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Item 1. Financial Statements

2026-05-05 compared with 2025-11-07 · 1048 added, 1146 removed, 413 unchanged (84% of the section changed)

Financial Statements

(Formerly known as Agrify Corporation)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

September 30,

Current assets:

3 unchanged sentences

Prepaid expenses and other current assets

Current assets associated with discontinued operations

Total current assets

Intangible assets

Related party prepaid license rights

Deferred tax assets

Non-current assets associated with discontinued operations

10 unchanged sentences

Related party debt, net of current

Non-current liabilities associated with discontinued operations

Total liabilities

2 unchanged sentences

Common Stock, $ 0.001 par value per share, 35,000,000 shares authorized;

2,002,568 and 1,952,032 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively

2,149,128 shares issued and outstanding at March 31, 2026 and December 31, 2025

Preferred Stock, $ 0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding

4 unchanged sentences

Total liabilities and stockholders’ equity

(1) Include $ 454 thousand and none from related parties as of September

30, 2025 and December 31, 2024, respectively.

(2) Include $ 60 thousand and none due to a related party as of

September 30, 2025 and December 31, 2024, respectively.

(3) Include $ 4.8 million and $ 487 thousand due to related parties

as of September 30, 2025 and December 31, 2024, respectively.

(1) Includes $ 6.6 million and $ 7.0 million from related parties as of March 31, 2026 and December 31, 2025, respectively.

(2) Includes $ 202 thousand and $ 392 thousand

from a related party as of March 31, 2026 and December 31, 2025, respectively.

(3) Includes $ 522 thousand and $ 152 thousand due to related parties as of March 31, 2026 and December 31, 2025, respectively.

(4) Includes $ 3.6 million and $ 4.7 million due to related parties as of March 31, 2026 and December 31, 2025, respectively.

(5) As of March 31, 2026 and December 31, 2025, the number of outstanding

warrants subject to liability classification was 40,017 , of which 15,394 were held by RSLGH, LLC (“RSLGH”) a related party.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

(Formerly known as Agrify Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three months ended September 30

Nine months ended September 30

Three months ended

Cost of goods sold

Selling, general and administrative (2)

Change in contingent consideration

Total operating expenses

Operating loss from continuing operations

Interest expense, net (3)

Interest (expense) income, net (3)

Change in fair value of warrant liabilities

Other income, net

Total other expense, net

Total other (expenses) income, net

Loss from continuing operations before income taxes

Income tax provision

Loss from continuing operations, net of income taxes

Income tax benefit

Income (loss) from continuing operations, net of income taxes

Loss from discontinued operations

Gain on disposal of Extraction business

(Loss) income from discontinued operations, net of income taxes

Net loss per share:

Basic and diluted (loss) income per share

Income from discontinued operations, net of income taxes

Net income (loss)

Net income (loss) per share:

Basic income (loss) per share

Continuing operations

Discontinued operations

Net loss per share attributable to Common Stockholders – basic and diluted (4)

Weighted average common shares outstanding - basic and diluted (4)

(1) Include $ 696 thousand and $ 961 thousand for the three and

nine months ended September 30, 2025, respectively, and none for the three and nine months ended September 30, 2024, in each case from

Net income (loss) per share attributable to Common Stockholders – basic

Diluted income (loss) per share

Continuing operations

Discontinued operations

Net income (loss) per share attributable to Common Stockholders – diluted

Weighted average common shares outstanding - basic

Weighted average common shares outstanding - diluted

$ 10.0 million for the three months ended March 31, 2026, and $ 80 thousand for the three months ended March 31, 2025, in each case from

related parties.

(2) Include $ 3.1 million and $ 7.3 million for the three and nine

months ended September 30, 2025, respectively, and none for the three and nine months ended September 30, 2024, in each case from related

(3) Include $ 1.4 million and $ 2.2 million of interest expense

for the three and nine months ended September 30, 2025, respectively, and none for the three and nine months ended September 30, 2024,

$ 4.3 million for the three months ended March 31, 2026, and $ 1.4 million for the three months ended March 31, 2025, in each case from

related parties.

$ 1.8 million of interest expense for the three months ended March 31, 2026, and $ 250 thousand for the three months ended March 31, 2025,

in each case from a related party.

(4) Periods presented have been adjusted to retroactively reflect

the 1-for-15 reverse stock split on October 8, 2024.

Additional information regarding reverse stock splits may be found in Note 1 –

Overview, Basis of Presentation, and Significant Accounting Policies, included in the notes to the condensed consolidated financial statements.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

(Formerly known as Agrify Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

(DEFICIT) (UNAUDITED)

IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)

Total Stockholders’

Balance at January 1, 2025

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Stock-based compensation

Issuance of Common Stock and pre-funded warrants through public offering

Issuance of held-back shares from Sinclair acquisition

Cashless exercise of high trail warrants

Exercise of pre-funded warrants issued through public offering

Conversion of convertible note

Deemed contribution from troubled debt restructuring with related party

Stock split share adjustment

Balance at March 31, 2024

$ ( 261,331 )

Stock-based compensation

Exercise of pre-funded warrants issued through public offering

Excess of related party debt and pre-funded warrants

Issuance of equity classified prefunded warrants

Issuance of vested RSUs, net of shares held back to offset tax

Balance at June 30, 2024

$ ( 264,303 )

Stock-based compensation

Exercise of pre-funded warrants issued through public offering

Conversion of related party debt into prefunded warrants

Issuance of vested RSUs, net of shares held back to offset tax

Balance at September 30, 2024

$ ( 282,954 )

Total Stockholders’

Balance at January 1, 2025

$ ( 307,313 )

Stock-based compensation

Cancellation of common shares

2 unchanged sentences

$ ( 309,169 )

Stock-based compensation

Issuance of vested RSUs, net of shares held back to offset tax

Issuance or accrual of pre-funded warrants in lieu of cash interest payments on related party debt

Issuance or accrual of pre-funded warrants in lieu of cash interest

Balance at June 30, 2025

Stockholders’

Balance at January 1, 2026

$ ( 340,800 )

Stock-based compensation

Issuance or accrual of pre-funded warrants in lieu of cash interest payments on related party debt

Issuance or accrual of pre-funded warrants in lieu of cash interest payments

Balance at September 30, 2025

Issuance and accrual of pre-funded warrants in lieu of cash interest payments on related party debt

Issuance and accrual of pre-funded warrants in lieu of cash interest payments

Balance at March 31, 2026

$ ( 320,878 )

The accompanying notes are an integral part of

these condensed consolidated financial statements.

(Formerly known as Agrify Corporation)

The accompanying notes are an integral

part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the nine months ended

September 30,

For the three months ended

Cash flows from operating activities:

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

Amortization of debt discount

Non-cash interest expense

Non-cash tax benefit from release of valuation allowance

Lease expense

3 unchanged sentences

Change in provision for credit losses, net

Change in inventory reserves

Loss on abandonment of CIP projects

(Gain) loss on disposal of property and equipment

Gain on early termination of lease

Gain on settlement of contingent liability

Change in contingent consideration

Change in provision for inventory

Gain on disposal of property and equipment

Gain on disposal of Extraction business

3 unchanged sentences

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

4 unchanged sentences

Contract liabilities

Net cash and cash equivalents used in operating activities

Cash flows from investing activities:

Related party acquisition of MC Brands

Related party acquisition of VCP

Proceeds from disposal of property and equipment

Proceeds from repayment of loan receivable

Net cash and cash equivalents (used in) provided by investing activities

Net cash and cash equivalents provided by (used in) operating activities

Cash flows from financing activities:

Proceeds from related party notes

Proceeds from notes payable

Proceeds from issuance of Common Stock through an S-1 and prefunded warrants offering

Proceeds from exercise of S-1 Prefunded Warrants

Proceeds from issuance of related party notes

Proceeds from exercise of CP Warrants

Repayments of notes payable

Payments on other financing loans

Payments on insurance financing loans

Net cash and cash equivalents provided by financing activities

Net cash and cash equivalents used in financing activities continuing operations

Net increase (decrease) in cash and cash equivalents

6 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities

Issuance or accrual of pre-funded warrants in lieu of cash interest payments on related party debt

Issuance or accrual of pre-funded warrants in lieu of cash interest

Reclassification of accounts payable and accrued interests to notes payable

Cashless exercise of liability classified warrants

Financing of prepaid insurance

Reclassification of liability classified prefunded warrants to equity

Accrued interest consolidated into related party debt

Deemed contribution from troubled debt restructuring with related party

Transfer of loans receivable from noncurrent to current

Conversion of convertible notes into equity

Conversion of related party debts into warrants

Consolidation of related party debt principal

Non-cash amounts of lease liabilities arising from obtaining right-of-use assets

Issuance of pre-funded warrants in lieu of related party cash interest

Reclassification of accounts payable to notes payable

The accompanying notes are an integral part of

these condensed consolidated financial statements.

(Formerly known as Agrify Corporation)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

Description of Business

(formerly Agrify Corporation) (together with its subsidiaries,

the “Company” or “RYTHM”) delivers well-being to consumers 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, Good Green and Señorita.

The Señorita brand offers consumers hemp-derived tetrahydrocannabinol

(“THC”) beverages that mirror well-known cocktails like a margarita – in four flavors – classic Lime Jalapeño

Margarita, Mango Margarita, Paloma and Ranch Water.

Known for its clean, fresh taste and commitment to high-quality, natural ingredients,

Señorita offers a low-sugar, low-calorie alternative to alcoholic beverages and is available 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 RYTHM beverages and incredibles and Beboe edible products are primarily

sold online and through direct-to-retail partnerships.

In addition to the sale of hemp-derived products (“Non-licensing Revenue”),

the Company licenses its brands to be manufactured and distributed in exchange for a licensing fee (“Licensing Revenue”).

RYTHM has also historically

been a leading provider of innovative cultivation and extraction solutions for the cannabis industry.

Prior to the exit of the extraction

business on March 30, 2025, the Company’s comprehensive extraction product line (“the Extraction Business”), which included

hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowered producers to maximize the quantity and quality of extract

required for premium concentrates.

Additionally, prior to its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled

Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce high quality products for the cannabis industry.

(formerly Agrify

Corporation) (together with its subsidiaries, the “Company” or “RYTHM”) delivers well-being to consumers 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, Good Green and Señorita.

brand offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages that mirror well-known cocktails like a margarita

– in four flavors – classic Lime Jalapeño Margarita, Mango Margarita, Paloma and Ranch Water.

Known for its clean,

fresh taste and commitment to high-quality, natural ingredients, Señorita offers a low-sugar, low-calorie alternative to alcoholic

beverages and is available in seventeen U.S.

states and Canada including at top retailers such as Total Wine, ABC Fine Wine & Spirits,

The RYTHM branded beverage comes in two fruit-driven flavors with effect-based ingredients.

Both Señorita and

RYTHM hemp-derived beverages are available at Chicago’s iconic United Center, based on a partnership announced in January 2026,

establishing the Company as the venue’s official THC sponsor.

Other hemp-derived products including incredibles and Beboe edible

products are primarily sold online and through direct-to-retail partnerships.

In addition to the sale of hemp-derived products (“Non-licensing

Revenue”), the Company licenses its brands to be manufactured and distributed in exchange for a licensing fee (“Licensing

Throughout these unaudited condensed consolidated financial statements, the terms “intellectual property”,

“intellectual property rights”, “brands”, “trademarks”, “tradenames”, “brand rights”

and “Prepaid License Rights” are used interchangeably.

The Company has also historically been a leading provider of innovative cultivation and extraction solutions

for the cannabis industry.

Prior to the exit of the extraction business on March 30, 2025, the Company’s comprehensive extraction

product line (“the Extraction Business”), which included hydrocarbon, alcohol, solventless, post-processing, and lab equipment,

empowered cannabis producers to maximize the quantity and quality of extract required for premium concentrates.

Additionally, prior to

its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”)

enabled cultivators to produce high quality products.

The Company was formed in

3 unchanged sentences

effect a change in the Company’s name from Agrify Corporation to RYTHM, Inc., effective as of September 2, 2025.

In connection with

the name change, the Company’s trading symbol on the Nasdaq Capital Market changed from “AGFY” to “RYM”

In connection

with the name change, the Company’s trading symbol on the Nasdaq Capital Market changed from “AGFY” to “RYM”

effective as of the open of trading on September 2, 2025.

The Company is sometimes referred to herein by the words “we,” “us,”

“our,” and similar terminology.

The Company has twelve wholly-owned

consolidated subsidiaries, which are collectively referred to as the “Subsidiaries” and seven out of twelve subsidiaries are

related to discontinued operations.

The Company is sometimes referred to herein by the words “we,”

“us,” “our,” and similar terminology.

The Company has thirteen wholly-owned consolidated subsidiaries, which

are collectively referred to as the “Subsidiaries” and seven out of thirteen subsidiaries are related to discontinued operations.

On December 12, 2024, the

Company acquired certain assets from Double or Nothing, LLC (“Double or Nothing”), the owner and creator of the Señorita

brand of hemp-derived drinks as part of the Company’s strategic plan to reposition itself as a distributor of hemp-derived THC beverages

and similar products.

On December 31, 2024, the

Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”),

an entity affiliated with Raymond Chang, the Company’s former Chairman and Chief Executive Officer.

Under the Purchase Agreement,

CP acquired assets from the Company relating to the Company’s VFUs, including the related Agrify total-turnkey (“TTK”)

solution assets and Agrify Insights TM software solutions (collectively the “Cultivation Business”).

the Cultivation Business occurred following signing on December 31, 2024.

The results of the Cultivation Business are presented as discontinued

operations in the Condensed Consolidated Statements of Operations and, as such, have been excluded from continuing operations.

the Company reclassified the assets and liabilities of the Cultivation Business associated with discontinued operations in the Condensed

Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024.

For further discussion on the discontinued operations, refer

to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

On March 30, 2025, the Company

approved the winding down of the Extraction Business by March 31, 2025, including but not limited to, the sale or other disposal of all

remaining assets constituting the Extraction Business, the cessation of all business operations related to the Extraction Business, the

termination of any outstanding contracts related to the Extraction Business, and termination of any employees primarily involved in the

Extraction Business.

The results of the Extraction Business are presented as discontinued operations in the Condensed Consolidated Statements

of Operations and, as such, have been excluded from continuing operations.

Further, the Company reclassified the assets and liabilities

of the Extraction Business associated with discontinued operations in the Condensed Consolidated Balance Sheets as of September 30, 2025

and December 31, 2024.

The balances as of December 31, 2024 reflect historical carrying values, without remeasurement.

For further discussion

on the discontinued operations, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

On May 20, 2025, the Company

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 the Company acquired all of the equity interests in MC

Brands LLC and its wholly-owned subsidiary Core Growth LLC (together referred to as “MC Brands”).

The assets of MC Brands

consist primarily of intellectual property rights 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, the Company also licensed the right to

use the RYTHM and Beboe brands from Green Thumb for hemp-derived THC beverages and similar products.

On August 27, 2025, the Company

entered into a purchase agreement with VCP23, LLC (“VCP23”), an indirectly wholly-owned subsidiary of Green Thumb, a related

party, pursuant to which the Company 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 “Acquired

Cash consideration of $ 50.0 million was exchanged for 100 % of the equity interest in VCP.

In connection with the purchase

of VCP, the Company also entered a license agreement with GTI Core, LLC (“GTI Core”), an indirect wholly-owned subsidiary

of Green Thumb, related to the Acquired Brands in connection with GTI Core’s existing businesses, with an effective date of November

The consideration payable by GTI Core for the license rights consists of a monthly license fee, payable in cash, for using the

licensed intellectual property.

The May 20, 2025 license agreements granting the Company rights to use the RYTHM and Beboe brands were

terminated concurrently on August 27, 2025.

Nasdaq Deficiency Notice

On January 30, 2024, the

Company received formal notice that the Nasdaq Hearings Panel (the “Panel”) of the Nasdaq Stock Market LLC (“Nasdaq”)

had granted the Company’s request for an exception through April 15, 2024 to evidence compliance with the Nasdaq Listing Rule 5550(b)(1)

(the “Listing Rule 5550(b)(1)”), which was subsequently extended to May 15, 2024.

As a result of the conversion of a convertible

note and a junior note held in favor of CP, the Company regained compliance with the stockholders’ equity requirement.

2024, the Company received formal written notice from Nasdaq confirming that the Company had regained compliance with the minimum stockholders’

equity requirement as set forth in Listing Rule 5550(b)(1).

On March 5, 2024, the Company

received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) notifying the Company that, for

the last 30 consecutive business days, the bid price for the Company’s Common Stock had closed below $ 1.00 per share, which is the

minimum closing price required to maintain continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum

Bid Requirement”).

The Notice had no immediate effect on the listing of the Company’s Common Stock on Nasdaq.

In accordance

with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement.

The compliance

period for the Company expired on September 3, 2024.

On September 4, 2024, the Staff notified the company in writing that it was eligible

for an additional 180-day compliance period, or until March 3, 2025, to regain compliance with the Minimum Bid Requirement.

8, 2024, the Company completed a 1-for-15 reverse stock split of its Common Stock, in which each fifteen shares of Common Stock issued

and outstanding was combined and converted into one share of Common Stock to regain compliance with the Minimum Bid Requirement.

22, 2024, the Staff notified the Company that it had regained compliance with the Minimum Bid Requirement.

brand of hemp-derived drinks as part of the Company’s strategic plan to reposition itself as a distributor of hemp-derived THC

beverages and similar products.

On December 31, 2024, the Company entered into an Asset Purchase Agreement

(the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond Chang, the Company’s

former Chairman and Chief Executive Officer.

Under the Purchase Agreement, CP acquired assets from the Company relating to the Company’s

VFUs, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights TM software solutions

(collectively the “Cultivation Business”).

The sale of the Cultivation Business occurred following signing on December 31,

The results of the Cultivation Business are presented as discontinued operations in the Condensed Consolidated Statements of Operations

and, as such, have been excluded from continuing operations.

Further, the Company reclassified the assets and liabilities of the Cultivation

Business associated with discontinued operations in the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025.

For further discussion on the discontinued operations, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated

financial statements.

On March 30, 2025, the Company approved the winding down of the Extraction

Business by March 31, 2025, including but not limited to, the sale or other disposal of all remaining assets constituting the Extraction

Business, the cessation of all business operations related to the Extraction Business, the termination of any outstanding contracts related

to the Extraction Business, and termination of any employees primarily involved in the Extraction Business.

The results of the Extraction

Business are presented as discontinued operations in the Condensed Consolidated Statements of Operations and, as such, have been excluded

from continuing operations.

Further, the Company reclassified the assets and liabilities of the Extraction Business associated with discontinued

operations in the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025.

For further discussion on the discontinued

operations, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

On May 20, 2025, the Company acquired from VCP IP Holdings, LLC (“VCP”)

an indirect wholly-owned subsidiary of Green Thumb Industries Inc., a related party (“Green Thumb”), 100 % of the equity interests

of MC Brands, LLC pursuant to which the Company obtained rights relating to MC Brands, LLC and its wholly-owned subsidiary Core Growth

LLC (together referred to as “MC Brands”).

The assets of MC Brands consist primarily of intellectual property rights associated

with the Incredibles brand.

Concurrent with the transaction, the Company entered into a license agreement with GTI Core, LLC (“GTI

Core”), an indirect subsidiary of Green Thumb, pursuant to which GTI Core was granted the right to use the incredibles brand in

connection with its existing businesses.

Consideration payable by GTI Core under the license agreement consists of a monthly license fee

payable in cash.

The Company began recognizing licensing revenue under this agreement in May 2025.

On August 27, 2025, the Company acquired from VCP23, LLC an indirect

wholly-owned subsidiary of Green Thumb (“VCP23”), 100 % of the equity interests of VCP pursuant to which the Company obtained

rights relating to VCP.

The assets of VCP, consist primarily of intellectual property rights to the RYTHM, Beboe, Dogwalkers, Doctor Solomon’s,

& Shine, and Good Green brands (these rights, together with the incredibles brand rights, referred to as “Brand Rights”).

Concurrent with the transaction, the Company entered into a license agreement with GTI Core pursuant to which GTI Core was granted the

right to use the Brand Rights in connection with its existing businesses.

Consideration payable by GTI Core under the license agreement

consists of a monthly license fee payable in cash.

The Company began recognizing licensing revenue under this agreement in November 2025.

On March 31, 2026, the Company amended the license agreements with

GTI Core described above to replace sales-based royalty consideration with fixed annual fees, effective April 1, 2026.

Under the amended

terms, the Company is entitled to aggregate fixed payments of $ 70 million per year, subject to annual escalation based on a 2x multiple

of changes in the Consumer Price Index (“CPI”) beginning January 1, 2027, subject to a maximum year-over-year increase of

The Company recognizes this revenue on a ratable basis over the license term as the customer receives continuous access

to the intellectual property.

Basis of Presentation and Principles of Consolidation

These interim condensed consolidated

financial statements of the Company are unaudited.

In the opinion of management, all adjustments (consisting of normal recurring adjustments)

and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have been included.

results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of

the results that may be reported for the entire year.

The accompanying unaudited condensed consolidated financial statements have been

prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not include

all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally

accepted in the United States (“U.S.

Certain information and

footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.

GAAP have been

condensed or omitted.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s

audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2024 filed with the SEC.

Certain information and footnote

disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.

GAAP have been condensed

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s

audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2024, filed with the SEC on March 21, 2025, as amended on March 28, 2025, 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 (the “Form 10-K).

The December 31, 2024 balances reported herein are derived from the audited consolidated financial statements

for the year ended December 31, 2024, retrospectively adjusted for discontinued operations.

Accounting for Wholly-Owned Subsidiaries

The accompanying unaudited

condensed consolidated financial statements have been prepared in accordance with U.S.

GAAP and include the accounts of the Company and

its wholly-owned Subsidiaries, as described above, in accordance with the provisions required by Accounting Standards Codification (“ASC”)

Topic 810, Consolidation (“ASC 810”) of the Financial Accounting Standards Board (“FASB”).

includes results of operations of acquired companies from the date of acquisition.

All significant intercompany transactions and balances

are eliminated.

These interim condensed consolidated financial statements of the Company

are unaudited.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for

a fair presentation of these unaudited condensed consolidated financial statements have been included.

The results reported in the unaudited

condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported

for the entire year.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the

rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes

necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United

States (“GAAP”).

Certain information and footnote disclosures normally included in the

annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

These unaudited interim condensed

consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and

notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC.

Use of Estimates

The preparation of the Company’s

condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated

financial statements, and the reported amounts of expenses during the reporting period.

On an ongoing basis, we evaluate estimates, which

include estimates related to accruals, stock-based compensation expense, reported amounts of revenues and expenses during the reported

period, fair value of warrant liabilities, sales tax liabilities, valuation of deferred tax assets, net realizable value of inventory,

intangible assets, goodwill, and litigation.

The Company bases its estimates on historical experience and other market-specific or other

relevant assumptions that it believes to be reasonable under the circumstances.

Actual results may differ materially from those estimates

or assumptions.

The preparation of the Company’s condensed consolidated financial

statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the

reported amounts of expenses during the reporting period.

On an ongoing basis, the Company evaluates estimates, which include estimates

related to accruals, stock-based compensation expense, reported amounts of revenues during the reported period, fair value of warrant

liabilities, sales tax liabilities, valuation of deferred tax assets, net realizable value of inventory and collectability of trade accounts,

intangible assets, other assets (Prepaid License Rights), goodwill, and litigation.

Management bases their estimates on historical experience

and other market-specific or other relevant assumptions that they believe to be reasonable under the circumstances.

Actual results may

differ materially from those estimates or assumptions.

The Company regularly evaluates

its assets, including asset groups or reporting units, for impairment in accordance with ASC 360-10, Impairment and Disposal of Long-Lived

The Company is aware of the impact that prolonged net losses can have on the fair value of underlying assets and the overall

The Company is committed to ensuring that the carrying amounts of its assets are appropriately assessed and adjusted for any

impairment, reflecting a true and fair view of its financial position.

Reclassifications

The Company effected a 1-for-15

reverse stock split of its Common Stock on October 8, 2024.

All share and per share information has been retroactively adjusted to give

effect to the reverse stock split for all periods presented unless otherwise indicated.

The shares of Common Stock retained a par value

of $ 0.001 per share.

Accordingly, the Stockholders’ equity section of the condensed consolidated balance sheets reflects the reverse

stock split by reclassifying from Common Stock to additional paid-in capital an amount equal to the par value of the decreased shares

resulting from the reverse stock split.

Certain amounts in the condensed

consolidated financial statements related to the prior years have been reclassified to conform to the current year’s presentation,

specifically related to discontinued operations.

its assets, including asset groups or reporting units, for impairment in accordance with GAAP.

The Company is aware of the impact that

prolonged net losses can have on the fair value of underlying assets and the overall company.

The Company is committed to ensuring that

the carrying amounts of its assets are appropriately assessed and adjusted for any impairment, reflecting a true and fair view of its

financial position.

Discontinued Operations

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the “Discontinued Operations”).

As the sale of the Cultivation

Business and the exit of the Extraction Business represented strategic shifts that will have a major effect on the Company’s operations

and financial results, they have been presented in discontinued operations in accordance with ASC 205, Presentation of Financial Statements ,

separate from continuing operations for the three months and nine months ended September 30, 2025 and 2024, and as of September 30, 2025

and December 31, 2024, as applicable.

For further discussion, refer to Note 6 included elsewhere in the notes to the unaudited condensed

consolidated financial statements.

Accounts Receivable, Net

As the sale of the

Cultivation Business and the exit of the Extraction Business represented strategic shifts that will have a major effect on the

Company’s operations and financial results, they have been presented in discontinued operations in accordance with Accounting

Standards Codification (“ASC”) 205, Presentation of Financial Statements , separate from continuing operations for

the three months ended March 31, 2026 and 2025, in the Company’s consolidated statement of operations and applicable footnotes

and as of March 31, 2026 and December 31, 2025, in the Company’s consolidated balance sheets, as applicable.

discussion, refer to Note 6 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

Accounts Receivable, Net

primarily consists of amounts for goods and services that are billed and currently due from customers.

In accordance with the current

expected credit loss (“CECL”) impairment model under Accounting Standards Update (“ASU”) 2016-13, Financial

Instruments – Credit Losses (Topic 326), accounts receivable balances are presented net of an allowance for credit losses, which

are an estimate of billed or borrowed amounts that may not be collectible.

In determining the amount of the allowance at each reporting

date, management makes judgments about general economic conditions, historical write-off experience, and any specific risks identified

in customer or borrower collection matters, including the aging of unpaid accounts receivable and changes in customer or borrower financial

Accounts and loans receivable balances are written off after all means of collection are exhausted and the potential for non-recovery

is determined to be probable.

Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the

unaudited condensed consolidated statements of operations.

Accounts receivable, net, primarily consists of amounts for goods and

services that are billed and currently due from customers.

In accordance with the current expect credited loss (“CECL”) impairment

model under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) , accounts

receivable balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that may

not be collectible.

In determining the amount of the allowance at each reporting date, management makes judgments about general economic

conditions, historical write-off experience, and any specific risks identified in customer or borrower collection matters, including the

aging of unpaid accounts receivable and changes in customer or borrower financial conditions.

Accounts receivable balances are written

off after all means of collection are exhausted and the potential for non-recovery is determined to be probable.

Adjustments to the allowance

for credit losses are recorded as general and administrative expenses in the unaudited condensed consolidated statements of operations.

Concentration of Credit Risk and Significant

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minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts.

For the three months ended

September 30, 2025, the Company had one related party customer and three third-party customers that accounted for 10% or more of the total

revenue from continuing operations.

These customers each represented between 11 % and 26 % of total revenue from continuing operations for

For the three months ended September 30, 2024, the Company had no revenue from continuing operations and therefore no customer

represented a significant portion of revenue from continuing operations.

For the nine months ended

September 30, 2025, the Company had one related party customer and three third-party customers that accounted for 10% or more of the total

revenue from continuing operations.

These customers each represented between 10 % and 28 % of total revenue from continuing operations for

For the nine months ended September 30, 2024, the Company had no revenue from continuing operations and therefore no customer

represented a significant portion of revenue from continuing operations.

As of September 30, 2025,

one of the Company’s related party customers accounted for 18 % of accounts receivable and three of the Company’s third-party

customers accounted for 45 % of accounts receivable.

As of December 31, 2024, one third-party customer accounted for 100 % of accounts receivable.

For the three months ended March 31, 2026, the Company had one related

party customer that accounted for 75 % of the total revenue from continuing operations.

For the three months ended March 31, 2025, the

Company had four third-party customers that accounted for 10 % or more of the total revenue from continuing operations.

These customers

represented between 10 % and 26 % of total revenue from continuing operations for the period.

As of March 31, 2026, the

Company’s related party customer accounted for 79 % of accounts receivable.

For the year ended December 31, 2025, a related party

accounted for 75 % of the Company’s total accounts receivable.

The Company values all its

inventories, which consist primarily of finished goods and raw materials, at the lower of cost or net realizable value, with cost principally

determined by the weighted-average cost method on a first-in, first-out basis.

Write-offs of potentially slow-moving or damaged inventory

are recorded through specific identification of obsolete or damaged material.

The Company takes a physical inventory count at least annually

at all significant inventory locations.

Business Combinations

The Company accounts for

its business combinations under the provisions of Accounting Standards Codification Topic 805-10, Business Combinations (“ASC

805”), which requires that the purchase method of accounting be used for all business combinations.

Assets acquired and liabilities

assumed are recorded at the date of acquisition at their respective fair values.

For transactions that are business combinations, the

Company evaluates the existence of goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets

and intangible assets acquired in a business combination.

ASC 805 also specifies criteria that intangible assets acquired in a business

combination must meet to be recognized and reported apart from goodwill.

Acquisition-related expenses are recognized separately from the

business combinations and are expensed as incurred.

The estimated fair value of net assets acquired, including the allocation

of the fair value to identifiable assets and liabilities, is determined using established valuation techniques.

A fair value measurement

is determined as the price received to sell an asset or pay to transfer a liability in an orderly transaction between market participants

at the measurement date.

In the context of purchase accounting, the determination of fair value often involves significant judgments and

estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount

rates, and selection of comparable companies.

The estimated fair values reflected in the purchase accounting rely on management’s

judgment and the expertise of a third-party valuation firm engaged to assist in concluding on the fair value measurements.

In determining

the fair value of all identifiable assets and liabilities acquired, the most significant estimates relate to intangible assets.

intangible assets identified, depending on the type of intangible asset and the complexity of determining its fair value, the fair value

is developed using appropriate valuation techniques, taking into account assumptions such as the expected future revenue, expected use

of the asset, market conditions, uncertainty factors, the estimated useful life, and discount rate, among other factors.

These assumptions

may vary based on future events, perceptions of different market participants and other factors outside the control of management, and

such variations may be significant to estimated values.

Asset Acquisitions

The Company follows the guidance

in ASC 805, Business Combinations , for determining the appropriate accounting treatment for asset acquisitions.

Clarifying the Definition of a Business , provides an initial fair value screen to determine if substantially all of the fair value

of the assets acquired is concentrated in a single asset or group of similar assets.

If the initial screening test is not met, the set

is considered a business based on whether there are inputs and substantive processes in place.

Based on the results of this analysis and

conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed

to be a business, the purchase method of accounting is applied.

If the transaction is deemed to be an asset acquisition, the cost accumulation

and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual

assets and liabilities based on relative fair values.

For the allocation of intangible assets identified, depending on the type of intangible

asset and the complexity of determining its relative fair value, an independent valuation expert or management may allocate the relative

fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows

and takes into consideration other significant assumptions such as the expected use, market uncertainty, marketing or sales support requirements

and the intangible asset useful lives.

determined by the weighted-average cost method.

Write-offs of potentially slow-moving or damaged inventory are recorded through specific

identification of obsolete or damaged material.

The Company takes a physical inventory count at least once annually at all significant

inventory locations.

Goodwill is defined as the

excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is tested for impairment

annually, and more frequently if events and circumstances indicate that the asset might be impaired.

A goodwill impairment charge is

recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues,

a deterioration of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market

value as a result of a significant sustained decline in the Company’s stock price.

Goodwill is not subject

to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate there might

be an impairment.

An impaired asset is written down to its estimated fair value based upon the most recent information.

Impairment of Long-Lived Assets

Long-lived assets are evaluated

for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Examples include

a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance.

When evaluating

long-lived assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future

An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset.

The impairment is

the excess of the carrying value over the fair value of the asset.

Warrant Liabilities

The Company evaluates all

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in ASC 480 and ASC 815.

Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to

ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for

equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions

for equity classification.

Management’s assessment considers whether the warrants are freestanding financial instruments pursuant

to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements

for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other

conditions for equity classification.

Issued or modified warrants

that meet all of the criteria for equity classification are recorded as a component of additional paid-in capital at the time of issuance.

or when incurred.

Issued or modified warrants that are precluded from equity classification are recorded as a liability at their initial

fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair value of

the warrants to be recognized as an unrealized gain or loss in the unaudited condensed consolidated statements of operations.

Issued or modified warrants that are precluded from equity classification are recorded as a liability at their initial fair value on the

date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the warrants to be

recognized as an unrealized gain or loss in the unaudited condensed consolidated statements of operations.

Convertible Notes Payable

The Company evaluates its convertible instruments to determine if those

contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance

with ASC 815.

ASC 815 requires that the Company identify and record certain embedded conversion options, certain variable-share settlement

features, and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as

of each subsequent balance sheet date.

Any change in fair value is recorded as an unrealized non-operating, non-cash income or expense

for each reporting period at each balance sheet date.

The Company reassesses the classification of its derivative instruments at each

balance sheet date.

If the classification changes as a result of events during the period, the contract is reclassified as of the date

of the event that caused the reclassification.

Bifurcated embedded conversion options, variable-share settlement features, and any related

freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the

respective note using the effective interest method.

Fair Value of Financial Instruments

The Company’s financial

instruments consist of cash and cash equivalents, accounts receivable, contingent consideration, operating lease liabilities, long-term

debt, related party debt, and pre-funded warrants.

Refer to Note 4 - Fair Value Measures, included elsewhere in the notes to the unaudited

condensed consolidated financial statements for details of the Company’s financial instruments.

The Company’s financial instruments consist of cash and cash

equivalents, accounts receivable, operating lease liabilities, long-term debt, related-party debt, and warrant liabilities.

Refer to Note

4 - Fair Value Measures, included elsewhere in the notes to the unaudited condensed consolidated financial statements for details of the

Company’s financial instruments.

Stock-Based Compensation

The Company measures restricted stock units and stock options awards

granted to employees, directors and consultants based on the fair value on the date of the grant and recognizes compensation expense of

those awards over the requisite service period, which is generally the vesting period of the respective award.

Forfeitures are recognized

Historically, the Company has issued restricted stock units and stock options to employees, directors and consultants with

only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies stock-based

compensation expense in its unaudited condensed consolidated statements of operations in the same manner in which the award recipient’s

payroll costs are classified.

The Company estimates the

fair value of each stock option grant on the date of the grant using the Black-Scholes option-pricing model.

The expected term of the

Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the

award for time periods approximately equal to the expected term of the award.

The expected dividend yield is based on the fact that the

Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations and Asset Acquisitions

The Company follows the guidance in ASC Topic 805, Business Combinations

(“ASC 805”), for determining the appropriate accounting treatment for asset acquisitions.

ASU 2017-01, Clarifying

the Definition of a Business , provides an initial fair value screen to determine if substantially all of the

fair value of the assets acquired is concentrated in a single asset or group of similar assets.

If the initial screening

test is not met, the set is considered a business based on whether there are inputs and substantive processes in place.

Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or

an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to

be a business, the purchase method of accounting is applied.

The estimated fair value of net assets acquired, including the

allocation of the fair value to identifiable assets and liabilities, is determined using established valuation techniques.

A fair value measurement is determined as the price received to sell an asset or pay to transfer a liability in an orderly

transaction between market participants at the measurement date.

In the context of purchase accounting, the determination of fair value

often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates

of future revenues, costs and cash flows, discount rates, and selection of comparable companies.

The estimated fair values

reflected in the purchase accounting rely on management’s judgment and the expertise of a third-party valuation firm

engaged to assist in concluding on the fair value measurements.

In determining the fair value of all identifiable

assets and liabilities acquired, the most significant estimates relate to intangible assets.

For the intangible assets identified,

depending on the type of intangible asset and the complexity of determining its fair value, the fair value is developed using

appropriate valuation techniques, taking into account assumptions such as the expected future revenue, expected use of the asset, market

conditions, uncertainty factors, the estimated useful life, and discount rate, among other factors.

These assumptions may vary based

on future events, perceptions of different market participants and other factors outside the control of management, and such

variations may be significant to estimated values.

If the transaction is deemed to

be an asset acquisition, the cost accumulation and allocation model is used whereby the assets and liabilities are recorded based

on the purchase price and allocated to the individual assets and liabilities based on relative fair values.

For the allocation

of intangible assets identified, depending on the type of intangible asset and the complexity of determining its relative fair

value, an independent valuation expert or management may allocate the relative fair value, using appropriate valuation

techniques, which are generally based on a forecast of the total expected future net cash flows and takes into consideration other

significant assumptions such as the expected use, market uncertainty, marketing or sales support requirements and the intangible

asset useful lives.

Prepaid License Rights

If a sale arrangement includes terms—such as repurchase features

or other provisions—that prevent the buyer from obtaining control of the business or assets, the Company concludes that control

has not transferred.

In those circumstances, the arrangement is accounted for based on its substance under other applicable GAAP.

In connection

with such arrangements, amounts paid for licensing rights are deferred and recorded as prepaid licensing rights on the Company’s

unaudited condensed consolidated balance sheets.

These amounts are recognized in expense over the period in which the related rights are

utilized or otherwise as the underlying economic benefit is consumed.

Revenue Recognition

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The Company licenses intellectual property to a related party

under arrangements that provide for sales-based license fees.

The Company recognizes licensing income derived from licensing agreements

in accordance with ASC Topic 606, Revenue Recognition (“ASC 606”), specifically, the sales-based royalty exception.

In accordance with ASC 606, revenue for hemp-derived THC products (non-licensing)

is recognized through a five-step model, as outlined below:

Identify the customer contract :

A customer contract is identified when there is mutual approval and commitment between the Company and its customer, the rights and obligations are clear, payment terms are set, the contract has commercial substance, and collectability is probable.

Written or electronic signatures on contracts and purchase orders are obtained if such orders are issued in the normal course of business by the customer.

Identify performance obligations that are distinct :

under arrangements that, prior to April 1, 2026, provided for sales-based royalties.

Licensing revenue associated with these arrangements

was recognized in accordance with ASC Topic 606 Revenue Recognition (“ASC 606”), specifically, the sales-based royalty

exception, through March 31, 2026.

Through March 31, 2026, in

accordance with ASC 606-10-55-65 through 55-65B, Licensing Revenue is recognized only when the underlying sale by

the licensee occurs, and the performance obligation has otherwise been satisfied.

This approach ensures that revenue is recognized in

the period in which it is earned and determinable, consistent with the transfer of control of the intellectual property to the licensee.

Effective April 1, 2026,

the Company amended certain licensing agreements with subsidiaries of Green Thumb to replace sales-based royalty consideration with fixed

Under the amended terms, the Company is entitled to aggregate fixed payments of $ 70 million per year, subject to annual escalation

based on a two times multiple of changes in the CPI beginning January 1, 2027 , subject to a maximum year-over-year increase of 10 %.

Company recognizes this revenue on a ratable basis over the license term as the licensees receive continuous access to the intellectual

For the purposes of ASC 606, the transaction price for these arrangements includes fixed consideration and

variable consideration related to CPI-based adjustments.

Per ASC 606, variable consideration is included in the transaction price only

to the extent that it is probable that a significant reversal of cumulative revenue will not occur.

As of March 31, 2026, CPI-based adjustments

are considered constrained and are therefore excluded from the transaction price and will be recognized as revenue in the period in which

the uncertainty is resolved.

Effective April 1, 2026,

in accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the

end of the current reporting period.

The Company excluded variable consideration related to CPI-based fee escalators from the total remaining

performance obligations, as such amounts are not included in the transaction price due to the application of the constraint.

expects to recognize such variable consideration in the period in which the related uncertainty is resolved.

Actual amounts and timing

of revenue recognition may differ from these estimates due to contract modifications, CPI-based price increases, or the exercise of contractual

repurchase rights by Green Thumb.

In accordance with ASC

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

Identify the customer

A customer contract is identified when there is mutual approval and commitment between the Company

and its customer, the rights and obligations are clear, payment terms are set, the contract has commercial substance, and collectability

Written or electronic signatures on contracts and purchase orders are obtained if such orders are issued in the normal

course of business by the customer.

Identify performance

obligations that are distinct :

The Company identifies distinct performance obligations in each contract.

A performance obligation is considered distinct if the customer can benefit from the good or service on its own or with readily available resources, and if it is separately identifiable from other promises in the contract.

The Company’s revenue-generating activities typically have a single performance obligation.

Determine the transaction price :

A performance

obligation is considered distinct if the customer can benefit from the good or service on its own or with readily available

resources, and if it is separately identifiable from other promises in the contract.

The Company’s revenue-generating activities

typically have a single performance obligation.

Determine the transaction

The transaction price is the amount of consideration the Company expects to receive in exchange for the sale of the product.

This amount is determined excluding sales taxes collected on behalf of government agencies and net of any sales discounts, incentives, and returns.

Allocate the transaction price to distinct performance obligations :

The transaction price is allocated to each distinct performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services provided.

If a contract involves multiple performance obligations, each is accounted for separately if distinct, and the SSP reflects the price the Company would charge if the good or service were sold separately in similar circumstances and to similar customers.

Recognize revenue as the performance obligations are satisfied :

Revenue from the sale of hemp-derived THC products (non-licensing)

is recognized when control of the product transfers to the customer, typically upon delivery or shipment, as the customer assumes the

risks and rewards of ownership.

Payment terms vary by customer, but the time between revenue recognition and payment due is generally

not significant.

For products sold under consignment arrangements, revenue is recognized only when control is transferred to the end customer.

The Company does 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.

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.

Net (Loss) Income Per Share

The Company presents basic

and diluted net (loss) income per share attributable to Common Stockholders in conformity with the one-class method.

The Company computes

basic (loss) income per share by dividing net (loss) income available to Common Stockholders by the weighted-average number of Common

Stock outstanding.

Diluted (loss) income per share adjusts basic loss per share for the potentially dilutive impact of convertible notes,

stock options, restricted stock units and warrants.

For the nine months ended September 30, 2024, the Company adjusts the net income available

to common stockholders and the weighted average common stock outstanding for the effective of dilutive securities as presented within

Note 15 – Net (Loss) Income Per Share.

As the Company has reported losses for the three months ended September 30, 2025 and 2024

and the nine months ended September 30, 2025, all potentially dilutive securities including convertible notes, stock options, restricted

stock units and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted net loss per share for those periods.

Net (loss) income per share

calculations for all periods have been adjusted to reflect the reverse stock split effected on October 8, 2024.

This amount is determined excluding sales taxes collected on behalf of government agencies and net of any sales discounts,

incentives, and returns.

Allocate the transaction

price to distinct performance obligations :

The transaction price is allocated to each distinct performance obligation

based on the relative standalone selling prices (“SSP”) of the goods or services provided.

If a contract involves multiple

performance obligations, each is accounted for separately if distinct, and the SSP reflects the price the Company would

charge if the good or service were sold separately in similar circumstances and to similar customers.

Recognize revenue as

the performance obligations are satisfied :

Revenue from the sale of

hemp-derived THC products (non-licensing) is recognized when control of the product transfers to the customer, typically upon

delivery or shipment, as the customer assumes the risks and rewards of ownership.

Payment terms vary by customer, but the time between

revenue recognition and payment due is generally not significant.

For products sold under consignment arrangements, revenue

is recognized only when control is transferred to the end customer.

The Company does not maintain a specific

reserve for returns due to the limited circumstances under which returns are permitted in customer agreements.

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.

The Company accounts for

income taxes pursuant to the provisions of ASC Topic 740, Income Taxes (“ASC 740”), which requires, among other things,

an asset and liability approach to calculating deferred income taxes.

The asset and liability approach requires the recognition of deferred

tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax

bases of assets and liabilities.

A valuation allowance is provided to offset any net deferred tax assets for which management believes

it is more likely than not that the net deferred tax asset will not be realized.

When tax returns are filed, it is highly certain that some positions

taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position

taken or the amount of the position that would be ultimately sustained.

In accordance with the guidance of ASC 740, the benefit of a tax

position is recognized in the unaudited condensed consolidated financial statements in the period during which, based on all available

evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution

of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that

meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely

of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with tax positions taken

that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying

balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Company has recorded liabilities for unrecognized tax benefits related to research and development tax credits.

The Company recognizes the

benefit of a tax position when it is effectively settled.

ASC 740, provides guidance on how an entity should determine whether a tax

position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

ASC 740 clarifies that a tax position

can be effectively settled upon the completion of an examination by a taxing authority.

For tax positions considered effectively settled,

the Company recognizes the full amount of the tax benefit.

The Company’s provision

for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented.

the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the full year and the jurisdictions

in which that income (loss) is subject to tax.

The actual effective tax rate for the full year may differ from these estimates if income

(loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in

which it is taxed is different from the estimated allocations.

The provision for income

taxes represents federal, state and local income taxes.

The effective rate differs from statutory rates due to the Company’s release

of valuation allowance during the three months ended March 31, 2026 that was previously offsetting deferred tax assets.

Our effective

tax rate may change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical

mix of earnings, enacted tax legislation, and state and local income taxes.

In addition, changes in judgment from the evaluation of new

information resulting in the recognition, derecognition or re-measurement of a tax position taken in a prior annual period is recognized

separately in the quarter of the change.

Tax contingencies are recorded,

if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities.

potential exposures could result from applications of various statutes, rules, regulations and interpretations.

Any estimates of tax

contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

Any interest and penalties related to

uncertain tax positions would be included as part of the income tax provision.

The Company’s conclusions regarding uncertain tax

positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations

and interpretations thereof as well as other factors.

Net Income (Loss)

The Company presents basic and diluted net income (loss) per share

in accordance with ASC 260, Earnings Per Share (“ASC 260”).

Basic income (loss) per share is computed using the two-class

method, under which net income is allocated to common stockholders and participating securities based on their respective rights to receive

The Company’s participating securities consist of pre-funded warrants.

Accordingly, net income attributable to its Common

Stockholders may differ from reported net income in periods of net income.

Basic income (loss) per share is calculated by dividing net income

(loss) attributable to Common Stockholders by the weighted-average number of shares of Common Stock outstanding during the period.

income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised

or converted into common stock.

The Company determines diluted income (loss) per share by applying the most dilutive method for each class

of potentially dilutive securities.

The treasury stock method is applied to stock options and restricted stock units, the if-converted

method is applied to convertible notes, and the two-class method is applied to participating securities.

For instruments subject to the

two-class method, the Company applies a hybrid approach in which income is allocated after giving effect to adjustments from other dilutive

In periods of net income, a portion of income is allocated to participating

securities and deducted in determining income attributable to Common Stockholders.

In periods of net loss, losses are not allocated to

participating securities, as they do not have a contractual obligation to share in losses.

In such periods, basic and diluted net loss

per share are the same, as potentially dilutive securities are anti-dilutive.

See Note 14 – Net Income (Loss) Per Share for details.

Recently Adopted Accounting Pronouncements

On December 14, 2023, the

Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Improvements to Income Tax Disclosures , a final standard

on improvements to income tax disclosures.

The standard requires disaggregated information about a reporting entity’s effective

tax rate reconciliation as well as information on income taxes paid.

The standard applies to all entities subject to income taxes and

is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.

For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024.

guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

The Company adopted this new standard

on January 1, 2025 and the effect of this guidance will be reflected in the financial statements for the year ending December 31, 2025.

In November 2024, the Financial

Accounting Standards Board (“FASB”) issued ASU 2024-04, Debt with Conversion and Other Options (“ASU 2024-04”),

which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as

an induced conversion.

ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within

those annual reporting periods.

Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06, Debt

- Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity .

The Company adopted

this new standard on January 1, 2026 on a prospective basis and the effect of this guidance is reflected in the financial statements beginning

in the three months ended March 31, 2026.

Recently Announced Accounting Pronouncements

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issued ASU 2024-03, Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220):

Disaggregation

of Income Statement Expenses.

This guidance requires additional disclosure of certain amounts included in the expense captions presented

on the Statement of Operations as well as disclosures about selling expenses.

The ASU is effective on a prospective basis, with the option

for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December

Disaggregation of Income Statement Expenses.

This guidance requires additional disclosure of certain amounts included in the expense

captions presented on the Statement of Operations as well as disclosures about selling expenses.

The ASU is effective on a prospective

basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods

beginning after December 15, 2027.

Early adoption is permitted for annual financial statements that have not yet been issued.

The Company is currently evaluating

the impact of this ASU on its condensed consolidated financial statements and related disclosures.

In November 2024, the FASB

issued ASU 2024-04, Debt with Conversion and Other Options (“ASU 2024-04”), which clarifies the requirements for determining

whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

ASU 2024-04 is effective

for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods.

Early adoption

is permitted for all entities that have adopted the amendments in ASU 2020-06.

Adoption can be on a prospective or retrospective basis.

The Company is currently evaluating the disclosure impact that ASU 2024-04 may have on its condensed consolidated financial statement

presentation and disclosures.

In July 2025, the FASB issued

2025-05, Financial Instruments - Credit Losses (“ASU 2025-05”), to introduce a practical expedient for

all entities, which simplifies the calculation required for estimating credit losses and assumes that current conditions as of the balance

sheet date do not change for the remaining life of the asset.

ASU 2025-05 is effective for annual reporting periods beginning after December

15, 2025, and interim reporting periods within those annual reporting periods;

however, early adoption is permitted.

ASU 2025-25 allows

for adoption using a prospective method.

The Company is currently evaluating the impact of ASU 2025-05 on its condensed consolidated financial

statements and related disclosures.

Other recent accounting pronouncements

did not or are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial

is currently evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting

(Topic 270) (“ASU 2025-11”), Narrow-Scope Improvements, to provide clarity about the current requirements, rather than evaluate

whether to expand or reduce interim disclosure requirements.

The amendments in ASU 2025-11 result in a comprehensive list of interim disclosures

that are required by GAAP.

The amendments in ASU 2025-11 also include a disclosure principle that requires entities to disclose events

since the end of the last annual reporting period that have a material impact on the entity.

The amendments in ASU 2025-11 are effective

for interim reporting periods within annual reporting periods beginning after December 15, 2027 and early adoption is permitted.

The amendments

in ASU 2025-11 can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the disclosure impact that ASU 2025-11 may have on its financial statement presentation and disclosures.

In December 2025, the FASB issued ASU 2025-12 Codification Improvements

(“ASU 2025-12”), which includes various amendments to the FASB Accounting Standards Codification intended to clarify, correct,

and improve existing guidance.

ASU 2025-12 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting

periods within those annual reporting periods.

Early adoption is permitted.

The Company is currently evaluating the impact that ASU 2025-12

may have on its financial statement presentation and disclosures.

Other recent accounting pronouncements did not or are not believed

by management to have a material impact on the Company’s present or future condensed consolidated financial statements.

Liquidity and Capital

The Company is required to evaluate whether there are conditions or

events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within

one year after the date that the financial statements are issued.

Substantial doubt exists when conditions and events, considered in aggregate,

indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that

the condensed consolidated financial statements are issued.

The Company has a history

of recurring net losses and negative cash flow in operating activities.

However, for the three months ended March 31, 2026, the Company

generated positive cash flow from operating activities and reported net income primarily as a result of non-cash income tax benefit.

believes that the Company’s $ 33.3 million of cash and cash equivalents, anticipated contractual Licensing Revenue and ability to

address outstanding Convertible Notes will be sufficient to meet our cash requirements through at least the 12-month period following

the date that these condensed consolidated financial statements were issued.

Convertible Notes maturities of $ 80 million exist through February

2027, with $ 72.0 million held by Green Thumb, a related party.

The ability for the holders of these notes to elect to be repaid in cash

upon maturity could raise substantial doubt about the Company’s ability to continue as a going concern.

However, while these contractual

maturities require management attention, management believes it is probable that the obligations will be addressed through extension or

conversion consistent with historical practice.

As such, the Company’s financial statements have been prepared on a going concern

Note 2 — Revenue

The Company generates revenue from continuing operations from Non-licensing

Revenue and Licensing Revenue.

For the three and nine months ended September 30, 2025, the Company

generated revenue from continuing operations from non-hemp-derived product sales and sales-based Licensing Revenue.

Non-licensing Revenue

from hemp-derived product sales is recognized at a point-in-time when control transfers to the customer.

Licensing Revenue is recognized

over time as the underlying sales occur in accordance with the terms of the related party license agreements.

For the three and nine months

ended September 30, 2024, the Company had no revenue from continuing operations.

The Company generates revenue

from continuing operations from Non-licensing Revenue and Licensing Revenue.

For the three months ended March 31, 2026, the Company generated revenue

from continuing operations from hemp-derived product sales (Non-licensing Revenue) and sales-based Licensing Revenue.

Hemp-derived product

sales revenue is recognized at a point-in-time when control transfers to the customer.

Licensing Revenue is recognized over time as the

underlying sales occur in accordance with the terms of the related party license agreements.

For the three months ended March 31, 2025,

all of the Company’s revenue from continuing operations is transferred at a point-in-time and relates to hemp-derived beverages.

The following table provides

1 unchanged sentence

Three months ended

September 30,

Nine months ended

September 30,

(In thousands)

2 unchanged sentences

Total revenue

In accordance with ASC 606-10-50-13,

the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable because the majority of the Company’s

remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation

is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

In accordance with ASC 606-10-50-13, the Company is required to include

disclosure on its remaining performance obligations as of the end of the current reporting period.

As of March 31, 2026, the aggregate

amount of contractual Licensing Revenue allocated to remaining performance obligations is approximately $ 308.4 million.

This represents

fixed fees through August 27, 2030, reflecting the period prior to which neither party may terminate unilaterally;

mutual termination

remains available throughout the term.

The Company expects to recognize this amount as revenue ratably over that period.

The Company excluded

variable consideration related to CPI-based fee escalators from the total remaining performance obligations.

Note 3 — Supplemental Condensed Consolidated Balance Sheet

1 unchanged sentence

Accounts receivable, net, consisted of the following

as of September 30, 2025 and December 31, 2024:

September 30,

as of March 31, 2026 and December 31, 2025:

(In thousands)

2 unchanged sentences

Accounts receivable, net

The movement in the Company’s credit losses

The movement of the Company’s credit losses

accounts were as follows:

September 30,

(In thousands)

Allowance for credit losses - beginning of period

(Recovery of) allowance for credit losses

(Recovery of) Provision allowance for credit losses

Write-offs of uncollectible accounts

2 unchanged sentences

Prepaid expenses and other current assets consisted

of the following as of September 30, 2025 and December 31, 2024:

September 30,

of the following as of March 31, 2026 and December 31, 2025:

(In thousands)

Prepaid marketing

Other receivables

Prepaid insurance

Prepaid expenses, other

Prepaid insurance

Total prepaid expenses and other current assets

1 unchanged sentence

Accrued expenses and other current liabilities

consisted of the following as of September 30, 2025 and December 31, 2024:

September 30,

consisted of the following as of March 31, 2026 and December 31, 2025:

(In thousands)

Accrued consulting fees

Accrued consulting fee

Accrued marketing fee

Accrued interest expense

Litigation reserve

Sales tax payable

Compensation related fees

Accrued fulfillment and manufacturing related costs

Accrued marketing fees

Accrued professional fees

Litigation reserve

Accrued fulfillment and manufacturing related costs

Other current liabilities

Total accrued expenses and other current liabilities

During the nine months ended September

30, 2025, the Company paid $ 1.5 million into escrow related to Cultivation Sale Agreement.

See related legal matters in Note 16.

As of September 30, 2025

and December 31, 2024, the Company had related party accrued consulting fees with Green Thumb of approximately $ 4.1 million and $ 332 thousand,

respectively.

Note 4 — Fair Value Measures

6 unchanged sentences

of three levels, as follows:

Observable inputs such as quoted prices

for identical assets or liabilities in active markets.

Observable inputs

such as quoted prices for identical assets or liabilities in active markets.

Other inputs that

3 unchanged sentences

price the asset or liability.

Valuation techniques for

assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable

inputs such as projections, estimates and management’s interpretation of current market data.

These unobservable inputs are only

utilized to the extent that observable inputs are not available or cost-effective to obtain.

At September 30, 2025 and

December 31, 2024, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

September 30, 2025

The Company has certain financial instruments which consist of cash

and cash equivalents, accounts receivable, accounts payable, accrued expenses, operating lease liabilities, long-term debt, related party

debt, and warrant liabilities.

Fair value information for each of these instruments as well as other balances of the Company are as follows:

Cash and cash equivalents,

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

Accounts receivable are

presented net of an allowance for estimated credit losses, which approximates fair value.

The carrying value of lease

liabilities approximates fair value due to the implicit discount rates used in the determination of the lease liabilities being consistent

with the Company’s incremental borrowing rates at the time of lease inception and accounting for the duration of the leases.

Long-term debt and related

party debt, including the debt that has undergone troubled debt restructuring, is carried at amortized cost, dictated by the prevailing

market interest rates at the time of each transaction in accordance with ASC Topic 470, Debt (“ASC 470”).

The Company’s warrant liabilities are marked-to-market for each

reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying unaudited

condensed consolidated statements of operations until the warrants are exercised.

The fair value of the warrant liabilities are estimated

using a Black-Scholes option-pricing model.

At March 31, 2026 and December

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

March 31, 2026

December 31, 2025

4 unchanged sentences

Total liabilities

Fair Value of Financial Instruments

The Company has certain financial

instruments which consist of cash and cash equivalents, accounts receivable, contingent consideration, operating lease liabilities, long-term

debt, related party debt, and warrant liabilities.

Fair value information for each of these instruments as well as other balances of the

Company are as follows:

Cash and cash equivalents approximate their fair value based on the short-term nature of these instruments.

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

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

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

The Company’s warrant liabilities are marked-to-market at 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 or expire.

The fair value of the warrant liabilities is estimated using a Black-Scholes option-pricing model.

The Company has pre-funded warrants issued to a related party.

As a result of the latest amendment executed as of December 31, 2024, the warrants met the requirements for equity classification and were marked to fair value as of December 31, 2024.

The warrants will not be marked to fair value on a recurring basis.

Warrant Liabilities

The estimated fair value

of the warrant liabilities on September 30, 2025 and December 31, 2024 is determined using Level 3 inputs.

Inherent in a Black-Scholes

option-pricing model are assumptions used in calculating the estimated fair values that represent the Company’s best estimate.

volatility rate is determined utilizing the Company’s own share price and the share price of competitors over time.

However, inherent uncertainties

are involved.

If factors or assumptions change, the estimated fair values could be materially different.

The estimated fair

value of the warrant liabilities on March 31, 2026 and December 31, 2025 is determined using Level 3 inputs.

Inherent in a

Black-Scholes option-pricing model are assumptions used in calculating the estimated fair values that represent the Company’s

best estimate.

The volatility rate is determined utilizing the Company’s own share price and the share price of competitors

However, inherent uncertainties are involved.

If factors or assumptions change, the estimated fair values could be

materially different.

The following table summarizes

the Company’s assumptions used in the valuations as of September 30, 2025 and December 31, 2024:

September 30,

the Company’s assumptions used in the valuations as of March 31, 2026 and December 31, 2025:

Exercise price

4 unchanged sentences

3.68 - 3.79 %

3.47 - 3.48 %

The following table sets

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the nine months ended September 30, 2025 and for

the year ended December 31, 2024 and changes in the number of outstanding warrant liabilities for the nine months ended September 30,

(In thousands, except number of outstanding warrant liabilities)

September 30,

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2026 and for

the year ended December 31, 2025:

March 31, 2026

December 31, 2025

Warrant liabilities - beginning of period

Initial fair value of warrant liabilities

Exercise of warrants

Reclassification of warrant liabilities to equity

Change in estimated fair value

Warrant liabilities end of period

As of September 30, 2025 and December 31, 2024,

the number of outstanding warrants subject to liability classification was 40,017 , of which 15,394 are held by RSLGH, a related party.

Note 5 — Inventory

As of March 31, 2026 and December 31, 2025, the number of outstanding

warrants subject to liability classification was 40,017 , of which 15,394 are held by RSLGH, LLC, a related party and wholly-owned subsidiary

of Green Thumb.

Note 5 — Inventory, Net

Inventories are stated at

the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in, first-out

Such costs include the acquisition cost for raw materials and operating supplies.

The Company’s standard payment terms with

suppliers may require making payments in advance of delivery of the Company’s products.

Inventory consisted of the following related to hemp-derived THC products

as of September 30, 2025 and December 31, 2024:

September 30,

the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method.

Such costs include the

acquisition cost for raw materials and operating supplies.

The Company’s standard payment terms with suppliers may require making

payments in advance of delivery of the Company’s products.

Inventory consisted of the following related

to hemp-derived THC products as of as of March 31, 2026 and December 31, 2025:

(In thousands)

6 unchanged sentences

Inventory Reserves

The Company establishes an

inventory reserve for obsolete, slow moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow moving,

or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based upon

management’s expected method of disposition.

The Company establishes

an inventory reserve for obsolete, slow moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow

moving, or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based

upon management’s expected method of disposition.

Note 6 — Discontinued Operations

Cultivation Business Discontinued Operations

On December 31, 2024, the

Company executed and closed the Purchase Agreement with CP for the sale of assets relating to the Company’s Cultivation Business.

The consideration for the sale of the Cultivation Business consisted of the assumption by CP of all the Company’s secured indebtedness

currently held by CP with an aggregate amount of principal and accrued interest of approximately $ 7 million, as well as certain other

liabilities related to the Cultivation Business.

The sale represents efforts to strategically shift the Company’s direction to focus

on its hemp-related business operations.

As a result, the Cultivation Business has been presented as discontinued operations in the condensed

consolidated financial statements for all periods presented.

The disposition resulted

in a loss on sale of $ 11.9 million, which was recorded in net loss from discontinued operations in the consolidated statement of operations

for the year ended December 31, 2024.

The operating results of the Cultivation Business were reported as a net loss from discontinued

operations in the consolidated statements of operations through December 31, 2024, the date of disposition, and were considered material.

The assets and liabilities related to the Cultivation Business have been separately classified in the accompanying condensed consolidated

balance sheets as of September 30, 2025 and 2024.

On December 31, 2024, the Company entered into an Asset Purchase Agreement

(the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond Chang, the Company’s

former Chairman and Chief Executive Officer.

Under the Purchase Agreement, CP acquired assets from the Company relating to the Company’s

vertical farming unit business, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights TM

software solutions (collectively, the “Cultivation Business”).

The consideration for the sale included the assumption by CP

of certain secured indebtedness and other liabilities related to the Cultivation Business.

The disposition resulted in a loss on sale

of $ 11.9 million, which was recorded in net loss from discontinued operations for the year ended December 31, 2024.

As of March 31, 2026,

the Company has no material remaining assets or liabilities, nor any ongoing involvement related to the Cultivation Business.

three months ended March 31, 2026, the Company has no material results of operations related to the Cultivation Business.

Extraction Business Discontinued Operations

On March 30, 2025, the Company

approved the discontinuation and wind down of its legacy Extraction Business.

As a result, all operations associated with the Extraction

Business have ceased as of March 31, 2025, and the Company has initiated the sale or disposal of all remaining assets related to the Extraction

In addition, all outstanding contracts associated with the Extraction Business have been or are in the process of being terminated

in accordance with their respective terms.

In connection with the discontinuation of the business, the Company reduced its workforce by

nine employees on April 1, 2025.

The discontinuation of the legacy Extraction Business represents efforts to strategically shift the Company’s

direction to support the continued expansion of its hemp-derived products business operations.

As a result, the Extraction Business has

been presented as discontinued operations in the condensed consolidated financial statements for all periods presented.

As a result of the decision

to wind down the Extraction Business, a gain of approximately $ 3.5 million, was recorded in income from discontinued operations in the

condensed consolidated statement of operations for the nine months ended September 30, 2025.

The operating results of the Extraction Business

were reported as a net loss from discontinued operations in the condensed consolidated statements of operations for the three and nine

months ended September 30, 2025 and 2024, and were considered material.

The assets and liabilities related to the Extraction Business

have been separately classified in the accompanying condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024.

The assets and liabilities

associated with Discontinued Operations consisted of the following as of September 30, 2025 and December 31, 2024, respectively:

(In thousands)

September 30,

Current assets:

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Current assets of discontinued operations

Property and equipment, net

Operating lease right-of-use assets

Other non-current assets

Non-current assets of discontinued operations

Total assets of discontinued operations

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Operating lease liabilities, current

Customer deposits

Current liabilities of discontinued operations

Operating lease liabilities, net of current

Non-current liabilities of discontinued operations

Total liabilities

approved the discontinuation and wind down of its extraction product line, which included hydrocarbon, alcohol, solventless, post-processing,

and lab equipment (the “Extraction Business”).

The wind down was completed during 2025 and included the cessation of operations,

termination of contracts, and disposal of related assets.

The Company recognized a gain of approximately $ 3.5 million in income from discontinued

operations for the year ended December 31, 2025.

The operating results of the Extraction Business were reported as discontinued operations

in the condensed consolidated financial statements for all prior periods presented.

In connection with the discontinuation of its legacy Extraction Business, the Company continues to carry certain liabilities, including

accounts payable and other current liabilities of $ 0.6 million and $ 1.5 million, respectively, as of March 31, 2026.

These balances represent

historical obligations for which there has been limited collection activity.

The Company believes the amounts may be owed and therefore

has classified them as current liabilities;

however, the timing and likelihood of settlement remain uncertain.

The Company evaluates these

balances periodically and will derecognize such obligations when it determines that settlement is no longer probable, including consideration

of applicable statutes of limitations, which may extend for several years.

For the three months ended

March 31, 2026, the Company has no material results of operations related to the Extraction Business.

As of December 31, 2025, assets associated with Discontinued Operations

consisted of operating lease right-of-use assets of $ 14 thousand.

Liabilities associated with Discontinued Operations totaled $ 2.1 million,

consisting of accounts payable of $ 0.6 million, accrued expenses and other current liabilities of $ 1.5 million, and current operating

lease liabilities of $ 38 thousand.

The following table summarizes

the Company’s (loss) income from Discontinued Operations for the three and nine months ended September30, 2025 and 2024, respectively:

For the three months ended September 30,

For the nine months ended September 30,

(In thousands)

the Company’s income from Discontinued Operations for the three months ended March 31, 2025:

three months ended

March 31, 2025

Cost of goods sold

Gross profit (loss)

Selling, general and administrative

Gain on settlement of contingent liabilities

Research and development

Impairment of right-of-use assets

Loss (gain) on disposal on property and equipment

Gain on disposal of property and equipment

Total operating expenses

Operating loss from discontinued operations

Other (Expense) income

Gain on disposal of Extraction business

Other (expense) income, net

Total other (expense) income

Net (loss) income from discontinued operations

Total other income

Net income from discontinued operations

Income tax effect on discontinued operations

(Loss) income from discontinued operations, net of income taxes

The consolidated statements of cash flows include continuing operations

and discontinued operations.

The following table summarizes the depreciation and amortization of long-lived assets, provisions for

credit losses, change in inventory reserves, and capital expenditures and disposals related to the Discontinued Operations for the three

and nine months ended September 30:

For the three months ended September 30,

For the nine months ended September 30,

Income from discontinued operations, net of income taxes

The condensed consolidated statements of

cash flows include continuing operations and discontinued operations.

The following table summarizes the depreciation and

amortization of long-lived assets and change in provision for credit losses related to Discontinued Operations for the three months

ended March 31, 2025:

three months ended

March 31, 2025

Depreciation and amortization

Change in provision for credit losses, net

Change in inventory reserves

Proceeds from disposal of property and equipment

Note 7 — Business Combinations and Asset Acquisitions

The Company performs an assessment

of whether an acquisition is a business combination or asset acquisition based on the conditions surrounding the event using guidance

from ASC 805.

Judgement is applied in determining whether a transaction is a business combination or an asset acquisition by considering

the nature of the assets acquired and the processes applied to those assets, or if the integrated set of assets and activities is capable

of being conducted and managed for the purpose of providing a return to investors or other owners.

Business combinations and asset acquisitions

have been accounted for in accordance with ASC 805.

Business Combinations are accounted for by applying the acquisition method, whereby

the assets acquired, and the liabilities assumed are recorded at their fair values with any excess of the aggregate consideration over

the fair values of the identifiable net assets allocated to goodwill (where applicable).

If an acquisition is deemed to be a business,

the purchase method of accounting is applied.

Identifiable assets acquired and liabilities assumed at the acquisition date are recorded

at fair value.

If a transaction is deemed to be an asset acquisition, the cost accumulation and allocation model is used whereby the assets

and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair

Goodwill is not recognized in asset acquisitions.

Operating results have been

included in these consolidated financial statements from the date of each respective acquisition.

Supplemental pro forma financial information

has not been presented as the impact for Business Combinations was not material to the Company’s consolidated financial statements.

Asset Acquisition of VCP

On August 27, 2025, the Company

entered into a purchase agreement with VCP23, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant to which the

Company acquired all of the equity interests in VCP.

The assets of VCP consist primarily of intellectual property rights to several brands

including the Acquired Brands.

The consideration exchanged for the equity interest was cash consideration of $ 50.0 million.

The Acquisition of VCP did

not meet the definition of a business according to ASC 805 because substantially all of the fair value of the gross assets acquired was

concentrated in a single identifiable asset or a group of similar identifiable assets.

The Company recorded intangible assets relating

to trade names of the Acquired Brands in the amount of the $ 50.0 million purchase consideration.

In addition, no process or output exists

and there is not an integrated set of activities capable of providing a return.

The useful lives of the identified intangibles range from

2.4 to 4.4 years with a weighted average useful life of 3.9 years.

As the transaction was determined to be an asset acquisition, the total

purchase price was allocated to the fair value of the net identifiable assets acquired and goodwill was not recognized.

Acquisition of MC Brands LLC

On May 20, 2025, the Company

entered into a purchase agreement with VCP, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant to which the

Company acquired all of the equity interests in MC Brands LLC and its wholly-owned subsidiary Core Growth LLC (together referred to as

“MC Brands”).

The assets of MC Brands consist primarily of intellectual property rights to the incredibles brand.

aggregate consideration exchanged for the equity interest was $ 5.1 million of cash.

The Company prepared a purchase price allocation based on management’s

estimates and assumptions which are subject to change within the purchase price allocation period (generally not more than one year from

the acquisition date).

As part of the purchase accounting, the Company recorded intangible assets of $ 4.8 million relating to the incredibles

trade name intellectual property and $ 275 thousand of customer relationships.

The estimates for useful lives of the identified intangibles

are five years for trade names and seven years for customer relationships with a weighted average useful life of 5.11 years.

purchase price equaled the fair value of the net identifiable assets acquired, no goodwill was recorded.

The following table summarizes

the allocation of the purchase price:

Allocation of Purchase Price (in thousands)

Accounts receivable

Inventory (non-cannabis)

Customer relationships

Total assets acquired at fair value

Accounts payable

Total liabilities assumed at fair value

Total purchase price

Note 8 — Intangible Assets, Net

Intangible assets, net at September 30, 2025 and

December 31, 2024 are summarized as follows:

September 30, 2025

Customer relationships

Note 7 — Prepaid License Rights

The Company evaluates transactions involving the acquisition of intellectual

property and other assets to determine the appropriate accounting treatment based on applicable GAAP, including ASC 805, and ASC Topic

340 – Other Assets and Deferred Costs (“ASC 340”).

Certain transactions may not meet the criteria for either

a business combination or an asset acquisition and are accounted for under other applicable GAAP.

Prepaid License Rights relate to arrangements entered into in 2025

with affiliates of Green Thumb, as further described in Note 8 below.

As of March 31, 2026 and

December 31, 2025, prepaid license rights were comprised of the following:

March 31, 2026

(In thousands)

Prepaid License Rights, related party

December 31, 2025

Customer relationships

The Company recorded amortization

expense of $ 1.8 million and $ 0 , respectively, in general and administrative expense in the condensed consolidated statements of operations

for the three months ended September 30, 2025 and 2024, respectively.

The Company recorded amortization

expense of $ 2.5 million and $ 0 , respectively, in general and administrative expense in the condensed consolidated statements of operations

for the nine months ended September 30, 2025 and 2024, respectively.

Future amortization expense of the Company’s intangible assets

is as follows:

Remainder of 2025

Note 9 — Debt

(In thousands)

Prepaid License Rights, related party

During the three months ended March 31, 2026,

the Company recognized amortization expense of $ 3.4 million related to Prepaid License Rights.

The estimated future amortization expense for

the next five years and thereafter is as follows:

Years ending December 31 (In thousands)

Future Amortization Expense

Remaining 2026

Note 8 —Acquisitions

Prepaid License Rights

VCP Transaction

On August 27, 2025, the Company entered into a purchase agreement with

VCP23, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant to which the Company obtained access to and use of

certain intellectual property rights (the “VCP Transaction”) in exchange for cash consideration of $ 50.0 million.

An affiliate of Green Thumb holds a call option to repurchase some

or all of the VCP Transaction intellectual property rights for up to five years from the transaction date upon the occurrence of certain

specified eligibility conditions, which are outside of the control of both parties but with likelihood of eligibility greater than remote.

Due to changes in legislation around hemp-derived products enacted in November 2025, which are currently expected to become effective

in November 2026, one of the eligibility conditions that would permit the repurchase right to become exercisable is likely to be satisfied

within the next twelve months.

However, satisfaction of such conditions does not obligate Green Thumb or its affiliates to exercise the

repurchase option, which remains within their discretion.

Because this call option represents a substantive repurchase right,

the arrangement includes terms that preclude the transfer of control and therefore does not meet the criteria for a completed sale and

is not accounted for as an asset acquisition under ASC 805.

Instead, the Company accounts for the arrangement under other applicable U.S.

GAAP, including ASC 340.

The related Prepaid License Rights are amortized on a straight-line basis over their estimated useful life.

MC Brands Transaction

On May 20, 2025, the Company entered into a purchase agreement with

VCP, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant to which the Company obtained access to and use of

certain intellectual property rights associated with the incredibles brand (the “MC Brands Transaction”) in exchange for cash

consideration of $ 5.1 million.

An affiliate of Green Thumb holds a call option

to repurchase some or all of the MC Brands intellectual property rights for up to five years from the transaction date upon the occurrence

of certain specified eligibility conditions.

Due to changes in legislation around hemp-derived products enacted in November 2025, which

are currently expected to become effective in November 2026, one of the eligibility conditions that would permit the repurchase right

to become exercisable is likely to be satisfied within the next twelve months.

However, satisfaction of such conditions does not obligate

Green Thumb or its affiliates to exercise the repurchase option, which remains within their discretion.

Consistent with the VCP Transaction, this arrangement

is not accounted for as an asset acquisition under ASC 805 and is instead accounted for as a prepaid executory contract under ASC 340.

The Company continues to evaluate the impact

of regulatory developments related to hemp-derived products on this arrangement.

As of March 31, 2026, no additional impairment or changes

in accounting conclusions have been recognized.

The Company’s debt consisted of:

September 30,

(In thousands)

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Long-term debt:

Convertible Notes

Convertible Note

Other notes payable

3 unchanged sentences

Convertible Notes

On November 5, 2024, the Company issued a secured convertible note

(the “November 2024 Note”) to RSLGH, LLC (“RSLGH”), a subsidiary of Green Thumb, a related party.

2024 Note is a secured obligation of the Company and ranks senior to all indebtedness of the Company except for the May 2025 Notes and

the August 2025 Notes (both 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 will be 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

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, the effective date of the

No changes were made to the conversion price of the principal amount of the November 2024 Note.

On May 22, 2025, the Company

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, the Company

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 of the Company and rank senior

to all indebtedness of the Company except for the November 2024 Note and the August 2025 Notes, which ranks on parity with the May 2025

On May 22, 2025,

the Company 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 of the

Company and rank senior to all indebtedness of the Company except for the August 2025 Notes, which ranks on parity with the May 2025

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

11 unchanged sentences

and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules.

On August 25, 2025, the Company

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 the Company and rank

senior to all indebtedness of the Company except for the May 2025 and November 2024 Notes, which rank 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,

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.

The November 2024 Note, May

2025 Notes and August 2025 Notes (together referred to as “the Notes”) impose certain customary affirmative and negative covenants

upon the Company, including covenants relating to ranking and reservation of shares.

If an event of default under a Note occurs and is

not waived, the holder can elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus

accrued and unpaid interest, including default interest, which accrues at a rate per annum equal to 14 % from the date of a default or

event of default.

The Company was in compliance with these covenants as of September 30, 2025.

The Company determined the

Notes do not contain features that qualify as embedded derivatives in accordance with ASC 815.

Borrowings under the Notes as of September

30, 2025 totaled $ 90.0 million, $ 10.0 million of which are recorded on the Company’s condensed consolidated balance sheets in related

party debt, current, $ 72.0 million of which are recorded in related party debt, net of current, and the remaining are reported in long-term

debt, net of current.

Related party interest expense

incurred on the Notes amounted to approximately $ 1.4 million and $ 0 for the three months ended September 30, 2025 and 2024, respectively.

Related party interest expense incurred on the Notes amounted to approximately $ 2.2 million and $ 0 for the nine months ended September

30, 2025 and 2024, respectively.

Interest expense incurred

on the Notes related to unaffiliated third parties amounted to approximately $ 123 thousand and $ 0 for the three months ended September

30, 2025 and 2024, respectively.

Interest expense incurred on the Notes related to unaffiliated third parties amounted to approximately

$ 156 thousand and $ 0 for the nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025,

future minimum principal payments on all debt positions, excluding accrued interest amounts, were as follows:

Years ending December 31 (In thousands)

On August 25, 2025, the Company 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 the Company and rank senior to all indebtedness of

the Company except for the May 2025, which rank 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

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.

The May 2025 Notes and August 2025 Notes (together referred to as the

“Convertible Notes”) impose certain customary affirmative and negative covenants upon the Company, including covenants relating

to ranking and reservation of shares.

If an event of default under one or more of the Convertible Notes occurs and is not waived, the

holder can elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus accrued and unpaid

interest, including default interest, which accrues at a rate per annum equal to 14 % from the date of a default or event of default.

Company was in compliance with these covenants as of March 31, 2026.

The Company determined the Convertible Notes do not contain features

that qualify as embedded derivatives in accordance with ASC 815.

Borrowings under the Convertible Notes as of March 31, 2026 totaled $ 80.0

million recorded on the Company’s condensed consolidated balance sheet as Long-term debt, current, $ 72.0 million of which are considered

related party with Green Thumb.

Related party interest expense incurred on the Convertible Notes was

approximately $ 1.8 million for the three months ended March 31, 2026.

Related party interest expense was approximately $ 250 thousand for

the three months ended March 31, 2025, primarily related to a note that was entered into in November 2024 and was settled in November

Interest expense incurred on the Convertible Notes related to unaffiliated

third parties amounted to approximately $ 200 thousand and an immaterial amount for the three months ended March 31, 2026 and 2025, respectively.

As of March 31, 2026, future

minimum principal payments on all debt positions, excluding accrued interest amounts, were as follows:

(In thousands)

Remaining 2026

Total future payments

Note 10 — Leases

The determination as to whether

any arrangement contained a lease at its inception was performed based on whether or not the Company has the right to control the asset

during the contract period.

The lease term was determined assuming the exercise of options that were reasonably certain to occur.

with an original lease term of 12 months or less at inception were not reflected in the Company’s condensed consolidated balance

sheets and those lease costs are expensed on a straight-line basis over the respective term.

Leases with a term greater than 12 months

were reflected as non-current right-of-use assets and current and non-current lease liabilities in the Company’s condensed consolidated

balance sheets.

As the implicit interest

rate in its leases was generally not known, the Company used its incremental borrowing rate as the discount rate for purposes of determining

the present value of its lease liabilities.

The Company’s incremental borrowing rate was determined using the interest rate on a

long term debt position entered into at approximately the same time and for the same duration as the lease.

When a contract contained

lease and non-lease elements, both were accounted for as a single lease component.

As of September 30, 2025

and December 31, 2024, the Company had no active finance leases.

Also during the nine months

ended September 30, 2025, in connection with the discontinuation of Extraction Business, the Company subleased the assets under one of

its leases, with the sublease commencement date on April 1, 2025, for $ 9 thousand per month.

The Company recognized a sublease income

of $ 27 thousand, within loss from discontinued operations in the condensed consolidated statements of operations.

The Company recognized

an impairment of right-of-use assets of $ 24 thousand, within loss from discontinued operations in the condensed consolidated statements

of operations.

During the nine months ended

September 30, 2025, in connection with the discontinuation of Extraction Business, the Company terminated a lease early and recognized

a loss on lease termination of $ 161 thousand, within gain on disposal of Extraction Business in the condensed consolidated statements

of operations.

As of September 30, 2025

and December 31, 2024, the Company did not have any operating leases related to continuing operations.

As such, no operating lease cost,

weighted average remaining lease term, or weighted average discount rate, and cash paid for operating leases are presented for continuing

operations for the three and nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, there was no future

lease payment related to continuing operations.

Note 10 — Stockholders’ Equity

Public Offerings

On February 27, 2024, the

Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital as placement agent (the

“Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate of 184,000 shares of its Common Stock,

and, in lieu of Common Stock to certain investors that so chose, pre-funded warrants to purchase 264,246 shares of its Common Stock (the

“S-1 Offering”).

The public offering price for each share of Common Stock was $ 5.70 , and the offering price for each pre-funded

warrant is $ 5.685 , which equals the public offering price per share of the Common Stock, less the $ 0.015 per share exercise price of each

pre-funded warrant.

The Company issued 4,482

warrants to purchase Common Stock to Alexander Capital (the “Placement Agents Warrants”).

The Placement Agents Warrants were

classified as equity warrants and recorded under additional paid-in capital in the condensed consolidated balance sheets.

The Placement

Agents Warrants had a five-year term and exercise price of 100 % of the offering price, and were subject to adjustment for stock splits,

reverse stock splits, stock dividends, and similar transactions.

The Placement Agents Warrants were exercisable on a cash basis, unless

there was not an effective registration statement covering the issuance of the shares issuable upon exercise of the Placement Agents Warrants

or if shareholder approval for the full exercise of the Placement Agents Warrants was not received, in which case the Placement Agents

Warrants would also be exercisable on a cashless exercise basis at Alexander Capital’s election.

The Placement Agent Warrants were

exercised in full during November 2024.

The measurement of fair value

of the Placement Agents Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at the date

of issuance (i.e., share price of $ 7.80 , exercise price of $ 5.70 , term of five years, volatility of 128 %, risk-free rate of 4.32 %, and

expected dividend rate of 0 %).

The grant date fair value of these Placement Agents Warrants was estimated to be $ 31 thousand on February

27, 2024, and was originally recorded within additional paid-in capital.

As the Placement Agents Warrants were exercised during the year

ended December 31, 2024, the related amounts remain within equity as part of the total proceeds from the issuance of Common Stock.

Related Party Warrant Issuance

10 unchanged sentences

reporting period in earnings.

The fair value of the Related Party Pre-Funded Warrants on the issuance date was $ 5,600,334 determined as

the intrinsic value.

The fair value of the Related Party Pre-Funded Warrants on the issuance date was $ 5,600,334 determined

as the intrinsic value.

On June 30, 2024, the Company

20 unchanged sentences

to a warrant liability.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock

to Ionic at an effective purchase price of $ 2.109 per share of Common Stock, the number of shares of Common Stock underlying the

Related Party Pre-Funded Warrant held by CP Acquisitions was adjusted to 5,452,288 and the number of shares of Common Stock underlying

the Related Party Pre-Funded Warrant held by GIC Acquisition was adjusted to 1,085,122 .

On August 30, 2024, CP Acquisitions partially

exercised its Pre-Funded Warrant and entities affiliated with Raymond Chang and I-Tseng Jenny Chan received an aggregate of 383,127 shares

of Common Stock upon the exercise.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic

at an effective purchase price of $ 2.109 per share of Common Stock, the number of shares of Common Stock underlying the Related Party

Pre-Funded Warrant held by CP Acquisitions was adjusted to 5,452,288 and the number of shares of Common Stock underlying the Related

Party Pre-Funded Warrant held by GIC Acquisition was adjusted to 1,085,122 .

On August 30, 2024, CP Acquisitions partially exercised its

Pre-Funded Warrant and entities affiliated with Raymond Chang and I-Tseng Jenny Chan received an aggregate of 383,127 shares of Common

Stock upon the exercise.

On September 27, 2024, the

Company executed an amendment to the Related Party Pre-Funded Warrants to remove the Adjustment Provisions.

Accordingly, the Related Party

Pre-Funded Warrants met the requirements for equity classification.

The amendment also included a provision preventing the holders from

any additional exercise of either of the Related Party Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.

Accordingly, the Related

Party Pre-Funded Warrants met the requirements for equity classification.

The amendment also included a provision preventing the holders

from any additional exercise of either of the Related Party Pre-Funded Warrants at any time between September 27, 2024 and October 9,

They were remeasured to their fair value upon modification resulting in an increase to the fair value of $ 18,392,143 .

The fair value as

of September 27, 2024 of $ 20,770,707 was reclassified to equity.

During the nine months ended September 30, 2025, 61,759 warrants were

issued in lieu of cash interest payments of $ 1.4 million.

value as of September 27, 2024 of $ 20,770,707 was reclassified to equity.

During the quarter ended March 31, 2026, 142,213 pre-funded warrants were issued in lieu of cash interest payments of $ 3.8 million, of

which 135,836 warrants were issued to RSLGH.

Note 11 — Stock-Based Compensation and Employee Benefit Plans

4 unchanged sentences

restricted stock awards, restricted stock unit awards, other stock-based awards and cash-based awards.

The aggregate number of shares

of Common Stock that may be reserved and available for grant and issuance under the 2022 Plan is 1,765 shares and 16,667 additional shares

issued upon approval by the Board of Directors on January 8, 2024.

On August 12, 2024, the Company’s stockholders approved an amendment

to the 2022 Plan to increase the number of shares issuable thereunder by 166,667 .

Shares will be deemed to have been issued under the

2022 Plan solely to the extent actually issued and delivered pursuant to an award.

The 2022 Plan shall continue in effect, unless sooner

terminated, until the tenth anniversary of the date on which it was adopted by the Board of Directors.

On June 11, 2025, the Company’s

stockholders approved an amendment to the 2022 Plan to increase the number of shares issuable thereunder by 250,000 shares.

As of September

30, 2025, there were 229,815 shares of Common Stock available to be granted under the Company’s 2022 Plan.

As of March 31, 2026, there were

135,065 shares of Common Stock available to be granted under the Company’s 2022 Plan.

The Company’s stock

compensation expense from continuing operations was $ 507 thousand and $ 127 thousand for the three months ended September 30, 2025 and

compensation expense from continuing operations was $ 570 thousand and $ 587 thousand for the three months ended March 31, 2026 and 2025,

respectively.

The Company’s stock compensation expense from continuing operations was $ 1.6 million and $ 638 thousand for the

nine months ended September 30, 2025 and 2024, respectively.

The Company’s stock

compensation expense from discontinued operations was $ 0 and $ 156 thousand for the three months ended September 30, 2025 and 2024, respectively.

The Company’s stock compensation expense from discontinued operations was a forfeiture of $ 20 thousand and an expense of $ 216 thousand

for the nine months ended September 30, 2025 and 2024, respectively.

The Company’s stock compensation expense from discontinued operations

was nil and $ 2 thousand for the three months ended March 31, 2026 and 2025, respectively.

Stock Options

For nine months ended September

30, 2025, there were no options granted or exercised under the Company’s stock option plans.

For the same period, there were 141

options expired with a weighted average exercise price of $ 11 thousand.

There were 75 and 216 options outstanding with a weighted average

exercise price of $ 27 thousand and $ 19 thousand as of September 30, 2025 and December 31, 2024, respectively.

There were 75 options vested

and exercisable with a weighted average exercise price of $ 27 thousand as of September 30, 2025.

There were no unvested options as of

September 30, 2025.

As of September 30, 2025,

For three months ended March 31, 2026, there were no options granted,

exercised, or expired under the Company’s stock option plans.

There were 75 options outstanding with a weighted average exercise

price of $ 27 thousand as of both March 31, 2026 and December 31, 2025.

There were no unvested options as of March 31, 2026.

As of March 31,

2026, there was no unrecognized compensation expense related to unvested options.

The following table summarizes information about

options vested and exercisable at September 30, 2025:

options vested and exercisable at March 31, 2026:

Options Vested and Exercisable

Number of Options Weighted-

Remaining Contractual

Life (Years) Weighted-Average

Exercise Price

38 4.89 $ 40,234

2 unchanged sentences

Restricted Stock Units

Under the 2022 Plan, the Company may grant restricted stock units to

employees, directors, officers and consultants.

The restricted stock units granted generally vest equally over periods ranging from one

to three years , subject to certain exceptions for directors.

The fair value of restricted stock units is determined based on the closing

market price of the Company’s Common Stock on the date of grant.

Compensation expense related to the restricted stock units is recognized

using a straight-line attribution method over the vesting period.

Under the 2022 Plan, the

Company may grant restricted stock units to employees, directors and officers.

The restricted stock units granted generally vest equally

over periods ranging from one to three years , subject to certain exceptions for directors.

The fair value of restricted stock units is

determined based on the closing market price of the Company’s Common Stock on the date of grant.

Compensation expense related to

the restricted stock units is recognized using a straight-line attribution method over the vesting period.

The following table presents restricted stock

unit activity for the nine months ended September 30, 2025:

Grant Date Fair

unit activity for the three months ended March 31, 2026:

Grant Date Fair Value

Unvested at December 31, 2025

Unvested at September 30, 2025

As of September 30, 2025,

total unrecognized compensation expense related to unvested restricted stock units was $ 760 thousand, which is expected to be recognized

over a weighted average period of 0.37 years.

Unvested at March 31, 2026

As of March 31, 2026, total

unrecognized compensation expense related to unvested restricted stock units was $ 3.5 million, which is expected to be recognized over

a weighted average period of 1.24 years.

Note 12 — Stock Warrants

The following tables present all warrant activity

of the Company for the nine months ended September 30, 2025:

Number of Warrants

Weighted-Average

Exercise Price

of the Company for the three months ended March 31, 2026:

Warrants outstanding at December 31, 2025

Warrants outstanding at September 30, 2025

Warrants outstanding at March 31, 2026

Note 13 — Income Taxes

The Company’s effective

income tax rates were 0 % for each of the three and nine months ended September 30, 2025 and 2024.

There was no provision for (benefit

from) income taxes for the three and nine months ended September 30, 2025 and 2024.

There is no difference between the Company’s

effective tax rates for the 2025 and 2024 periods.

There was no change in the provision for (benefit from) income taxes for the three

and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024.

The utilization of the Company’s

net operating loss (“NOL”) carryforwards is subject to limitations under Section 382 of the Internal Revenue Code of 1986,

as amended and similar provisions in various state jurisdictions due to historical change in ownership provisions (“Ownership Changes”).

These limitations may reduce the amount of NOLs available in future periods and may result in the expiration of certain NOLs before they

can be utilized.

During the quarter ended June 30, 2025, the Company completed an analysis of Ownership Changes, which had not previously

been performed.

The analysis identified multiple historical ownership changes that significantly limit the utilization of federal NOLs

through the date of the most recent change on November 5, 2024, subjecting them to a minimal annual limitation.

The Company is in the

process of conducting a similar analysis for state income tax purposes.

NOLs generated after November 5, 2024 are not currently subject

to this limitation and may be available to offset future taxable income, although any future ownership changes could impose additional

The Company continues to maintain a full valuation allowance against its deferred tax assets, including NOLs, due to the

Section 382 limitations resulting from historical ownership changes and the uncertainty surrounding the Company’s ability to generate

sufficient taxable income to utilize the remaining NOLs before they expire.

The Company’s effective income tax rate was 451.3 % and 0.0 %

for the three months ended March 31, 2026 and 2025, respectively.

The benefit from income taxes was $25.6 million for the three months

ended March 31, 2026, compared to $0 for the three months ended March 31, 2025.

Changes in the provision for (benefit from) income taxes for the three months ended March 31, 2026 compared to

the three months ended March 31, 2025 are a result of the Company releasing the valuation allowance against its deferred tax assets.

As of March 31, 2026, the Company released its valuation allowance of $ 25.6 million following the execution of

an amendment to its license agreement with GTI Core on March 31, 2026, which transitioned the Company’s licensing fees to a fixed annual

This amendment significantly reduces uncertainty around the Company’s future taxable income projections.

Based on sustained

projected book and taxable income over the near term, management concluded that sufficient positive evidence exists to determine that

its deferred tax assets are more-likely-than-not realizable, and accordingly released the valuation allowance in full during the three

months ended March 31, 2026, with the exception of certain state deferred tax assets for which apportionment factors do not support realization

in the foreseeable future;

the aggregate amount of such state deferred tax assets for which a valuation allowance is maintained is not

As a result, the income tax benefit recognized for the three months ended March 31, 2026 is attributable to the release of the

valuation allowance.

Prior to this release, the Company maintained a full valuation allowance against its deferred tax assets due to uncertainty

surrounding future income projections.

The utilization of the Company’s net operating loss (“NOL”)

carryforwards is subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended and similar provisions in various

state jurisdictions due to historical change in ownership provisions (“Ownership Changes”).

These limitations may reduce the

amount of NOLs available in future periods and may result in the expiration of certain NOLs before they can be utilized.

During the quarter

ended June 30, 2025, the Company completed an analysis of Ownership Changes, which had not previously been performed.

The analysis identified

multiple historical ownership changes that significantly limit the utilization of federal and state NOLs through the date of the most

recent change on November 5, 2024, subjecting them to a minimal annual limitation.

NOLs generated after November 5, 2024 are not currently

subject to this limitation and may be available to offset future taxable income, although any future ownership changes could impose additional

On July 4, 2025, the One

5 unchanged sentences

EBITDA-based interest deduction for tax purposes.

The impacts of the OBBA are reflected in our results for the quarter ended September

The impacts of the OBBA are reflected in our results for the quarter ended March 31,

2026, and there was no material impact to our income tax expense or effective tax rate.

Note 15 — Net (Loss) Income Per Share

Net (loss) income per share

calculations for all periods have been adjusted to reflect the Company’s reverse stock splits.

Net (loss) income per share was calculated

based on the weighted-average number of shares of the Company’s Common Stock outstanding.

Basic net (loss) income per

share is calculated using the weighted-average number of shares of Common Stock outstanding during the periods.

Diluted net (loss) income

per share is computed by giving effect to all potential shares of Common Stock, including the reflection of as-converted convertible notes,

outstanding stock options, stock related to unvested restricted stock units, and outstanding warrants to the extent dilutive.

income per share, assuming dilution, is equal to basic net (loss) income per share for the three and nine months ended September 30, 2025

and 2024 because the effect of dilutive securities outstanding during the periods, including convertible notes, options, restricted stock

units and warrants computed using the treasury stock method, is anti-dilutive.

The components of basic and diluted net loss per

share were as follows:

Three months ended September 30,

Nine months ended September 30,

Note 14 — Net Income (Loss) Per Share

The holders of the Company’s pre-funded warrants are entitled

to receive pro rata distributions if the Company declares or makes any dividend or other distribution of its assets to holders of shares

of Common Stock, without regard to the beneficial ownership limitation contained in the pre-funded warrants.

As a result, the pre-funded

warrants are considered participating securities in accordance with ASC 260, Earnings Per Share.

In periods in which the Company reports

net income, the Company applies the two-class method to compute basic and diluted earnings per share.

Under this method, earnings are

allocated to Common Stock and participating securities based on their respective rights to receive dividends, as if all undistributed

earnings for the period were distributed.

The portion of earnings allocated to participating securities is deducted from net income in

determining net income attributable to common stockholders for purposes of computing earnings per share.

In periods in which the Company

reports a net loss, losses are allocated to participating securities only if the security has a contractual obligation to share in losses.

As the pre-funded warrants do not contain a contractual obligation to share in losses, no loss was allocated to the pre-funded warrants

for the years ended December 31, 2025 and 2024, or for the three months ended March 31, 2025.

For the three months ended March 31, 2026,

the Company’s net income was allocated in accordance with the two-class method.

The Company computes diluted earnings per share by considering the

impact of all potentially dilutive securities and applying the combination of methods that results in the most dilutive outcome in accordance

with ASC 260.

The Company evaluates the dilutive effect of each class of potential common shares using the treasury stock method, if-converted

method, or the two-class method, as applicable.

For instruments subject to the two-class method, the Company applies a hybrid approach

under which the two-class earnings allocation is applied to the earnings pool adjusted for if-converted and treasury stock method adjustments

applicable to other dilutive instruments.

The treasury stock method is applied to unvested restricted stock units, the if-converted method

is applied to convertible notes, and the two-class method is applied to participating pre-funded warrants.

The convertible notes are not

considered participating securities, as they do not provide the holder with a current right to participate in dividends or undistributed

earnings prior to conversion.

The components of basic and diluted net income (loss) per share were

Three months ended

(In thousands, except share and per share data)

Net loss from continuing operations

Net (loss) income from discontinued operations

Numerator for basic EPS - net loss available for common shareholders

Net income (loss) from continuing operations

Net income from discontinued operations

net income allocated to participating warrants

Numerator for basic EPS - Net income (loss) available for common shareholders

Effect of dilutive securities

Interest expense on Convertible Notes - from continuing operations

Reallocation of net income to participating warrants

Numerator for diluted EPS - Net income (loss) available for common shareholders

Denominator for basic EPS - Weighted-average common shares outstanding

Net loss per share attributable to common shareholders - basic and diluted

For each of the periods presented, the Company’s potential dilutive

securities, which include stock options, restricted stock units, and warrants, and convertible notes, have been excluded from the computation

of basic and diluted net (loss) income per share.

The Convertible Notes outstanding during the nine months ended September 30, 2025 were

also excluded from the computation of diluted net (loss) per share as they do not represent common stock equivalents unless and until

conversion conditions are met.

The weighted-average number of shares of Common Stock outstanding used to calculate both basic and diluted

net loss per share attributable to Common Stockholders is the same.

The Company excluded the following potential Common Stock equivalents

presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to Common stockholders

for the periods indicated because including them would have had an anti-dilutive effect:

Nine months ended

September 30,

Effect of dilutive securities

Unvested restricted stock units

Conversion of Convertible Notes

Denominator for diluted EPS - adjusted weighted-average common stock outstanding

Basic net income (loss) per share attributable to common shareholders

Diluted net income (loss) per share attributable to common shareholders

The Company excluded the

following potential common stock equivalents, based on amounts outstanding at each period end, from the computation of diluted earnings

(loss) per share attributable to common stockholders for the periods presented because their inclusion would have been antidilutive.

addition, the Company’s pre-funded warrants are considered participating securities and are reflected through the application of

the two-class method;

accordingly, they are not included in the diluted earnings per share denominator in periods in which the two-class

method results in the most dilutive outcome.

Three months ended

Shares subject to outstanding warrants

10 unchanged sentences

Company provided a notice of default to Bud & Mary’s Cultivation, Inc.

(“Bud & Mary’s) and certain related parties

notifying such parties that Bud & Mary’s was in default of its obligations under the TTK solution between the Company and Bud

& Mary (the “Bud & Mary TTK Agreement”).

On October 5, 2022, Bud & Mary’s filed a complaint in the Superior

Court of Massachusetts in Suffolk County, naming the Company as the defendant (the “Bud & Mary Complaint”).

Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of

contract and conversion arising from the Bud & Mary TTK Agreement.

While the Company believes the claim is without merit and will

continue to vigorously defend itself against Bud & Mary’s allegations, litigation is inherently unpredictable and there can

be no assurance that the Company will prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary to fully

reserve for the outstanding $ 14.7 million note receivable balance due to the current litigation and the uncertainty of the customer’s

(“Bud & Mary’s) and certain related

parties notifying such parties that Bud & Mary’s was in default of its obligations under the TTK solution between the Company

and Bud & Mary (the “Bud & Mary TTK Agreement”).

On October 5, 2022, Bud & Mary’s filed a complaint in

the Superior Court of Massachusetts in Suffolk County, naming the Company as the defendant (the “Bud & Mary Complaint”).

Bud & Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices,

breach of contract and conversion arising from the Bud & Mary TTK Agreement.

While the Company believes the claim is without merit

and will continue to vigorously defend itself against Bud & Mary’s allegations, litigation is inherently unpredictable and

there can be no assurance that the Company will prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary

to fully reserve for the outstanding $ 14.7 million note receivable balance due to the current litigation and the uncertainty of the customer’s

ability to repay the balance.

As of December 31, 2024, the allowance related to Bud & Mary’s was reduced to $ 14.4 million, reflecting

a recovery of allowance for credit losses resulting from a loan repayment of $ 330 thousand that was previously included in the allowance.

The $ 14.4 million represents the amount of the contingent loss that the Company has determined to be reasonably possible and estimable.

As of December 31, 2024, the allowance related to Bud & Mary’s was reduced to $ 14.4 million,

reflecting a recovery of allowance for credit losses resulting from a loan repayment of $ 330 thousand that was previously included in

the allowance.

The $ 14.4 million represents the amount of the contingent loss that the Company has determined to be reasonably possible

and estimable.

The actual cost of resolving this matter may be higher or lower than the amount the Company has reserved.

If the Company is unable to

realize revenue from its TTK Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result of the Bud

& Mary’s claim, the Company’s business and financial performance will be adversely affected.

On November 14, 2022, the

Company filed its answers and affirmative defenses to the Bud & Mary Complaint and counterclaims.

The Company is seeking, among other

relief, monetary damages in connection with the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust

enrichment, and enforcement of the guarantees.

If the Company

is unable to realize revenue from its TTK Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result

of the Bud & Mary’s claim, the Company’s business and financial performance will be adversely affected.

On November 14,

2022, the Company filed its answers and affirmative defenses to the Bud & Mary Complaint and counterclaims.

The Company is seeking,

among other relief, monetary damages in connection with the breach of contract, breach of the implied covenant of good faith and fair

dealing, unjust enrichment, and enforcement of the guarantees.

This matter is still actively ongoing.

This matter is subject to the Cultivation sale escrow

litigation reserve agreement where the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other

This matter is subject to the Cultivation

sale escrow litigation reserve agreement where the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling

this and other claims.

Bowdoin Construction Corp.

On February 22, 2023, Bowdoin

Construction Corp.

(“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk County, Massachusetts (the

“Bowdoin Complaint”), naming the Company, Bud & Mary’s and certain related parties as defendants, captioned Bowdoin

Construction Corp.

Agrify Corporation, Bud & Mary’s Cultivation, Inc.

On February 22, 2023, Bowdoin Construction Corp.

filed a complaint in the Superior Court of Massachusetts in Norfolk County, Massachusetts (the “Bowdoin Complaint”), naming

the Company, Bud & Mary’s and certain related parties as defendants, captioned Bowdoin Construction Corp.

Agrify Corporation,

Bud & Mary’s Cultivation, Inc.

and BMLC2, LLC, case no.

The Bowdoin Complaint

relates to a construction contract between Bowdoin and the Company relating to the property that is the subject of the Bud & Mary’s

Complaint, and alleges breach of contract by Bud & Mary’s and by the Company due to nonpayment of approximately $ 7.0 million

due under the contract and related indemnification claims and mechanics’ liens.

$ 6.3 million is included in accounts payable and

$ 700 thousand is included in accrued expenses and other current liabilities in the consolidated balance sheet.

Two of Bowdoin’s

subcontractors, Hannon Electric, Inc.

and Electric Supply Center Corp, have filed separate suits against the Company in the amount of

$ 1.498 million and $ 93 thousand, respectively.

These amounts are part of the $ 7.0 million claimed in Bowdoin’s Complaint.

suit and the subcontractor suits have been consolidated.

The Company has denied liability in all such suits.

This matter is subject to

the sale of the Cultivation Business escrow litigation reserve agreement where the Company funded $ 1.5 million in January 2025 into escrow

for the benefit of settling this and other claims.

The Bowdoin Complaint relates to a construction contract

between Bowdoin and the Company relating to the property that is the subject of the Bud & Mary’s Complaint, and alleges breach

of contract by Bud & Mary’s and by the Company due to nonpayment of approximately $ 7.0 million due under the contract and related

indemnification claims and mechanics’ liens.

Two of Bowdoin’s subcontractors, Hannon Electric, Inc.

and Electric Supply Center

Corp, have filed separate suits against the Company in the amount of $ 1.498 million and $ 93 thousand, respectively.

These amounts are

part of the $ 7.0 million claimed in Bowdoin’s Complaint.

The Bowdoin suit and the subcontractor suits have been consolidated.

Company has denied liability in all such suits.

This matter is subject to the sale of the Cultivation Business escrow litigation reserve

agreement where the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

McCutchan, Inc.

24 unchanged sentences

the Company and all other named defendants.

This matter is subject to the Cultivation sale escrow litigation reserve agreement where the

Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

Other Litigation

On February 9, 2022, a former

sales Vice President of the Company filed suit against the Company claiming he is owed back wages, commission and is entitled to equity

in the Company, under theories of liability under Massachusetts labor laws including retaliation, breach of contract, breach of covenant

of good faith and fair dealing, fraudulent inducement, tortious interference and unjust enrichment.

The Company filed its answer to the

initial complaint in January 2023.

Litigation is currently in discovery stage with a trial anticipated in the first quarter of 2026.

parties are in the process of attempting to reach a settlement to resolve the dispute.

Based on the latest settlement discussions, management

currently estimates that the Company’s aggregate net loss exposure is approximately $ 887 thousand.

Given the Company has determined

this loss is probable of occurring and reasonably estimable, an accrual was recorded in the amount of $ 887 thousand within general and

administrative expense within the Condensed Consolidated Statement of Operations for the three months ended September 30, 2025.

This matter is subject to the Cultivation sale escrow litigation reserve agreement where

the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

Assets Subject to Contingent Repurchase

Under the purchase agreements for MC Brands Transaction and VCP Transaction,

Green Thumb or its affiliates may repurchase some or all of the MC Brands and/or VCP assets within five years of the respective transaction

dates upon the occurrence of specified eligibility conditions, all of which are outside the control of both the Company and Green Thumb.

The 2026 Appropriations Act includes an amendment to the definition of hemp under the 2018 Farm Bill that, if implemented as enacted,

could materially restrict the commercialization of certain hemp-derived THC products beginning 365 days after enactment.

If the amendment

becomes effective in its current form and is not repealed, replaced, or otherwise modified prior to its effective date, one of the eligibility

conditions under the MC Brands and VCP purchase agreements that could permit the repurchase right to become exercisable would be satisfied.

However, the exercise of the repurchase option would remain solely within the discretion of Green Thumb or its affiliates.

The full eligibility

conditions are set forth in the purchase agreements for MC Brands Transaction and VCP Transaction filed on May 22, 2025 and August 27,

2025, respectively.

Other Commitments and Contingencies

14 unchanged sentences

Kovler, two of RYTHM’s seven directors are affiliated with Green Thumb.

Additional details regarding

the shared services arrangement, convertible notes, and intellectual property and licensing agreements are provided in the sections below.

Green Thumb, through its

subsidiaries, currently holds approximately 33 % of our outstanding shares of Common Stock and beneficially owns 49.99 % of our Common Stock,

taking into account beneficial ownership limitations contained in the warrants and convertible notes held by subsidiaries of Green Thumb.

Of the approximately 11.0 million warrants outstanding as of March 31, 2026, approximately 9.9 million are held by subsidiaries of Green

Thumb, subject to 49.99 % beneficial ownership limitations.

Of the approximately 3.0 million shares or pre-funded warrants that would be

issuable upon the conversion (excluding interest) of the Convertible Notes outstanding as of March 31, 2026, approximately 2.7 million

are held by subsidiaries of Green Thumb, subject to 49.99 % beneficial ownership limitations.

The outstanding warrants are entitled to

pro rata participation in dividends and other distributions to holders of Common Stock without regard to the beneficial ownership limitation.

Additional details regarding the shared services arrangement, convertible notes, and intellectual property and licensing agreements are

provided in the sections below.

The following table describes the net activity

1 unchanged sentence

Three months ended

September 30,

Nine months ended

September 30,

(In thousands)

Green Thumb Industries

The net activity of $ 3.8 million during the three months ended September

Green Thumb Industries Inc.

The net activity of $ 3.7 million during the three months ended March

31, 2026 consists of $ 3.1 million of support services performed by Green Thumb on behalf of the Company, $ 1.8 million interest charges

for the Convertible Notes, and $ 201 thousand non-licensing chargeback expense, offset by $ 500 thousand Licensing Revenue from Green Thumb.

The $ 500 thousand of Licensing Revenue represents a net amount and includes $ 32 thousand of licensing costs.

The $ 201 thousand of non-licensing

chargeback expense represents a net amount and includes a $ 40 thousand inventory purchase from Green Thumb.

The net activity of $ 8.8 million during the nine months ended September

30, 2025 consists of $ 7.0 million of support services performed by Green Thumb on behalf of the Company, which is comprised of $ 6.5 million

in salary charges, $ 562 thousand in non-salary charges, $ 2.2 million interest charges, and $ 383 thousand non-licensing chargeback expense,

offset by $ 80 thousand of equipment sales and beverage sales and $ 745 thousand Licensing Revenue from the Company to Green Thumb.

$ 745 thousand of Licensing Revenue represents a net amount and includes $ 32 thousand of licensing costs.

The $ 383 thousand of non-licensing

chargeback expense represents a net amount and includes a $ 283 thousand hemp-derived inventory purchase from Green Thumb.

The following table summarizes

the net related party payable as of September 30, 2025 and December 31, 2024:

September 30,

(In thousands)

Green Thumb Industries

The net related party payable of $ 86.4 million as of September 30,

2025, consists of $ 4.1 million service charge payable, $ 82.0 million convertible notes payable, $ 521 thousand accrued interest payable,

$ 40 thousand non-licensing chargeback payable, offset by $ 182 thousand receivable from Licensing Revenue.

for the Convertible Notes, and $ 1.4 million non-licensing chargeback expense, offset by $ 10.0 million Licensing Revenue from Green Thumb.

The $ 1.4 million of non-licensing chargeback expense represents a net amount and includes a $ 202 thousand inventory purchase from Green

Related Party Licensing Revenue

On May 20, 2025, and August 27, 2025, the Company acquired intellectual

property rights to the incredibles brand and the Acquired Brands, as part of the related party acquisition of MC Brands and VCP,

respectively.

In connection with the acquisitions, the Company also licensed incredibles and the Acquired Brands brand back to

a Green Thumb affiliate under a license arrangement and recognized related party Licensing Revenue.

For further discussion on the acquisition

and Licensing Revenue, refer to Note 7 and Note 2 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

property rights to the Brand Rights, as part of the related party acquisition of MC Brands and VCP, respectively.

In connection with the

acquisitions, the Company also licensed the Brand Rights back to a Green Thumb affiliate under license arrangements and recognized related

party Licensing Revenue.

On March 31, 2026, the Company amended these licensing agreements to replace sales-based royalty consideration

with fixed annual fees, effective April 1, 2026.

For further discussion on the acquisition and Licensing Revenue, refer to Note 8 and

Note 2 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

Convertible Notes

On November 5, 2024, the

Company issued the November 2024 Note with an original principal amount of $ 10.0 million to RSLGH, an indirect wholly-owned subsidiary

of Green Thumb, a related party.

On May 22, 2025, the Company issued a May 2025 Note with an original principal amount of $ 27.0 million

On August 25, 2025, the Company issued an August 2025 Note with an original principal amount of $ 45.0 million to RSLGH.

further discussion on these notes, refer to Note 9 included elsewhere in the notes to the unaudited condensed consolidated financial statements.

Support Services Agreement

On May 22, 2025, the Company issued a May 2025 Note with an original

principal amount of $ 27.0 million to RSLGH.

On August 25, 2025, the Company issued an August 2025 Note with an original principal amount

of $ 45.0 million to RSLGH.

For further discussion on these notes, refer to Note 9 included elsewhere in the notes to the unaudited condensed

consolidated financial statements.

Support Services Agreements

On May 20, 2025, the Company

1 unchanged sentence

LLC (“VMS”), an indirect wholly-owned subsidiary of Green Thumb, a related party.

Under the Services Agreement, VMS will provide

certain administrative, supply chain, operations management, sales and marketing, and technical services to the Company and its subsidiaries.

As consideration for those services, the Company pays VMS service fees equal to (i) 125 % of the costs incurred by VMS in connection with

any services provided by non-dedicated personnel and (ii) 100 % of such costs incurred by VMS in connection with services provided by dedicated

personnel and any third-party costs incurred in connection with the services.

The service fees are payable in cash or, upon mutual agreement

of the Company and VMS and to the extent permitted under applicable Nasdaq listing rules, in Common Stock or in pre-funded warrants, with

the value per share of Common Stock or pre-funded warrant being equal to $ 26.68 , the most recent closing price of the Company’s

Common Stock on the Nasdaq Capital Market as of the time the Services Agreement was executed.

The maximum cost for services provided by

non-dedicated personnel during the one-year term of the Services Agreement may not exceed $ 3.0 million unless the parties otherwise agree

Under the Services Agreement, VMS will

provide certain administrative, supply chain, operations management, sales and marketing, and technical services to the Company and its

subsidiaries.

As consideration for those services, the Company pays VMS service fees equal to (i) 125 % of the costs incurred by VMS in

connection with any services provided by non-dedicated personnel and (ii) 100 % of such costs incurred by VMS in connection with services

provided by dedicated personnel and any third-party costs incurred in connection with the services.

The service fees are payable in cash

or, upon mutual agreement of the Company and VMS and to the extent permitted under applicable Nasdaq listing rules, in Common Stock or

in pre-funded warrants, with the value per share of Common Stock or pre-funded warrant being equal to $ 26.68 , the most recent closing

price of the Company’s Common Stock on the Nasdaq Capital Market as of the time the Services Agreement was executed.

cost for services provided by non-dedicated personnel during the one-year term of the Services Agreement may not exceed $ 3.0 million

unless the parties otherwise agree in writing.

On March 21, 2025, the Company entered into a Shared Services Agreement

(the “CFO Services Agreement”) with VMS, pursuant to which Brad Asher provides his services as Chief Financial Officer.

consideration for those services, we pay VMS a monthly fee based on its direct costs in providing such services, with a maximum of $ 72,552

The CFO Services Agreement has a term of one year, is terminable by either party on 90 days’ notice for any or no reason,

and will automatically renew for successive one year terms unless terminated by either party at least thirty days prior to the end of

the applicable term.

As a result of the services provided under the Services Agreement and the CFO Services Agreement, we do not have

any direct employees other than our Interim Chief Executive Officer.

Note 17 — Segment Reporting

The Company has determined that it operates as a single operating and

reporting segment in accordance with ASC 280, Segment Reporting.

This is due to the key decisions and allocation of resources happening

in a centralized manner based on the review of the Company’s Chief Operating Decision Maker (“CODM”), Benjamin Kovler,

the Company’s Chairman and Interim Chief Executive Officer , of Operating income from continuing operations of the Company.

profit measure is presented in the Condensed Consolidated Statements of Operations and the disaggregation of sales from hemp-derived THC

products (non-licensing) and Licensing Revenue is presented in Note 2 – Revenue.

There are no significant expenses associated with

the Licensing Revenue and the CODM does not review expense allocations, amortization expense or specific assets when reviewing Licensing

The Company has determined

that it operates as a single operating and reporting segment in accordance with ASC 280, Segment Reporting.

This is due to the key decisions

and allocation of resources happening in a centralized manner based on the review of the Company’s Chief Operating Decision Maker

(“CODM”), Benjamin Kovler, the Company’s Chairman and Interim Chief Executive Officer , of Operating income from continuing

operations of the Company.

This profit measure is presented in the Condensed Consolidated Statements of Operations and the disaggregation

of sales from hemp-derived THC products (non-licensing) and Licensing Revenue is presented in Note 2 – Revenue.

There are no significant

expenses associated with the Licensing Revenue and the CODM does not review expense allocations, amortization expense or specific assets

when reviewing Licensing Revenue.

Note 18 — Subsequent Events

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

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.

The Company evaluated subsequent

events and transactions that occurred after the balance sheet date up to November 7, 2025, the date that the unaudited condensed consolidated

financial statements were issued.

events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed consolidated financial

statements were issued and concluded that there were no subsequent events that required recognition or disclosure in the financial statements.

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 1. Financial Statements