale on December 31, 2024, our proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce high quality products for the cannabis industry (the “Cultivation Business”). Reverse Stock Split On October 8, 2024, we effected a 1-for-15 reverse stock split of our Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock splits for all periods presented unless otherwise indicated. Lines of Business Non-licensing Revenue and Licensing Revenue We acquired the Señorita brand of hemp-derived THC beverages in November 2024. Señorita was designed and formulated by world-class winemakers Charles Bieler and Joel Gott. Recognizing a growing generational demand for adult beverage alternatives, Bieler and Gott gave the classic margarita a modern twist—replacing alcohol with hemp-derived to create a delightful adult beverage alternative. Through the use of all-natural, premium ingredients like organic Mexican agave, fresh lime juice and sweet, tangy mango, Señorita quickly gained acclaim, taking home the top spot in The High Times Cannabis Cup just one year after inception. Gott and Bieler continue to collaborate on the brand with Mr. Kovler and the RYTHM team. 31 Señorita currently offers four award-winning flavors – classic Lime Jalapeño Margarita, Paloma, Mango Margarita, and Ranch Water. Señorita’s hemp-derived beverages are currently available at top retailers including Total Wine, ABC Fine Wine & Spirits, and Binny’s in eleven U.S. states and Canada. Products are also available for direct-to-consumer purchase where permissible under state law at senoritadrinks.com. On May 20, 2025, we entered into a purchase agreement with VCP IP Holdings, LLC (“VCP”), an indirectly wholly-owned subsidiary of Green Thumb Industries Inc. (“Green Thumb”), a related party, pursuant to which we acquired all of the equity interests in MC Brands LLC and its wholly-owned subsidiary Core Growth LLC (both formerly wholly-owned subsidiaries of Green Thumb and together referred to as “MC Brands”). The assets of MC Brands consist primarily of intellectual property rights to the incredibles brand. The aggregate consideration exchanged for the equity interest was cash consideration of $5.1 million. In connection with the purchase of MC Brands, we also licensed the right to use the RYTHM and Beboe brands from Green Thumb for hemp-derived THC beverages and similar products. By contrast, the incredibles licensing agreement grants GTI Core the rights to use certain intellectual property related to the incredibles brand in connection with GTI Core’s existing businesses. On August 27, 2025, we entered into a purchase agreement with VCP23, LLC (“VCP23”), an indirectly wholly-owned subsidiary of Green Thumb, a related party, pursuant to which we acquired all of the equity interests in VCP. The assets of VCP consist primarily of intellectual property rights to several brands including RYTHM, Dogwalkers, Beboe, &Shine, Doctor Solomon’s and Good Green. The aggregate consideration exchanged for the equity interest was cash consideration of $50.0 million. In connection with the purchase of VCP, we also entered a license agreement with GTI Core, an indirect wholly-owned subsidiary of Green Thumb, related to the Acquired Brands in connection with GTI Core’s existing businesses. The May 20, 2025 license agreements granting us rights to use the RYTHM and Beboe brands were terminated concurrently on August 27, 2025. The consideration payable by GTI Core for the license rights of the incredibles brand and the Acquired Brand, consists of a monthly license fee, payable in cash, for using the licensed intellectual property. Co-Manufacturing Arrangements Our finished goods are manufactured by various third-party co-manufacturers situated throughout the United States and Canada, under separate arrangements with each party. Our co-manufacturing arrangements vary in terms and, from time to time, we may enter into manufacturing contracts with agreed upon minimum quantities to ensure continuity of supply of certain products in certain territories. We continue to actively seek alternative and/or additional co-manufacturing facilities with adequate capacity and capability for the production of our various products to minimize transportation costs as well as mitigate the risk of disruption in production. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, including in new markets. If we materially underestimate demand for our products and/or are unable to secure sufficient ingredients or raw materials and/or procure adequate co-manufacturing arrangements and/or obtain adequate or timely shipment of our products, we might not be able to satisfy demand on a short-term basis. Distribution Agreements During the first nine months of 2025, we continued to expand distribution of our hemp-derived beverage products in our domestic markets. We have entered into agreements with various distributors providing for the distribution of certain of our hemp-derived beverage products, subject to certain terms and conditions, which may vary depending on the form of the agreement. Such agreements remain in effect for their then-current term as long as our products are being distributed, but are subject to specified termination rights held by each party. Additionally, we are entitled to terminate certain distribution agreements at any time without cause upon payment of a termination fee, which may be material depending on the agreement. Discontinued Operations Cultivation Solutions Prior to its sale on December 31, 2024, we sold proprietary cultivation solutions to independent licensed cultivators as part of our Cultivation Business. The two primary products we sold were the VFUs and Agrify Insights™ software. The proprietary VFU technology offered a modular, compartmentalized micro-climate growing system for indoor vertical farming. The VFU system was designed for craft farmers, single-state operators, and multi-state operators who were looking to consistently produce higher-quality crops at scale. The VFUs were designed to line up horizontally in rows, and could be stacked vertically up to three units tall. 32 The VFUs were designed to work in conjunction with the Agrify Insights™ software. Each VFU sold included a license for Agrify Insights™ and a monthly Software-as-a-Service (“SaaS”) subscription fee was charged per VFU. The VFU could not operate successfully without Agrify Insights™. Agrify Insights™ license agreements were generally for a multi-year term, with an annual auto-renewal. Extraction Solutions Prior to its discontinuation on March 30, 2025, our extraction equipment and business solutions that were a part of our Extraction Business could be used within indoor processing facilities by fully licensed cannabis and hemp cultivators and processors or in some cases, by individual processors for individual use in compliance with applicable law. We sold our proprietary extraction solutions to independent, licensed cultivators and processing labs. We had strategically acquired four brands in the extraction space in late 2021 and early 2022: Precision Extraction, PurePressure, Lab Society, and Cascade Sciences. These brands encompassed hydrocarbon, alcohol, and solventless extraction and distillation and post-processing solutions. Our extraction brands provided equipment and solutions for extraction, post-processing, and testing for the cannabis and hemp industries. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, goodwill, impairment of long-lived assets, provision for litigation, inventory reserve, fair value measurements and useful life of fixed assets and intangible assets. Financial Overview Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to accruals, business combinations, asset acquisitions, and stock-based compensation expense. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions. Warrants We account 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 Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“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 our own Common Stock among other conditions for equity classification. For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance or when incurred. For issued or modified warrants that are precluded from equity classification, they are recorded as a liability at their initial fair value on the date of issuance and marked-to-market 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. 33 The estimated fair value of the warrant liabilities 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 our best estimate. The volatility rate is determined utilizing our own share price and the share price of competitors over time. Revenue Recognition Overview We generate revenue from continuing operations through the sale of hemp-derived THC products (non-licensing) and Licensing Revenue. We license intellectual property to a related party under arrangements that provide for sales-based license fees. We recognize licensing income derived from licensing agreements in accordance with ASC 606, specifically, for sales-based license fees. In accordance with ASC Topic 606, Revenue Recognition (“ASC 606”), revenue 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 us and our 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 : We identify 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. Our revenue-generating activities typically have a single performance obligation. ● Determine the transaction price : The transaction price is the amount of consideration we expect 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 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 we 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. We do not maintain a specific reserve for returns due to the limited circumstances under which returns are permitted in customer agreements. 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. - 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. Income Taxes We account 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 asset will not be realized. 34 We follow the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” 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 740-10-25-6, 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. We have an uncertain tax position offsetting our research and development tax credits given we have not engaged any third parties to perform a study to support credits claimed under Internal Revenue Code §41 for tax years ended December 31, 2016 through December 31, 2024. If recognized, none of the unrecognized tax benefits would impact our effective tax rate. We recognize the benefit of a tax position when it is effectively settled. ASC 740-10-25-10, “Basic Recognition Threshold” 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 740-10-25-10 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, we recognize the full amount of the tax benefit. Accounting for Stock-Based Compensation We follow the provisions of ASC Topic 718, Compensation — Stock Compensation, (“ASC 718”) establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our equity incentive plan. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected volatility in the market value of the underlying Common Stock. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options and warrants have characteristics different from those of our traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon our history of having never issued a dividend and management’s current expectation of future action surrounding dividends. We calculate the expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees and directors. As permitted under ASC 718, we have made an accounting policy choice to account for forfeitures when they occur. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above. 35 Results of Operations Comparison of the Three and Nine Months Ended September 30, 2025 and 2024 The following table summarizes our results of continuing operations for the three and nine months ended September 30, 2025 and 2024: Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Revenue $ 4,043 $ — $ 6,623 $ — Cost of goods sold 2,668 — 4,476 — Gross profit 1,375 — 2,147 — Selling, general and administrative 10,263 1,220 21,534 3,795 Change in contingent consideration — — — (2,180 ) Total operating expenses 10,263 1,220 21,534 1,615 Operating loss from continuing operations (8,888 ) (1,220 ) (19,387 ) (1,615 ) Interest expense, net (1,134 ) (38 ) (1,424 ) (166 ) Change in fair value of warrant liabilities (664 ) (15,098 ) (372 ) (15,502 ) Other income, net 53 — 71 — Total other expense, net (1,745 ) (15,136 ) (1,725 ) (15,668 ) Loss from continuing operations before income taxes (10,633 ) (16,356 ) (21,112 ) (17,283 ) Income tax provision — — — — Loss from continuing operations, net of income taxes (10,633 ) (16,356 ) (21,112 ) (17,283 ) Loss from discontinued operations (32 ) (2,295 ) (2,073 ) (104 ) Gain on disposal of Extraction business — — 3,534 — (Loss) income from discontinued operations, net of income taxes (32 ) (2,295 ) 1,461 (104 ) Net loss $ (10,665 ) $ (18,651 ) $ (19,651 ) $ (17,387 ) Net loss per share attributable to Common Stockholders – basic and diluted $ (5.33 ) $ (17.28 ) $ (9.96 ) $ (20.99 ) Weighted average common shares outstanding - basic and diluted 2,002,568 1,079,198 1,973,553 828,344 Revenues We generate revenue from sales of hemp-derived THC products (non-licensing) and related party Licensing Revenue. The following table provides a breakdown of our revenue from continuing operations for the three and nine months ended September 30, 2025 and 2024: Three months ended September 30, % Nine months ended September 30, % (In thousands) 2025 2024 Change Change 2025 2024 Change Change Non-licensing Revenue $ 3,511 $ — $ 3,511 — $ 5,843 $ — $ 5,843 — Licensing Revenue 532 — 532 — 780 — 780 — Total revenue $ 4,043 $ — $ 4,043 — $ 6,623 $ — $ 6,623 — Revenue increased by $4 million for the three months ended September 30, 2025, as compared to the same period in 2024. The comparative increase in revenue was primarily driven by the acquisition of Señorita in December 2024 and the acquisition of MC Brands in May 2025 and all revenue from the Cultivation Business and Extraction Business for the three months ended September 30, 2024 being presented as part of discontinued operations. Of the revenue recognized for the three months ended September 30, 2025, $696 thousand was attributable to related parties. 36 Revenue increased by $6.6 million for the nine months ended September 30, 2025, as compared to the same period in 2024. The comparative increase in revenue was primarily driven by the acquisition of Señorita in December 2024 and the acquisition of MC Brands in May 2025 and all revenue from the Cultivation Business and Extraction Business for the nine months ended September 30, 2024 being presented as part of discontinued operations. Of the revenue recognized for the nine months ended September 30, 2025, $961 thousand was attributable to related parties. Cost of Goods Sold Cost of goods sold represents costs associated with the hemp-derived products sales (non-licensing). The following table provides a breakdown of our cost of goods sold from continuing operations for the three and nine months ended September 30, 2025 and 2024: Three months ended September 30, % Nine months ended September 30, % (In thousands) 2025 2024 Change Change 2025 2024 Change Change Non-licensing Revenue $ 2,668 $ — $ 2,668 — $ 4,476 $ — $ 4,476 — Total cost of goods sold $ 2,668 $ — $ 2,668 — $ 4,476 $ — $ 4,476 — Cost of goods sold increased by $2.6 million for the three months ended September 30, 2025 compared to the same period in 2024. The comparative increase in cost of goods sold is associated with the acquisition of Señorita in December 2024, which aligns with the increase in revenue. Cost of goods sold increased by $4.5 million for the nine months ended September 30, 2025 compared to the same period in 2024. The comparative increase in cost of goods sold is associated with acquisition of Señorita in December 2024, which aligns with the increase in revenue. Gross Profit Three months ended September 30, % Nine months ended September 30, % (In thousands) 2025 2024 Change Change 2025 2024 Change Change Gross profit $ 1,375 $ — $ 1,375 — $ 2,147 $ — $ 2,147 — Gross profit totaled $1.4 million, or 34.0% of total revenue during the three months ended September 30, 2025. Gross profit totaled $2.1 million, or 32.4% of total revenue during the nine months ended September 30, 2025. Selling, General and Administrative Three months ended September 30, % Nine months ended September 30, % (In thousands) 2025 2024 Change Change 2025 2024 Change Change Selling, general and administrative $ 10,263 $ 1,220 $ 9,043 741 % $ 21,534 $ 3,795 $ 17,739 467 % Selling, general and administrative (“SG&A”) expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, associated with executive and other administrative functions. Other SG&A expenses include, but are not limited to, professional fees for legal, consulting, and accounting services. SG&A expense increased by $9.0 million, or 741%, for the three months ended September 30, 2025, compared to the same period in 2024. The comparative change is primarily attributable to sales and marketing expense to support the growth of the hemp-derived THC products in addition to the SG&A expense from the Cultivation Business and Extraction Business for the three months ended September 30, 2024 being presented as part of discontinued operations. Of the SG&A expense incurred for the three months ended September 30, 2025, $3.1 million was attributable to related parties. SG&A expense increased by $17.7 million, or 467%, for the nine months ended September 30, 2025, compared to the same period in 2024. The comparative change is primarily attributable to sales and marketing expense to support the growth of the hemp-derived THC products (non-licensing) in addition to the SG&A expense from the Cultivation Business and Extraction Business for the nine months ended September 30, 2024 being presented as part of discontinued operations. Of the SG&A expense incurred for the nine months ended September 30, 2025, $7.3 million was attributable to related parties. 37 Other Income, Net Three months ended September 30, % Nine months ended September 30, % (In thousands) 2025 2024 Change Change 2025 2024 Change Change Interest expense, net $ (1,134 ) $ (38 ) $ (1,096 ) 2884 % $ (1,424 ) $ (166 ) $ (1,258 ) 758 % Change in fair value of warrant liabilities (664 ) (15,098 ) 14,434 (96 )% (372 ) (15,502 ) 15,130 (98 )% Other income, net 53 — 53 — 71 — 71 — Total other expense, net $ (1,745 ) $ (15,136 ) $ 13,391 (88 )% $ (1,725 ) $ (15,668 ) $ 13,943 (89 )% Interest expense, net was $1.1 million for the three months ended September 30, 2025, compared to interest expense, net of $38 thousand for the three months ended September 30, 2024. The change is attributable mainly to the increase of $50.0 million principal under the Convertible Notes. Included in interest expense, net for the three months ended September 30, 2025 is $1.4 million incurred with a related party. Interest expense, net was $1.4 million for the nine months ended September 30, 2025, compared to interest expense, net of $166 thousand for the nine months ended September 30, 2024. The change is attributable mainly to the increase of $80.0 million principal under the Convertible Notes. Included in interest expense, net for the nine months ended September 30, 2025 is $2.2 million incurred with a related party. The change in fair value of warrant liabilities increased by $14.4 million, or 96% during the three months ended September 30, 2025, compared to the same period in 2024. The increase is primarily related to the fair value remeasurement of warrants. The change in fair value of warrant liabilities increased by $15.1 million or 98% during the nine months ended September 30, 2025, compared to the same period in 2024. The increase is primarily related to the fair value remeasurement of warrants. Other expense, net was $53 thousand for the three months ended September 30, 2025, compared to none for the same period in 2024. Other income, net was $71 thousand for the nine months ended September 30, 2025, compared to none for the same period in 2024. Income Tax (Expense) Benefit There was no income tax expense or benefit for the three months ended September 30, 2025 and September 30, 2024. There was no income tax expense or benefit for the nine months ended September 30, 2025 and September 30, 2024. 38 Liquidity and Capital Resources As of September 30, 2025, our principal sources of liquidity were cash and cash equivalents and marketable securities totaling $35.6 million. Our current working capital needs are to support revenue growth and manage inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily include working capital requirements. There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities. The amount of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic conditions. As part of our growth strategies, we may opportunistically raise debt capital and raise cash from the issuance of our securities, subject to market and other conditions. If additional financing is required from outside sources, we may not be able to raise such capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected. Indebtedness Convertible Notes On November 5, 2024, we issued a secured convertible note (the “November 2024 Note”) to RSLGH, LLC (“RSLGH”), a subsidiary of Green Thumb. The November 2024 Note is a secured obligation and ranks senior to all of our indebtedness except for the May 2025 Notes and the August 2025 Notes (each as defined below), which rank on parity with the November 2024 Note. The November 2024 Note will mature on November 5, 2025 and accrue interest at a 10.0% annualized rate. The principal amount of the November 2024 Note is payable on the maturity date. The November 2024 Note provides for advances of up to $20 million in the aggregate, of which $10 million was advanced upon issuance. The November 2024 Note was amended on May 8, 2025 to issue pre-funded warrants in lieu of cash interest with 18,614 pre-funded warrants issued on May 8, 2025 and an additional 11,373 pre-funded warrants issued on September 1, 2025, which were issued in lieu of the cash interest that would otherwise be payable under the November 2024 Note. The number of pre-funded warrants is equal to the cash interest amount otherwise payable on the November 2024 Note divided by the closing share price on May 8, 2025, which was the effective date of the amendment. No changes were made to the conversion price of the principal amount of the November 2024 Note. On May 22, 2025, we and RSLGH entered into a second amendment to the November 2024 Note, which amended the terms to, among other things, permit RSLGH to elect, subject to any required approvals under Nasdaq listing rules, to receive pre-funded warrants in lieu of shares of Common Stock upon conversion of the November 2024 Note at a conversion price equal to the existing conversion price of $3.158 less the $0.001 exercise price of each pre-funded warrant. Subsequent to September 30, 2025, the holder of the November 2024 Note elected to convert the outstanding principal and interest through November 3, 2025, into pre-funded warrants. The outstanding principal and accrued interest amounts of $10 million and $175 thousand respectively, resulted in the issuance of 3,167,564 and 55,433 pre-funded warrants, respectively. On May 22, 2025, we issued secured convertible notes with an aggregate original principal amount of $30.0 million (collectively the “May 2025 Notes”) to RSLGH and to certain other third-party accredited investors. The May 2025 Notes are secured obligations and rank senior to all of our indebtedness except for the November 2024 Note and the August 2025 Notes, which rank on parity with the May 2025 Notes. The May 2025 Notes will mature on November 22, 2026 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March while the May 2025 Notes are outstanding, in pre-funded warrants, beginning September 1, 2025. The principal amount of the May 2025 Notes will be payable on the maturity date. The May 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%, in each case subject to applicable Nasdaq listing rules. If a holder elects to convert the May 2025 Notes into Common Stock, the conversion price per share will be $23.53, equal to the most recent closing price of the Common Stock on the Nasdaq Capital Market at the time the May 2025 Notes were issued, subject to customary adjustments for certain corporate events. If a holder elects to convert the May 2025 Notes into pre-funded warrants, and for interest payments payable in the form of pre-funded warrants, the conversion price per pre-funded warrant will be equal to the $23.53 conversion price less than $0.001 exercise price of the warrant. The conversion of the May 2025 Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules. On August 25, 2025, we issued secured convertible notes with an aggregate original principal amount of $50.0 million (collectively the “August 2025 Notes”) to RSLGH and to certain other third-party accredited investors. The August 2025 Notes are secured obligations of ours and rank senior to all of our indebtedness except for the May 2025 and November 2024 Notes, which ranks on parity with the August 2025 Notes. The August 2025 Notes will mature on February 25, 2027 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March, while the August 2025 Notes are outstanding beginning March 1, 2026. The principal amount of the August 2025 Notes will be payable on the maturity date. The August 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%, in each case subject to applicable Nasdaq listing rules. If a holder elects to convert the August 2025 Notes into Common Stock, the conversion price per share will be $29.475, equal to the Minimum Price as such term is defined under Nasdaq Listing Rule 5635 at the time the August 2025 Notes were issued, subject to customary adjustments for certain corporate events. If a holder elects to convert the August 2025 Notes into pre-funded warrants, and for interest payments elected to be paid in the form of pre-funded warrants, the conversion price per pre-funded warrant will be equal to the $29.475 conversion price less than $0.001 exercise price of the warrant. The conversion of the August 2025 Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules. 39 Cash Flows The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the nine months ended September 30, 2025 and 2024: Nine months ended September 30, (In thousands) 2025 2024 Net cash (used in) provided by: Operating activities $ (20,519 ) $ (6,250 ) Investing activities (55,075 ) 340 Financing activities 79,997 5,743 Net increase (decrease) in cash and cash equivalents $ 4,403 $ (167 ) The following discussion explains the major components contributing to the net cash flows from operating, investing, and financing activities for the nine months ended September 30, 2025 and 2024, as summarized in the table above. Each section below provides details on the key drivers of the cash inflows and outflows for the respective periods. Cash Flow from Operating Activities For the nine months ended September 30, 2025, our operating cash flows included a net loss of $19.7 million, which included $2.5 million related to depreciation and amortization, $1.6 million of stock-based compensation expense, $372 thousand loss related to the change in fair value of warrant liabilities, and $3.5 million gain on disposal of Extraction business. Net cash was decreased by changes in operating assets and liabilities of $4.5 million. For the nine months ended September 30, 2024, we had net loss of $17.4 million, which included $1.1 million related to depreciation and amortization, $854 thousand of stock-based compensation expense, $15.5 million loss related to the change in fair value of warrant liabilities, $2.2 million gain from change in contingent consideration, and $5.9 million gain on settlement of contingent liability. Net cash was increased by changes in operating assets and liabilities of $2.8 million. Cash Flow from Investing Activities For the nine months ended September 30, 2025, net cash used in investing activities was $55 million, which primarily resulted from the related party acquisition of MC Brands and VCP. For the nine months ended September 30, 2024, net cash provided by investing activities was $340 thousand, which primarily resulted from $330 thousand in proceeds from the repayment of a loan receivable. Cash Flow from Financing Activities For the nine months ended September 30, 2025, net cash provided by financing activities was $80.0 million, which resulted from proceeds from May and August 2025 Notes. For the nine months ended September 30, 2024, net cash provided by financing activities was $5.7 million, primarily driven by proceeds from the issuance of common stock and warrants of $2.1 million and proceeds from the issuance of related party notes of $4.0 million. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market, or credit risk that could arise if we had engaged in those types of relationships. 40 Critical Accounting Policies and Estimates Part I, Item, 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations and are recorded in the period in which they become known. We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis: the fair value of derivative assets and liabilities, net realizable value of inventory, goodwill impairment assessment, intangible assets and revenue recognition. The significant accounting policies and estimates that have been adopted and followed in the preparation of our condensed consolidated financial statements are detailed in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in the Form 10-K and Note 1 - Overview, Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report. Other than the addition of the accounting policies related to business combinations and asset acquisitions described in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies, there have been no changes in these policies and estimates that had a significant impact on the financial condition and results of operations for the periods covered in this Quarterly Report. Recently Issued Accounting Pronouncements Adopted For more information on recently issued accounting pronouncements are included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies, included elsewhere in the notes to unaudited condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly Report. New Accounting Pronouncements Not Yet Adopted For more information on new accounting pronouncements not yet adopted are included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies, included elsewhere in the notes to unaudited condensed consolidated financial statements covered under Part I, Item 1 in this Quarterly Report. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company” as defined by 17 C.F.R. § 229.10, we are not required to provide information required by this Item.