BNC 10-Q
CEA Industries Inc. (BNC)
10-Q
2026-09-11
For: 2026-07-31
View Original
Added on
September 11, 2026
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended July 31, 2026
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _______ to _______
Commission file number 001-41266
______________________________________
______________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (303 ) 993-5271
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to section 12(g) of the Act:
None.
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |||||||||||
| Smaller reporting company | ||||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
At September 4, 2026, the registrant had 41,173,850 shares of common stock, $0.00001 par value, outstanding.
TABLE OF CONTENTS
| Page | |||||||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that constitute "forward-looking statements" within the meaning of the U.S. federal securities laws, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “should,” “seek,” “approximately,” “predict,” “intend,” “will,” “plan,” “project,” “target,” “estimate,” “anticipate,” “conviction,” the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. BNC’s expectations, beliefs and projections are expressed in good faith and BNC believes there is a reasonable basis for them. However, there can be no assurance that BNC’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
The statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements which involve risks and uncertainties. Examples of forward-looking statements include, but are not limited to, statements regarding the Company’s execution of its BNB digital asset treasury strategy, driving operational and strategic execution and resolving the pending Asset Management Agreement litigation, the Company’s position as the world’s largest corporate BNB treasury, the Company’s BNB holdings, treasury management opportunities within the BNB ecosystem, the Company’s expectations with respect to shareholder advisory costs, the Company’s director search, the Company’s CEO search, the Company’s financial condition and liquidity outlook, the Company’s future financial results, share repurchases, strategy, plans, objectives, expectations (financial or otherwise) and growth potential, and the Company’s ability to create shareholder value and statements in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. BNC wishes to caution readers that these forward-looking statements may be affected by the risks and uncertainties in BNC’s business, as well as other important factors that may have affected and could in the future affect BNC’s actual results and could cause BNC’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of BNC. In evaluating these forward-looking statements, readers should consider various risk factors, which include, but are not limited to: volatility in the market price of BNB and other digital assets; the concentration of BNC’s holdings in BNB and of its custody arrangements within the Binance ecosystem; collateral maintenance and repayment obligations under BNC’s master loan facility; the outcome of the AMA litigation, BNC’s non-payment of accrued management fees, and the enforceability of the AMA’s liquidated damages provision; BNC’s ability to appoint a permanent chief executive officer and an additional independent director within the deadlines under the Cooperation Agreement; the previously disclosed material weakness in BNC’s internal control over financial reporting; BNC’s continued compliance with Nasdaq listing requirements; BNC’s ability to finance its current business and proposed future business, including the ability to finance the continued acquisition of BNB; evolving laws, regulations and accounting guidance applicable to digital assets; the future value and adoption of BNB; the Company's expectations with respect to shareholder activism; outcome of the Company's director and CEO searches; and execution of the Company's BNB digital asset treasury strategy.
Forward-looking statements are subject to numerous conditions and risks, many of which are beyond BNC’s control. In addition, these forward-looking statements and the information in this Quarterly Report on Form 10-Q are qualified in their entirety by cautionary statements and risk factor disclosures contained in BNC’s filings with the SEC, including BNC’s most recent Annual Report on Form 10-K and this Quarterly Report on Form 10-Q and BNC’s subsequent filings with the SEC, as each may be amended or supplemented from time to time. Copies of BNC’s filings with the SEC are available on the SEC’s website at www.sec.gov. BNC undertakes no obligation to update these forward-looking statements for revisions or changes after the date of this Quarterly Report on Form 10-Q, except as required by law.
Except where the context requires otherwise, the terms "Company," "we," "us," "our," and "BNC" refer to CEA Industries Inc., a Nevada corporation, and its subsidiaries.
1
PART I
Financial Information
ITEM 1. FINANCIAL STATEMENTS
CEA Industries Inc.
Index to Unaudited Condensed Consolidated Financial Statements
| Financial Statements | Page | |||||||
| Condensed Consolidated Balance Sheets | ||||||||
| Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | ||||||||
| Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity | ||||||||
| Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
Note 1 — Nature of Operations | ||||||||
Note 2 — Basis of Presentation and Significant Accounting Policies | ||||||||
| Note 3 — Revenue | ||||||||
| Note 4 — Digital Assets | ||||||||
Note 5 — Debt Obligations | ||||||||
Note 6 — Equity and Earnings Per Share | ||||||||
Note 7 — Variable Interest Entities | ||||||||
| Note 8 — Fair Value Measurement | ||||||||
| Note 9 — Taxes | ||||||||
Note 10 — Transactions with Affiliates and Affiliated Entities | ||||||||
| Note 11 — Commitments and Contingencies | ||||||||
| Note 12 — Subsequent Events | ||||||||
2
Table of Contents CEA Industries Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
| July 31, 2026 | April 30, 2026 | |||||||||||||
| (Unaudited) | (Audited) | |||||||||||||
ASSETS | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | $ | ||||||||||||
Inventory, net | ||||||||||||||
Other current assets | ||||||||||||||
Total current assets | ||||||||||||||
Non-current assets | ||||||||||||||
Digital assets, net of current portion | ||||||||||||||
Intangible assets, net | ||||||||||||||
Goodwill | ||||||||||||||
Other non-current assets | ||||||||||||||
Total non-current assets | ||||||||||||||
Total Assets | $ | $ | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
LIABILITIES | ||||||||||||||
Current liabilities | ||||||||||||||
Accounts payable and accrued expenses | $ | $ | ||||||||||||
Current portion of operating lease liability | ||||||||||||||
Debt | ||||||||||||||
Related party note payable | ||||||||||||||
Other current related party liabilities, at fair value | ||||||||||||||
Other current related party liabilities | ||||||||||||||
Other current liabilities | ||||||||||||||
Total current liabilities | ||||||||||||||
Non-current liabilities | ||||||||||||||
Warrants | ||||||||||||||
Related party note payable | ||||||||||||||
Other non-current liabilities | ||||||||||||||
Total non-current liabilities | ||||||||||||||
Total liabilities | ||||||||||||||
Commitments and contingencies (Note 11) | ||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||
Preferred stock $ | ||||||||||||||
Common stock $ | ||||||||||||||
Additional paid-in capital | ||||||||||||||
Retained earnings | ||||||||||||||
Accumulated other comprehensive income (loss) | ( | |||||||||||||
Total shareholders’ equity | ||||||||||||||
Total Liabilities and Shareholders' Equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents CEA Industries Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars in thousands, except per share amounts)
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||||||||
Revenue | $ | $ | $ | |||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||
Gross profit | ||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||
Management fees to affiliate | ||||||||||||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||||||||||||
Shareholder advisory expenses | ||||||||||||||||||||||||||
Unrealized loss on digital assets | ||||||||||||||||||||||||||
Other affiliate operating expenses | ( | |||||||||||||||||||||||||
Total operating expenses | ||||||||||||||||||||||||||
Operating income (loss) | ( | ( | ||||||||||||||||||||||||
Other income (loss), net | ||||||||||||||||||||||||||
Airdrop income | ||||||||||||||||||||||||||
Gain on change in fair value of warrant liability | ||||||||||||||||||||||||||
Interest expense | ( | ( | ||||||||||||||||||||||||
Interest expense to affiliate | ( | ( | ||||||||||||||||||||||||
Business combination expenses | ( | |||||||||||||||||||||||||
Total other income (loss), net | ( | |||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | ( | ( | ||||||||||||||||||||||||
Income tax expense (benefit) | ( | |||||||||||||||||||||||||
Net income (loss) | ( | ( | ||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||
Foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||
Total comprehensive income (loss) | $ | ( | $ | ( | $ | |||||||||||||||||||||
Net income (loss) per share of common stock attributable to common shareholders | ||||||||||||||||||||||||||
Basic | $ | ( | $ | ( | $ | |||||||||||||||||||||
Diluted | $ | ( | $ | ( | $ | |||||||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||||
Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Table of Contents CEA Industries Inc.
Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity
(dollars in thousands)
| Common Stock | Preferred Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
April 30, 2026 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock, net | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
July 31, 2026 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
June 7, 2025 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Fat Panda Acquisition | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
July 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
April 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||
June 6, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents CEA Industries Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Net income (loss) | $ | ( | $ | ( | $ | |||||||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||
Equity-based compensation | ||||||||||||||||||||
Non-cash income from airdrops | ( | |||||||||||||||||||
Unrealized loss on digital assets | ||||||||||||||||||||
Change in fair value of warrant liabilities | ( | |||||||||||||||||||
Other, net | ( | |||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts receivable | ( | ( | ||||||||||||||||||
Income taxes payable | ( | |||||||||||||||||||
Inventory | ( | |||||||||||||||||||
Prepaid expenses | ( | |||||||||||||||||||
Accounts payable and accrued liabilities | ( | ( | ||||||||||||||||||
Lease liabilities | ( | |||||||||||||||||||
Deferred revenue | ( | |||||||||||||||||||
Royalty | ( | |||||||||||||||||||
Related party liabilities | ||||||||||||||||||||
Cash Incentive Award | ( | |||||||||||||||||||
Net cash used in operating activities | ( | ( | ( | |||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Cash paid for acquisition of Fat Panda | ( | |||||||||||||||||||
Purchases of property and equipment | ( | |||||||||||||||||||
Net cash used in investing activities | ( | ( | ||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Proceeds from notes payable | ||||||||||||||||||||
Repurchase of shares | ( | |||||||||||||||||||
Net cash provided by financing activities | ||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | ( | ( | ||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||||||||
Cash and cash equivalents, beginning of period | ||||||||||||||||||||
Cash and cash equivalents, end of period | $ | $ | $ | |||||||||||||||||
Supplemental cash flow information | ||||||||||||||||||||
Cash paid for interest | $ | $ | $ | |||||||||||||||||
Cash paid for income taxes | ||||||||||||||||||||
Non-cash Investing and Financing Activities: | ||||||||||||||||||||
Issuance of common stock to acquire Fat Panda | $ | $ | ( | $ | ||||||||||||||||
CRA indemnity note | ||||||||||||||||||||
Issuance of related party notes for Fat Panda acquisition | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 1 — Nature of Operations
Description of Business
CEA Industries Inc. ("CEAI," or, together with its subsidiaries, the "Company" or "BNC") is a digital asset treasury ("DAT") focused exclusively on BNB, the native token of the BNB blockchain network ("BNB Chain"). Its primary business is to build and manage the largest corporate treasury of BNB to provide institutional-grade exposure to blockchain infrastructure and decentralized finance ("DeFi") and to generate income, such as by receiving new tokens or coins distributed by a project to a wide range of individuals in the crypto community ("Airdrops"), including to BNC in connection with its eligible BNB holdings. The Company may also generate returns through additional digital asset-related activities, such as staking, validation services, lending, and other DeFi protocols in the future, though it has not staked any BNB through July 31, 2026. Additionally, as part of the Company's ongoing operations, it engages in core retail nicotine vape operations and sale of industrial climate control systems for controlled environment agriculture.
As more fully described in "—Segment Reporting," the Company operates the following two
●BNB Treasury Management — Operations directly related to the Company's DAT strategy, including the acquisition, disposition, and management of the Company's BNB holdings or other digital assets such as via Airdrops.
●Retail and Industry — Fat Panda's retail and distribution operations along with revenue and operating costs related to designing, engineering, and selling industrial climate control systems for controlled environment agriculture.
Formation and Organization
CEAI was incorporated under the laws of the State of Nevada on October 14, 2009, and is headquartered in Louisville, Colorado. Historically, CEAI operated a portfolio of consumer and industrial businesses, including industrial climate control systems for controlled environment agriculture.
On June 6, 2025 (the "Acquisition Date"), CEAI completed the acquisition of Fat Panda Ltd., a Canadian corporation, and its related entities ("Fat Panda") (the "Fat Panda Acquisition"), entering the Canadian retail nicotine vape industry. The Fat Panda Acquisition, completed before the Company commenced its DAT strategy, aligned with the Company's then-current strategy to focus on high-growth, regulated consumer markets and provide a vertically integrated infrastructure to support retail expansion and e-commerce capabilities. The Company changed its Nasdaq ticker symbol from "CEAD" to "VAPE" on June 13, 2025 in connection with its acquisition of Fat Panda.
Segment Reporting
During the second fiscal quarter of 2026, the Company introduced a new business line focused on the Company's DAT strategy, and appointed a new Chief Executive Officer, who served as the chief operating decision maker ("CODM") until July 2026, after which the Interim Principal Executive Officer and Chief Financial Officer served as the CODM. These changes triggered a reassessment of the Company's operating segments under the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") ASC 280, Segment Reporting. As a result of this reassessment, the Company determined that it operates two
The CODM uses income (loss) from operations before provision for income taxes as the primary measure to assess segment performance. This measure is reviewed regularly by examining period-over-period trends, benchmarking against competitors, and monitoring budget versus actual results. The CODM also considers this metric when evaluating income generated from segment assets to determine whether to reinvest profits within the segment or allocate resources elsewhere within the Company.
7
Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
The following tables present, for each segment and consolidated total, the Company's revenues and significant expenses regularly provided to the CODM, reconciled to income (loss) from operations before provision for income taxes for each of the periods presented. Total segment assets provided to the CODM are also disclosed in the tables below for each period presented. Corporate activities are not considered an operating segment consisting primarily of corporate support functions that include capital and funding to support the business activities of the Company as well as costs and expenses not allocated to a line of business.
| Successor | ||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | ||||||||||||||||||||||||||
| Retail and Industry | BNB Treasury Management | Corporate | Total | |||||||||||||||||||||||
Total revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ( | ( | ||||||||||||||||||||||||
Unrealized gain (loss) on digital assets | ( | ( | ||||||||||||||||||||||||
Other income from Airdrops | ||||||||||||||||||||||||||
Advertising and marketing expense | ( | ( | ( | |||||||||||||||||||||||
Compensation expense | ( | ( | ( | ( | ||||||||||||||||||||||
Management fees to affiliate | ( | ( | ||||||||||||||||||||||||
Professional and contractor fees | ( | ( | ( | |||||||||||||||||||||||
Equity-based compensation | ( | ( | ( | |||||||||||||||||||||||
Gain from change in fair value of warrant liabilities | ||||||||||||||||||||||||||
Interest expense and other income, net | ( | ( | ( | |||||||||||||||||||||||
Other segment expenses(A) | ( | ( | ( | ( | ||||||||||||||||||||||
Income (loss) from operations before provision for income taxes | ( | ( | ( | |||||||||||||||||||||||
Total Assets | ||||||||||||||||||||||||||
| Successor | ||||||||||||||||||||||||||
| Period from June 7, 2025 through July 31, 2025 | ||||||||||||||||||||||||||
| Retail and Industry | BNB Treasury Management | Corporate | Total | |||||||||||||||||||||||
Total revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ( | ( | ||||||||||||||||||||||||
Advertising and marketing expense | ( | ( | ||||||||||||||||||||||||
Compensation expense | ( | ( | ||||||||||||||||||||||||
Professional and contractor fees | ( | ( | ||||||||||||||||||||||||
Equity-based compensation | ( | ( | ||||||||||||||||||||||||
Interest expense and other income, net | ( | ( | ||||||||||||||||||||||||
Other segment expenses(A) | ( | ( | ||||||||||||||||||||||||
Income (loss) from operations before provision for income taxes | ( | ( | ||||||||||||||||||||||||
Total Assets | ||||||||||||||||||||||||||
8
Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
| Predecessor | ||||||||||||||||||||||||||
| Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||||||||||
| Retail and Industry | BNB Treasury Management | Corporate | Total | |||||||||||||||||||||||
Total revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ( | ( | ||||||||||||||||||||||||
Advertising and marketing expense | ( | ( | ||||||||||||||||||||||||
Compensation expense | ( | ( | ||||||||||||||||||||||||
Professional and contractor fees | ( | ( | ||||||||||||||||||||||||
Other segment expenses(A) | ( | ( | ||||||||||||||||||||||||
Income (loss) from operations before provision for income taxes | ||||||||||||||||||||||||||
Total Assets | ||||||||||||||||||||||||||
A.Includes other selling, general, and administrative expenses such as occupancy expenses, maintenance expenses, utilities, depreciation and amortization expenses. Amounts also include business combination expenses during the period from June 7, 2025 through July 31, 2025 and shareholder advisory expenses during the three months ended July 31, 2026.
Note 2 — Basis of Presentation and Significant Accounting Policies
Basis of Presentation
On the Acquisition Date, the Company acquired Fat Panda, Central Canada's leading retailer and manufacturer of vaping products, holding a significant market share across Manitoba, Ontario, and Saskatchewan. With 34 retail locations and an e-commerce platform, Fat Panda offers a wide range of high-quality vape devices and e-liquids, including its own premium in-house line.
The Company has been identified as the accounting acquirer ("Successor") in the Fat Panda Acquisition, and Fat Panda as the accounting predecessor ("Predecessor") in accordance with the acquisition method of accounting under ASC 805, Business Combinations. As a result of this designation, the financial statements reflect a change in reporting entity. Financial information for periods prior to the Acquisition Date represents the historical operations of Fat Panda because CEAI's operations prior to the acquisition were insignificant relative to those of Fat Panda. Financial information for periods beginning on and after the Acquisition Date reflects the operations of the combined entities under the control of the Company. The merger was accounted for as a business combination using the acquisition method of accounting. The Successor's financial statements reflect a new basis of accounting based on the fair value of the identifiable net assets acquired. Determining the fair value of certain assets and liabilities assumed involves significant judgment and the use of estimates and assumptions. See "—Business Combinations" below for additional information on the fair values of assets and liabilities recorded in connection with the Fat Panda Acquisition.
As a result of applying the acquisition method of accounting at the Acquisition Date, the accompanying unaudited condensed consolidated financial statements include a black line division to distinguish between the Predecessor and Successor reporting entities. These entities are presented on different bases and are therefore not comparable. The lack of comparability is primarily due to the impacts of the Fat Panda Acquisition, including the remeasurement of acquired assets and assumed liabilities at fair value in the Successor's unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three months ended July 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2027.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Consolidation
The Company consolidates those entities over which it controls significant operating, financial, and investing decisions of the entity as well as those entities deemed to be variable interest entities ("VIEs") in which the Company is determined to be the primary beneficiary.
The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which the Company has a variable interest. These analyses involve estimates, based on the assumptions of management, as well as judgments regarding significance and the design of entities.
VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Segments
Risks and Uncertainties
In the normal course of business, the Company is subject to risks and uncertainties common to companies in its industries, including, but not limited to, changes in general economic conditions, customer demand, supplier relationships, regulatory developments, competition, liquidity, and access to capital. The Company’s operating results and financial condition may also be affected by volatility in digital asset markets, including changes in the fair value and liquidity of its BNB holdings and other digital assets held by the Company, as well as evolving laws, regulations, custody practices, exchange practices, and accounting guidance applicable to digital assets. These factors could materially affect the Company’s future results of operations, cash flows, liquidity, and financial position.
Concentrations
BNB Holdings
The Company’s digital asset holdings are substantially concentrated in its BNB holdings, which is its primary treasury reserve asset. Since a significant portion of the Company’s assets consists of BNB, adverse changes in the market price, liquidity, custody environment, regulatory treatment, or broader adoption of BNB or the BNB ecosystem could have a material adverse effect on the Company’s financial condition, results of operations, cash flows, and liquidity.
All of the Company's BNB holdings not pledged as collateral are held in custody through the Company’s sole custodian, Ceffu, a non-U.S. institutional digital asset custody platform operating within the Binance ecosystem. Ceffu uses a multi-party computation wallet infrastructure and maintains segregated account structures designed for institutional holders. While Ceffu operates as a separate entity from the Binance exchange, the Company's custody arrangement creates concentration exposure to the broader Binance ecosystem. Disruptions to Ceffu's operations, changes in its regulatory status, or adverse developments affecting the Binance ecosystem could materially impact the Company's ability to access, transfer, or liquidate its BNB holdings.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Fat Panda Suppliers
Fat Panda sources inventory, including raw materials and finished goods, from multiple suppliers. However, two suppliers accounted for 41.0 % and 34.0 % for the three months ended July 31, 2026 and 42.0 % and 37.0 % for the period from May 1, 2025 through June 6, 2025, respectively, of inventory purchases. One of those two suppliers accounted for 81.0 % of inventory purchases for the period from June 7, 2025 through July 31, 2025. Loss of one, or both, suppliers could have a material adverse effect on the Company’s financial condition, results of operations, cash flows, and liquidity.
Foreign Currency Translation
The Company's unaudited condensed consolidated financial statements are presented in U.S. dollars ("USD"). Financial statements of foreign subsidiaries are translated into USD using period-end exchange rates for assets and liabilities and average exchange rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of accumulated other comprehensive income (loss) within the unaudited condensed consolidated financial statements. The Company's functional currency is USD, except for Fat Panda that uses Canadian dollars ("CAD").
Use of Estimates and Assumptions
The preparation of these unaudited 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 financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes subjective estimates of project installations, warranty claims, product returns, promotional programs, and other variable consideration that significantly impacts revenue; inventory obsolescence, cost allocation, and impairment that significantly impacts costs of revenue; determinations of fair value of digital assets, including the value of tokens received from Airdrops that impact realized and unrealized digital asset gains or losses; volatility of the Company's stock that significantly impacts the fair value of warrants accounted as liabilities as well as warrants and other forms of compensatory equity awards that impacts such compensation expense or changes in liability fair value; the fair value of acquired tangible and intangible assets and liabilities assumed that significantly impacts goodwill and amortization of definite-lived intangible assets; estimates regarding trade accounts receivable that impact impairment and allowances for related losses; the useful lives of tangible and intangible assets; estimates of future taxable income and deductibility of compensatory warrants that impact current and deferred tax assets and liabilities and related tax provisions; and the outcome of litigation that may impact losses, expenses, or other items, including transactions with the Company's Asset Manager. Actual results may ultimately differ materially from those estimates.
Accounting Changes
Accounting Changes and Error Corrections
As previously disclosed in the Company's quarterly financial statements filed on Form 10-Q on March 16, 2026, the Company erroneously recognized $4.6 million of compensation expense in July 2025 for equity-based awards granted under a proposed equity incentive plan (the "2025 Equity Incentive Plan") that had not been approved by shareholders of the Company, and has not been approved at July 31, 2026. In July 2026, the Company's shareholders voted against the 2025 Equity Incentive Plan, though the Company may be required to offer its shareholders the opportunity to vote upon the 2025 Equity Incentive Plan a second time.
The Company evaluated the impact in accordance with SEC Staff Accounting Bulletins ("SAB") 99 Topic 1.M, Materiality, and SAB 108 Topic 1.N, Accounting Changes and Error Corrections and concluded that the error and subsequent correction were not material to prior or current unaudited condensed consolidated financial statements. Accordingly, an amendment to the previously issued financial statements was not required.
The accompanying comparative unaudited condensed consolidated financial statements for the period from June 7, 2025 through July 31, 2025 have been recast to correct the immaterial error.
Unaudited Condensed Consolidated Statement of Operations
| Period from June 7 through July 31, 2025 | ||||||||||||||||||||
As Reported(A) | Adjustment | Recast | ||||||||||||||||||
Selling, general and administrative expenses | $ | $ | ( | $ | ||||||||||||||||
A.Includes $0.1 million of advertising and marketing expenses, but excludes $0.7 million of business combination expenses presented separately.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity
| Period from June 7 through July 31, 2025 | ||||||||||||||||||||
| As Reported | Adjustment | Recast | ||||||||||||||||||
Equity-based compensation | $ | $ | ( | $ | ||||||||||||||||
Net loss | ( | ( | ||||||||||||||||||
Unaudited Condensed Consolidated Statement of Cash Flows
| Period from June 7 through July 31, 2025 | ||||||||||||||||||||
| As Reported | Adjustment | Recast | ||||||||||||||||||
Net loss | $ | ( | $ | $ | ( | |||||||||||||||
Equity-based compensation | ( | |||||||||||||||||||
Significant Accounting Policies
Fair Value Measurement
U.S. GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy, based on the transparency of inputs to the valuation to estimate the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
| Level | Measurement | |||||||
1 | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |||||||
2 | Inputs are other than quoted prices that are observable for the asset or liability as Level 1 inputs, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. | |||||||
3 | Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. | |||||||
The Company follows this hierarchy for the fair value measurement of applicable assets and liabilities, with classifications based on the lowest level of input that is significant to the fair value measurement. The following summarizes the Company's asset and liability fair value hierarchy at July 31, 2026:
| Level | Asset or Liability | Measurement | ||||||||||||
1 | Cash and cash equivalents | Estimates of fair value are measured using observable, quoted market prices, or Level 1 inputs. The Company estimates the fair value of USD Coin ("USDC") at parity with USD. | ||||||||||||
Digital Assets | Estimates of fair value are measured using observable, quoted market prices on principal exchanges, or Level 1 inputs, on Binance exchange for BNB, Bitcoin ("BTC"), and Tether ("USDT"). | |||||||||||||
3 | Warrant Liabilities | Estimates of fair value are measured using observable, quoted market prices on Nasdaq Capital Markets traded under BNCWZ that started trading on April 15, 2026, but are not actively traded at July 31, 2026, as well as unobservable inputs, including adjusted historical volatility of shares of the Company's common stock. | ||||||||||||
Cash Incentive Award | Estimates of fair value are measured using observable, quoted market prices of shares of the Company's common stock as well as unobservable inputs, including adjusted historical volatility of shares of the Company's common stock. | |||||||||||||
Intangible Assets & Goodwill | Estimates of fair value of Fat Panda's trade name and goodwill recorded from the Fat Panda Acquisition are based upon discounted future cash flows of Fat Panda. Carrying value represents the lower of carrying value or impaired fair value if undiscounted cash flows are less than the carrying value at the date of the impairment assessment. | |||||||||||||
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Valuation Process — On a quarterly basis, with assistance from an independent valuation firm, management estimates the fair value of the Company's Level 3 financial instruments. The Company's determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of assets or liabilities in the form of a range, management selects a value within the range provided by the independent valuation firm to assess the reasonableness of management’s estimated fair value for that asset or liability. At July 31, 2026, the Company's valuation process for Level 3 measurements, as described below, was conducted internally or by an independent valuation firm and reviewed by management.
Valuation of Digital Assets — The Company has designated the Binance exchange as its principal market for its digital assets as it is the market to which it has access that provides the greatest volume and level of orderly transactions for its respective digital assets. The Company reassesses its principal market when facts and circumstances change, including, but not limited to, when new markets become accessible, or the volume/activity in the current principal market declines. For digital assets that trade continuously across global markets, the Company applies a consistent valuation cut-off at midnight Coordinated Universal Time ("UTC") on the reporting date to determine fair value. All of the Company's digital assets are held by BNC BNB Cayman, and the principal market for each asset is determined based on the markets accessible to this subsidiary.
Valuation of Warrant Liabilities — Management considers the Stapled Warrants (Note 6) issued together with shares in connection with the PIPE Transaction and redeemable for the Company's equity as Level 3 liabilities in the fair value hierarchy as liquid markets exist for such liabilities, but the instruments do not actively trade. On a quarterly basis, management engages an independent valuation firm to estimate the fair value of the Company's warrants, applying a Monte-Carlo model using estimates of volatility, contractual terms, discount rates, dividend rates, expiration dates, and risk-free rates. Management estimates fair value of warrants on an equal-weighted basis between the observed market trades and model outputs.
Valuation of Cash Incentive Award — Management considers the Cash Incentive Award issued under the Transition Agreement (Note 10) as Level 3 liability in the fair value hierarchy as no market exists for the agreement and management uses a model with unobservable inputs to estimate the award value. Management engaged an independent valuation firm to estimate the fair value of the Cash Incentive Award at April 30, 2026, applying a Monte-Carlo model using estimates of volatility, contractual terms, discount rates, dividend rates, expiration dates, and risk-free rates.
Valuation of Intangibles and Goodwill — The Company carries intangible assets, excluding applicable digital assets, and goodwill at the lower of their carrying value or fair value. Significant assumptions and estimates used in the valuation of intangible assets and goodwill include future expected cash flows, including projected revenues and expenses, and applicable discount rates. These assumptions and estimates are Level 3 inputs and based on assumptions that the Company believes to be reasonable.
Other Valuation Matters — For Level 3 assets acquired and liabilities assumed during the calendar month immediately preceding a quarter end that were conducted in an orderly transaction with an unrelated party, management generally believes that the transaction price provides the most observable indication of fair value given the illiquid nature of these financial instruments, unless management is aware of any circumstances that may cause a material change in the fair value through the remainder of the reporting period. For instance, significant changes in a counterparty’s intent or ability to make payments on a financial asset may cause material changes in the fair value of that financial asset.
The Company's financial assets and liabilities consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt. The carrying value of cash and cash equivalents; accounts receivable, net of allowances for doubtful accounts; accounts payable; accrued expenses; and current debt approximates fair value due to the short-term nature of those instruments.
See Note 8 for additional information regarding the valuation of the Company's assets and liabilities.
Leases
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Balance Sheet Measurement
Cash and Cash Equivalents
| July 31, 2026 | April 30, 2026 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
Total cash and cash equivalents shown in the Consolidated Statements of Cash Flows | $ | $ | |||||||||
Digital Assets
The Company holds digital assets, primarily BNB, as part of its DAT strategy, including stablecoins, digital assets received from Airdrops, and other digital assets. Digital assets that meet the scope criteria in ASC 350-60, Intangibles—Goodwill and Other—Crypto Assets, are accounted for as crypto intangible assets. The Company initially recognizes these digital assets, whether restricted or not, at cost or at fair value when received in a non-cash transaction, and subsequently remeasures such digital assets at fair value at each reporting date, with changes in fair value recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) within "Unrealized loss on digital assets." The Company classifies digital assets, or receivables thereon, that it does not expect to hold for more than twelve months as current assets. Generally, the Company expects to hold BNB holdings longer than twelve months and classifies such digital assets as non-current assets.
Digital Assets Held by Third Parties
The Company may deposit certain digital assets with certain third parties (e.g., exchanges or custodians) to facilitate digital asset treasury activities. Such third parties may not maintain these digital assets in segregated wallets under the Company's exclusive control and may pool the digital assets with assets of other customers. The Company evaluates such arrangements to determine whether it has ownership of, and control over, the underlying digital assets.
●Digital assets held under arrangements for which the Company retains ownership and unrestricted control are presented as digital assets in the Condensed Consolidated Balance Sheets.
●If the Company retains ownership of digital assets held under such arrangements, but the Company may not freely control those assets, the Company reports restricted digital assets (Note 4). See Note 5 for more information regarding the Company's pledge of BNB under its debt facility.
●If, due to the lack of sufficient regulatory oversight or the Company's inability to prevent a third party from using digital assets for purposes other than those directed by the Company, the Company concludes that it would not retain sufficient control over the deposited assets, the Company derecognizes the digital assets and records a receivable from the third party in the Condensed Consolidated Balance Sheets. The Company did not record any digital asset receivables at July 31, 2026.
Digital Asset Purchases and Sales
The Company recognizes any realized gains and losses from the sale, exchange, conversion, or other derecognition of digital assets in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) within "Realized loss on digital assets." The Company uses the specific identification method to calculate the realized gains and losses on digital assets.
Sales and purchases of digital assets are reflected as cash flows from investing activities in the Unaudited Condensed Consolidated Statements of Cash Flows whereas contributions of digital assets received as part of the consideration received from the Company's issuance of its common stock (Note 6) are presented within supplemental information for non-cash investing and financing activities.
See Note 4 for additional information regarding the Company's digital assets.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Inventory
| July 31, 2026 | April 30, 2026 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
Finished goods | $ | $ | |||||||||
Raw materials | |||||||||||
Allowance for excess and obsolete inventory | ( | ( | |||||||||
Inventory, net(A) | $ | $ | |||||||||
A.Includes labor and overhead expenses of $0.8 million and $0.4 million at July 31, 2026 and April 30, 2026, respectively. The Predecessor measured inventory on a standard cost basis until acquired by the Company.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair values of the net tangible and intangible assets of entities acquired in a business combination. The Company does not amortize goodwill, but it tests goodwill for impairment at the reporting unit level during the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that impairment may have occurred. Triggering events that may indicate a potential impairment include, but are not limited to, significant adverse changes in customer demand or business climate and related competitive considerations. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of the relevant reporting unit is less than its carrying amount. If, based on this assessment, the Company concludes that it is more likely than not that the fair value is less than the carrying amount, a quantitative goodwill impairment test is performed. Under a quantitative test, the Company compares the estimated fair value of the reporting unit to its carrying amount, and recognizes an impairment loss for any excess of carrying value over fair value, limited to the carrying amount of goodwill. If the estimated fair value exceeds the carrying amount, the Company does not recognize any impairment.
The Company recorded goodwill in connection with the Fat Panda Acquisition. Goodwill recognized in connection with the acquisition is denominated in the functional currency of the acquired entity, Fat Panda, and translated into USD using the exchange rate at the acquisition date as well as at each reporting date using the period-end exchange rate, with changes recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) within "Foreign currency translation adjustment."
During the quarter ended July 31, 2026, the Company qualitatively evaluated events and circumstances relevant to the Fat Panda reporting unit to determine whether it was more likely than not that the reporting unit's fair value was less than its carrying amount. Based on this evaluation, management concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.
The carrying value of the Company's goodwill changed by the following amounts:
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | ||||||||||
Beginning Carrying Value | |||||||||||
Goodwill | $ | $ | |||||||||
Accumulated impairment losses | |||||||||||
Changes in Goodwill | |||||||||||
Fat Panda Acquisition | |||||||||||
Foreign currency translation adjustment | ( | ||||||||||
Ending Carrying Value | |||||||||||
Goodwill | |||||||||||
Accumulated impairment losses | |||||||||||
$ | $ | ||||||||||
Intangible Assets
The Company amortizes intangible assets on a straight-line basis over the assets' estimated useful life, based on the expected economic benefit and use of the asset, and evaluates intangible assets for impairment on a quarterly basis, or more frequently if events or changes in circumstances suggest that the asset may be impaired. The evaluation compares the carrying value to the estimated future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds those cash flows, the asset is considered impaired, and the impairment loss is measured as the excess of the carrying amount over its fair value. The Company's identified intangible assets include:
| Estimated Useful Life (Years) | Carrying Amount | |||||||||||||||||||||||||
| Asset | July 31, 2026 | April 30, 2026 | ||||||||||||||||||||||||
| (Unaudited) | (Audited) | |||||||||||||||||||||||||
Trade names(A) | $ | $ | ||||||||||||||||||||||||
Accumulated amortization(B)(C) | ( | ( | ||||||||||||||||||||||||
Foreign currency translation adjustment | ( | |||||||||||||||||||||||||
$ | $ | |||||||||||||||||||||||||
A.Trade names acquired as part of the Fat Panda Acquisition ("—Business Combinations—Fat Panda Acquisition"), and valued using a relief-from-royalty method.
B.Includes amortization expense of $0.1 million and $0.1 million for the three months ended July 31, 2026 and the period from June 7, 2025 through July 31, 2025, respectively.
C.At July 31, 2026, the approximate aggregate annual amortization expense for definite-lived intangible assets is as follows:
Remaining nine months during fiscal year 2027 | $ | |||||||
2028 | ||||||||
2029 | ||||||||
2030 | ||||||||
2031 | ||||||||
Thereafter | ||||||||
$ | ||||||||
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Debt Obligations
The Company's debt obligations consist of short-term notes payable to the selling shareholders of Fat Panda ("Selling Fat Panda Shareholders"), including related parties, and a short-term convertible note payable to a related party, each of which is denominated in CAD as well as borrowings collateralized by BNB. The Company initially recognizes debt obligations at the fair value of consideration received, net of debt-issuance costs and any original issue discount, and subsequently measures such obligations at amortized cost using the effective-interest method, unless the Company has elected the fair value option and carries the debt obligation at its estimated fair value, with changes in fair value recorded in its Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). At July 31, 2026, the Company has not elected the fair value option for any of its outstanding debt instruments.
Current debt obligations represent borrowings with contractual maturities of twelve months or less from the balance sheet date or when the Company does not have the unconditional right to defer settlement for at least twelve months. Debt obligations under which an uncured or unwaived default existed at the balance sheet date that would permit the lender to demand repayment within twelve months are also classified as current. All other debt obligations are classified as non-current liabilities.
The Company pledges BNB as collateral under secured financing agreements with a financial institution, the terms and conditions of which are governed by each respective financing agreement. Such collateralized financing arrangements do not provide the counterparty the right to rehypothecate the underlying collateral, and the Company discloses in the notes to the financial statements the extent to which such collateral has been pledged. The related collateral and corresponding liabilities are presented on a gross basis in the financial statements and any associated interest expense is recognized on a basis consistent with the Company's other financing arrangements. The amounts available to be borrowed under financing agreements are dependent upon the fair value of the collateral, which can be volatile and fluctuate with changes in BNB supply, ecosystem growth rate, sentiment, and other factors. The Company manages credit, market, and liquidity risks related to these agreements by holding additional collateral available to pledge and actively monitoring and maintaining margin requirements.
The Company capitalizes and amortizes deferred debt facility costs incurred when entering into financing agreements on a straight-line basis over the expected term of term facilities or weighted-average life of the expected principal repayments for open loans, when such recognition does not materially differ from the effective interest method, with amortization of deferred debt issuance costs, write-offs of unamortized deferred costs upon early extinguishment, contractual interest and fees, and foreign exchange remeasurement gains and losses on debt denominated in currency other than USD included within "Interest expense", or "Interest expense to affiliate" for debt obligations to related parties, in its Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Interest payable on debt of $0.2 million and $— million at July 31, 2026 and April 30, 2026, respectively, is recorded as a component of "Other current liabilities" in the Condensed Consolidated Balance Sheets.
See Note 5 for additional information regarding the Company's debt obligations.
Warrants
The Company accounts for its warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability, and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to the Company's shares of common stock, among other conditions for equity classification. This assessment, which requires significant judgment, is conducted at the time of warrant issuance and at each quarterly reporting date thereafter while the warrants are outstanding. For warrants classified as equity, the Company records an increase to additional paid-in capital at the time of issuance based on the warrant's fair value. For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss within "Gain on change in fair value of warrant liability" in the Company's Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Upon exercise of warrants classified as liabilities, the Company reclassifies the fair value of the warrant immediately prior to exercise as additional paid-in capital, together with any cash exercise price received, while the Company recognizes a gain upon expiry of warrants classified as liabilities that expire unexercised.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
The Company issued the Pre-funded Warrants, Stapled Warrants, Strategic Advisor Warrants, and Asset Manager Warrants together with shares of its common stock in the PIPE Transaction (Note 6). Therefore, the Company allocated the $500.0 million gross proceeds from the PIPE Transaction to each component of the transaction, including the aforementioned warrants. First, the Company allocated $305.0 million to the Stapled Warrants, classified as liabilities as the Company does not control certain warrant settlement conditions, at their issuance-date fair value. The Company then allocated remaining proceeds to the other instruments issued in the transaction, including the Pre-funded Warrants, classified as equity, based on the relative fair value of all equity-classified instruments issued in the PIPE Transaction, including shares of the Company's common stock issued but excluding Strategic Advisor Warrants and Asset Manager Warrants treated as equity-based compensation that were expensed at their respective grant-date fair values. Direct and incremental transaction costs are allocated between instruments classified as liabilities and equity on the same proportionate basis as the gross proceeds. The Company expensed issuance costs allocated to Stapled Warrants within "PIPE Transaction costs" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) upon issuance while the Company reduced additional paid-in capital for transaction costs allocated to instruments classified as equity; such issuance costs include the grant-date fair value of both the Strategic Advisor Warrants and Asset Manager Warrants accounted for as equity-based compensation awards that were fully vested upon issuance as there were no service conditions.
See Note 6 for additional information regarding warrants issued by the Company.
Other Assets and Liabilities
At July 31, 2026 and April 30, 2026, accounts payable and accrued expenses, other assets, and other liabilities included:
| July 31, 2026 | April 30, 2026 | |||||||||||||
| (Unaudited) | (Audited) | |||||||||||||
Other current and non-current assets(A) | $ | $ | ||||||||||||
Accounts payable and accrued expenses | $ | $ | ||||||||||||
Other current related party liabilities | Accrued fees under the AMA. | Accrued fees under the AMA. | ||||||||||||
Other current related party liabilities, at fair value | n.a. | $ | ||||||||||||
Other current and non-current liabilities | $ | Current and deferred tax liabilities, lease liabilities, and deferred revenue. | ||||||||||||
A.Net of accumulated depreciation and amortization of $0.6 million and $0.6 million at July 31, 2026 and April 30, 2026, respectively. Includes $0.1 million, $0.1 million, and $— million depreciation and amortization for the three months ended July 31, 2026, the period from June 7, 2025 through July 31, 2025, and the period from May 1, 2025 through June 6, 2025, respectively.
B.The Company estimates the fair value of this variable consideration cash award based on the trading price of shares of its common stock on a quarterly basis, with changes in fair value presented within "Other affiliate operating expenses" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). See Note 8 and Note 10 for more information regarding the Cash Incentive Award.
Income Statement Measurement
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires the Company to recognize revenue as control of promised goods or services is transferred to customers in an amount that reflects the expected consideration that the Company earns in satisfaction of its performance obligations.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Fat Panda
Revenue from Fat Panda consists primarily of retail and e-commerce vape sales, with other revenues earned from factory-direct wholesale vape sales and franchise arrangements. Control generally transfers to customers upon shipment under FOB shipping terms or at point of sale for retail sales, except franchise royalty fees that represent variable consideration based on a percentage of franchisee sales and are recognized over the period in which sales occur. Initial franchise fees are recognized upon opening of the new franchise location, though the Company does not have any franchisees at July 31, 2026.
Generally, the Company's delivery of vape products at time of control transfer represents its single performance obligation aside from separate performance obligations for product return guarantees and loyalty programs, including Fat Panda's "Buy 10, Get 1 Free" program; however, the Company has not recorded liabilities for such returns and loyalty program redemptions as they have not been material. The Company records revenue at the sales price, gross of transaction processing costs such as credit card fees, if any, and net of any discounts and sales taxes. The Company considers shipping and handling costs as fulfillment costs, and expenses such amounts as cost of revenue.
Fat Panda also sells gift cards, for which the Company records a liability at time of sale and recognizes revenues upon redemption or when the Company determines redemption is remote.
Other Industry Activities
Revenue from the sale of climate control systems are derived from contracts that may include engineering and technical services as well as the sale of industrial climate control system equipment and components. These contracts may span multiple phases, from facility design to equipment delivery and start-up. The Company does not provide construction or installation services. A performance obligation is a promise in a contract to transfer a distinct good or service. Most climate control contracts include multiple performance obligations, while certain contracts consist of a single performance obligation, typically engineering-only services.
The transaction price is allocated to each performance obligation based on its standalone selling price. For engineering services, standalone selling price is estimated using project characteristics such as facility size and system complexity. For equipment sales, standalone selling price is determined by expected costs plus an appropriate margin. When prices are highly variable, the Company uses a combination of methods and observable inputs. Revenue is recognized when control transfers, generally upon shipment for goods and over time for engineering services based on percentage completion toward milestones.
The Company excludes taxes assessed by governmental authorities from transaction prices and recognizes revenue net of sales taxes. Freight revenue and related costs are recorded when control of goods passes to the customer. The Company offers assurance-type warranties only and maintains a warranty reserve based on historical costs.
Airdrops
Airdrops are distributed randomly without consideration or contractual agreement; therefore, they do not meet the criteria for revenue recognition under ASC 606. The Company records the fair value of Airdrops upon receipt as non-operating income, presented within "Airdrop income" in its Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
See Note 3 and Note 4 for additional information regarding the Company's revenues and Airdrops, respectively.
Cost of Revenue
Cost of revenue consists of all costs incurred to acquire, manufacture, transport, and deliver the products sold in the operations of the Company's Retail and Industry segment, comprising Fat Panda vape sales and industrial climate control systems. The Company recognizes cost of revenue concurrently with the recognition of the related revenue. Costs incurred prior to the recognition of the related revenue are deferred in inventory or in prepaid expenses, as applicable, and recognized in cost of revenue when the related revenue is recognized. The principal components of cost of revenue include:
Inventory cost — The cost of inventory sold during the period, including the purchase price of finished goods and raw materials, allowances for excess or obsolete inventory, and other costs incurred such as capitalized direct labor and manufacturing overhead applicable to the Company's in-house production of vape products and industrial climate control systems.
Shipping and handling costs — Shipping and handling costs incurred to deliver goods to customers that represent activities to fulfill sales orders.
Excise taxes — Products sold by Fat Panda are subject to federal and provincial excise taxes included as direct costs of revenue.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Compensation and Benefits
The Company expenses salaries, benefits, and equity-based compensation as services are provided, which it presents within "Selling, general and administrative expenses" in its Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when not otherwise included in the Company's cost of revenues.
Equity-Based Compensation
The Company grants equity-based awards to employees and members of the Company's Board of Directors ("Board") under its equity plans, which entitle the holder to receive shares of the Company's common stock on various future dates if the recipient meets applicable service conditions, if any. The Company expenses the grant-date fair value of awards on a straight-line basis over the requisite service period, and records actual forfeitures as they occur since the Company does not estimate forfeitures. In addition, the Company issued compensatory warrants to its Strategic Advisors that did not contain any service conditions and the Company expensed the grant-date fair value upon issuance.
See Note 6 for information regarding the Company's equity-based compensation awards.
Other Operating Expenses
Selling, general, and administrative expenses and other operating expenses include professional accounting, consulting, audit, and legal fees, excluding such costs unrelated to the Company's recurring operations and presented separately in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss); compensation, including equity-based compensation, and benefits paid or accrued to employees, consultants, officers, and members of the Board; advertising and marketing expenses; lease, utilities, and other facility costs; insurance premiums; depreciation and amortization; and other general and administrative costs.
See Note 10 for information regarding management fees paid to the Asset Manager and Note 4 for realized and unrealized gains (losses) on digital assets, respectively.
Income Taxes
The Company computes current income tax expense or benefit as the estimated tax payable to, or refundable from, federal, state, foreign, and other taxing authorities in respect of taxable income or loss for the year, determined based on the enacted tax laws of each taxing jurisdiction. The Company classifies all deferred tax assets and liabilities as non-current, and accounts for those income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities and operating loss and tax credit carryforwards and are measured using the enacted tax rates that are expected to be in effect when the differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) in the period that includes the enactment date. Valuation allowances are established considering all available positive and negative evidence, including the existence and reversal pattern of taxable temporary differences, the Company's history of taxable income and losses, projections of future taxable income exclusive of reversing temporary differences, the carryforward periods, and limitations applicable to net operating losses and tax credits. A valuation allowance is recorded against deferred tax assets when, based on the weight of all such evidence, the Company concludes that it is more likely than not that all or a portion of those deferred tax assets will not be realized.
The Company accounts for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return, and recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company regularly evaluates the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance.
The Company applies a two-step process to the recognition and measurement of uncertain tax positions: (i) determining whether a tax position is more likely than not to be sustained on the basis of the technical merits of the position and (ii) measuring the amount of benefit to recognize, if any, as the largest amount that is more likely than not to be realized upon ultimate settlement with the relevant taxing authority.
See Note 9 for additional information regarding the Company's income taxes.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Business Combinations
The Company evaluates its acquisition of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the test is met, the transaction is accounted for as an asset acquisition. If the test is not met, further determination is required as to whether or not the Company acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the test to determine whether an acquisition is a business combination or an acquisition of assets.
For acquisitions meeting the definition of a business combination, the Company uses the acquisition method of accounting. Under the acquisition method, the Company's financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired, including identifiable intangible assets, and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the consideration transferred for the acquired business, or purchase price, over the estimated fair values of the identifiable net assets acquired is allocated to goodwill. Acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred.
Determining estimated fair value requires a significant amount of judgment and estimates. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company's estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, the Company initially records any uncertain tax positions, tax-related valuation allowances, and pre-acquisition contingencies in connection with a business combination on the acquisition date. The Company recognizes measurement-period adjustments in the reporting period in which the adjustment amounts are determined. Income statement effects of these adjustments are calculated as if the accounting had been completed at the acquisition date.
Fat Panda Acquisition
The Company accounted for the Fat Panda Acquisition as a business combination under ASC 805. The acquisition of Fat Panda constitutes the acquisition of a business for purposes of ASC 805, and has been accounted for using the acquisition method resulting from a change of control with CEAI as the legal and accounting acquirer and Fat Panda as the accounting acquiree based on evaluation of the following primary factors:
●CEAI acquired 100 % of the voting interests in Fat Panda having full and complete authority over all the affairs of Fat Panda and
●The Selling Fat Panda Shareholders do not have a controlling interest in CEAI after the Fat Panda Acquisition.
The $12.7 million purchase price paid by CEAI to the Selling Fat Panda Shareholders in the Fat Panda Acquisition consisted of: (a) $10.6 million cash, of which $4.0 million consisted of proceeds from the Fat Panda Bridge Loan, net of a $0.1 million original issue discount, and $1.9 million was placed in escrow to support post-closing adjustments, indemnity obligations, and employee-related matters ("Escrow Deposit"); (b) 39,000 shares of the Company's common stock with an agreed-upon value of $0.3 million; (c) a $0.4 million note payable upon resolution of uncertain tax obligations in connection with the Fat Panda Acquisition ("Tax Indemnification Note"); and (d) two promissory notes payable to the President of Fat Panda, one of the Selling Fat Panda Shareholders and a current employee of the Company, totaling $1.4 million ("Fat Panda Promissory Notes"). At the Acquisition Date, the Fat Panda Promissory Notes were composed of a $0.7 million promissory note payable in cash ("Promissory Note") and a $0.7 million promissory note payable in cash or convertible into the Company's common stock ("Convertible Promissory Note"). Each of the Tax Indemnification Note and Fat Panda Promissory Notes is payable in CAD and reported in USD.
The Company incurred $0.7 million of expenses directly related to the Fat Panda Acquisition during the period from June 7, 2025 through July 31, 2025 and included in "Business combination expenses" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
See Note 5 and Note 10 for additional information regarding the Fat Panda Bridge Loan, Tax Indemnification Note, and Fat Panda Promissory Notes.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Purchase Price Allocation
The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values at the Acquisition Date. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill, primarily attributable to the assembled workforce, synergies expected from combining operations, and future growth opportunities.
The following table summarizes the fair value of assets acquired and liabilities assumed at the Acquisition Date and is based on the best estimates of management, which were subject to change within the measurement period.
| As Initially Reported | Adjustments(A) | Revised Amount | |||||||||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||||||||
Accounts receivable | |||||||||||||||||
Related party receivables | |||||||||||||||||
Inventory | ( | ||||||||||||||||
Prepaid expenses | ( | ||||||||||||||||
Fixed assets | |||||||||||||||||
Right-of-use asset | ( | ||||||||||||||||
Deposits | |||||||||||||||||
Intangibles(B) | |||||||||||||||||
Goodwill | ( | ||||||||||||||||
Accounts payable and accrued liabilities | ( | ( | |||||||||||||||
Income taxes payable | ( | ||||||||||||||||
Deferred tax liability | ( | ( | ( | ||||||||||||||
Lease liabilities, current | ( | ( | |||||||||||||||
Current portion of royalty liabilities | ( | ||||||||||||||||
Lease liabilities, non-current | ( | ( | |||||||||||||||
Total net assets acquired | $ | $ | ( | $ | |||||||||||||
A.During the period from June 7, 2025 to June 6, 2026, the Company recorded measurement period adjustments resulting from new information about facts and circumstances that existed at the Acquisition Date. These adjustments primarily related to updated valuations of working capital accounts, including accounts receivable, inventory, prepaid expenses, right-of-use asset, and accrued liabilities, as well as the fair value of the Fat Panda Promissory Notes as part of the purchase consideration. The cumulative impact of these adjustments was recorded as a decrease to goodwill, and prior-period comparative information has been revised as if the adjustments had been recognized at the Acquisition Date. At July 31, 2026, the release of amounts within the $1.9 million Escrow Deposit remains uncertain, and the Company expects to record further adjustments, if any, within the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) as the measurement period ended in June 2026.
B.Represents the estimated fair value of Fat Panda's trade names, valued using a relief-from-royalty method, with an estimated useful life of 10 years.
Unaudited Pro Forma Operating Results
The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three months ended July 31, 2026, and 2025, as if the Fat Panda Acquisition transactions, including related financing, on June 6, 2025 had occurred on May 1, 2024. The unaudited pro forma results give effect to certain purchase accounting and financing adjustments based on the historical financial statements of the Company, but neither necessarily reflect actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations.
| Three Months Ended July 31, | |||||||||||
| 2026 | 2025 | ||||||||||
Revenue | $ | $ | |||||||||
Net loss | ( | ( | |||||||||
Pro forma adjustments include adjustments for amortization of intangible assets, elimination of non-recurring transaction costs incurred related to the acquisition, debt discount amortization and interest expense on the Fat Panda Bridge Loan and Fat Panda Promissory Notes.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Recently Issued Accounting Pronouncements
The FASB has issued the following Accounting Standards Updates ("ASUs") that may materially impact the Company's financial position and results of operations, or may impact the preparation of, but not materially affect, the Company's consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disaggregated disclosure of income statement expenses for public entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU is effective for annual periods beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the effect this guidance will have on its disclosures.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosure.
Accounting Pronouncements Recently Adopted
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient for all entities and an accounting policy election for non-public entities when estimating expected credit losses for current receivables and contract assets under ASC 606. The standard is effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years, and early adoption is permitted. The amendments are applied prospectively, and eligible entities can choose to apply the practical expedient and accounting policy election, with required disclosures. The Company adopted ASU 2025-05, which did not materially impact the Company's consolidated financial statements and disclosures.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 3 — Revenue
U.S. GAAP does not recognize the income that the Company generates from its digital assets (Note 4), which comprise approximately 93.1 % and 94.6 % of its total assets at July 31, 2026 and April 30, 2026, respectively, as revenue. However, the Company recognizes revenue from (a) Canadian retail vape sales from its Fat Panda operations at time of sale and (b) industrial climate control system sales in the United States over a period of time between system delivery and completion of its performance obligations, if any, in connection with the installation of delivered systems. The Company's contracts include the following groups of similar services that do not include any significant financing components:
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Fat Panda | ||||||||||||||||||||
Retail | $ | $ | $ | |||||||||||||||||
E-commerce | ||||||||||||||||||||
Other | ||||||||||||||||||||
Total Fat Panda | ||||||||||||||||||||
Industrial Climate Control Systems(A) | ||||||||||||||||||||
Equipment and systems sales(B) | ||||||||||||||||||||
Other | ||||||||||||||||||||
Total industrial climate control systems | ||||||||||||||||||||
Total revenue, net(C) | $ | $ | $ | |||||||||||||||||
A.Since Fat Panda is the accounting predecessor, the Company omits its revenues earned prior to the Acquisition Date.
B.At July 31, 2026, the Company had yet to deliver, or provide installation services for, equipment totaling $0.2 million, which represents its remaining performance obligations under such contracts, and for which the Company has not recognized revenue; the timing and realized amount of such potential revenue is uncertain and depends, in part, on the performance of third parties.
C.The Company presents revenues net of variable consideration, including sales taxes, commissions, and promotional discounts.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 4 — Digital Assets
The Company holds its unrestricted BNB with Ceffu and periodically receives Airdrops from blockchain projects within the Binance ecosystem whereas restricted BNB held by a lender as collateral (Note 5) is not eligible to receive Airdrops. The Company may hold other digital assets at Ceffu and Circle Internet Group, a blockchain-based treasury and payments financial technology provider ("Circle"). Digital assets to which the Company is entitled, but does not control, are presented as receivables in the Condensed Consolidated Balance Sheets; however, the Company did not have any digital asset receivables at July 31, 2026 or April 30, 2026.
The following table sets forth the units held, cost basis, and fair value of digital assets held as shown in the Condensed Consolidated Balance Sheets:
| July 31, 2026 | April 30, 2026 | |||||||||||||||||||||||||||||||||||||
| (Unaudited) | (Audited) | |||||||||||||||||||||||||||||||||||||
Crypto Asset(A) | Number of Tokens(B) | Cost(C) | Fair Value | Number of Tokens(B) | Cost(C) | Fair Value | ||||||||||||||||||||||||||||||||
Current Digital Assets(D) | ||||||||||||||||||||||||||||||||||||||
| BTC | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| USDT | ||||||||||||||||||||||||||||||||||||||
| Total current Digital Assets | ||||||||||||||||||||||||||||||||||||||
| Non-Current Digital Assets | ||||||||||||||||||||||||||||||||||||||
| Unrestricted | ||||||||||||||||||||||||||||||||||||||
| BNB | ||||||||||||||||||||||||||||||||||||||
| Total unrestricted, non-current Digital Assets | ||||||||||||||||||||||||||||||||||||||
| Restricted | ||||||||||||||||||||||||||||||||||||||
| BNB | ||||||||||||||||||||||||||||||||||||||
| Total restricted, non-current Digital Assets | ||||||||||||||||||||||||||||||||||||||
| Total non-current Digital Assets | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
A.Gains and losses presented within "Unrealized loss on digital assets" of the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Excludes USDC presented as "Cash and cash equivalents" in the Condensed Consolidated Balance Sheets.
B.Rounded to the nearest whole token.
C.Cost basis is equal to the cost of the digital asset, net of transaction fees, if any, at the time of purchase or upon receipt. The Company specifically identifies tokens to determine its cost basis for computing gains and losses.
D.Current digital assets are held primarily for operating liquidity, expected to be available for use within the next twelve months, and presented within "Other current assets" in the Condensed Consolidated Balance Sheets.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 5 — Debt Obligations
The Company's debt obligations consisted of the following:
| July 31, 2026 | April 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average | Collateral | ||||||||||||||||||||||||||||||||||||||||||||||
| Carrying Value | Outstanding Face Amount | Month Issued | Final Stated Maturity | Funding Cost | Life (Years) | Carrying Value | Carrying Value | ||||||||||||||||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||||||||||||||||||||||
BitGo Facility(A) | $ | $ | Apr-2026 | Jan-2027 | % | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Total debt | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Notes Payable | |||||||||||||||||||||||||||||||||||||||||||||||
Tax Indemnification Note(B) | Jun-2025 | n.a. | n.a. | ||||||||||||||||||||||||||||||||||||||||||||
Promissory Note(C) | Jun-2025 | Nov-2026 | n.a. | ||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Note(D) | Jun-2025 | Jun-2027 | n.a. | ||||||||||||||||||||||||||||||||||||||||||||
Total related party notes payable, gross | |||||||||||||||||||||||||||||||||||||||||||||||
Unamortized deferred financing costs(E) | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Total related party notes payable | |||||||||||||||||||||||||||||||||||||||||||||||
Total, net | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
A.On April 30, 2026, the Company and BitGo Prime, LLC ("BitGo") entered into an uncommitted master loan facility ("BitGo Facility"), pursuant to which the Company may borrow digital assets or cash from BitGo from time to time. BitGo is not obligated to make any loan, and we have no committed borrowing capacity. Each loan is documented in a separate loan agreement by the parties setting forth the specific terms, including principal amount, fees, collateral requirements, and the date on which the loan is to commence and mature. Each loan may have a fixed term, or may include a call option held by BitGo or prepayment option held by the Company, as specified in each loan agreement. Borrowings under the master loan agreement are secured by collateral in favor of BitGo. Collateral may include BNB, cash, or other forms agreed upon by the parties. The collateral’s required value is typically higher than the borrowed amount, subject to margin calls as set forth in the master loan agreement. If the value of posted collateral falls below the margin call threshold, the Company must promptly post additional collateral. Failure to maintain sufficient collateral can result in an event of default and remedies available to BitGo, including the right to liquidate pledged collateral. BitGo holds BNB collateral owned by the Company in a segregated custody account in the Company's name, and BitGo is not permitted to use such BNB to secure any other loan or account. The final stated maturity of the facility represents the greater of the maturity of the master loan agreement or the maturity of any fixed term loan agreement thereunder. At July 31, 2026 and April 30, 2026, the Company accrued $0.1 million and $— million of unpaid interest, respectively, in "Other current liabilities" in the Condensed Consolidated Balance Sheets.
B.The $0.4 million note with the Selling Fat Panda Shareholders does not bear interest and does not have a fixed maturity date. The Company must repay the note in full within 15 days following the date that Canada Revenue Agency issues a letter confirming a certain tax liability does not exist in connection with the Fat Panda Acquisition. Conversely, the note payable is reduced in the amount of any tax liability assessed.
C.The $0.7 million interest-only note with the President of Fat Panda bears interest at 7.0 % per annum, payable monthly.
D.The $0.7 million convertible note with the President of Fat Panda bears interest at 7.0 % per annum. The President of Fat Panda may elect to convert the note into shares of the Company's common stock at a conversion price of $19.00 per share until June 1, 2027. If no election occurs by that date, the Company must pay the entire principal plus interest in cash. At July 31, 2026 and April 30, 2026, the Company accrued $0.1 million and $— million of unpaid interest, respectively, in "Other current liabilities" in the Condensed Consolidated Balance Sheets.
E.The Company amortized a total of $— million, $0.1 million, and $— million of deferred financing costs during the three months ended July 31, 2026, the period from June 7, 2025 through July 31, 2025, and the period from May 1, 2025 through June 6, 2025, respectively.
Maturities
All of the Company's debt obligations are recourse to the Company and mature within its current fiscal year, except the Tax Indemnification Note that is recourse to the Company, presented as a current obligation as the Tax Indemnification Note does not have a stated maturity.
Covenants
The Company's debt obligations contain customary representations and warranties, financial and non-financial covenants, event of default provisions, including cross-default provisions, and financial reporting requirements. Financial covenants include requirements that the Company maintain (a) a minimum net equity of $25.0 million, and (b) a maximum ratio of total assets-to-net equity of 2 :1, in each case excluding the impact of warrants treated as liabilities under U.S. GAAP. The Company was in compliance with all of its debt covenants at July 31, 2026.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Debt Activities
BitGo Facility
On April 30, 2026, the Company and BitGo entered into a loan agreement with a six-month rolling term to borrow USDC 10.0 million collateralized with BNB (Note 4) for which the Company received proceeds on May 1, 2026. Borrowed amounts bear interest at 9.5 % per annum and the Company paid a 0.3 % onboarding fee on borrowed amounts. During the three months ended July 31, 2026, the Company borrowed a total of USDC 15.0 million, inclusive of amounts received on May 1, 2026, collateralized with BNB valued at $25.5 million at the time of each borrowing, on the aforementioned terms.
Other Debt Activities
In connection with the Fat Panda Acquisition, the Company entered into a nine-month loan facility on June 4, 2025 with CEAD Panda Lender LLC, a United States-based lender, under which it borrowed $4.0 million ("Fat Panda Bridge Loan"). The Company fully repaid borrowings on December 4, 2025 and incurred total interest expense of $0.7 million in connection with the facility.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 6 — Equity and Earnings Per Share
The Company's articles of incorporation (as amended) authorize the issuance of 200,000,000 shares of common stock, par value $0.00001 per share, and 25,000,000 shares of preferred stock, par value $0.00001 per share. The Company listed its common stock on The Nasdaq Stock Market LLC ("Nasdaq") using the ticker symbol "CEAD" in February 2022 in connection with its initial public offering (subsequently changed to "BNC" (Note 1)), as well as public warrants ("Public Warrants") using ticker symbol "CEADW" (subsequently changed to "BNCWW"). The Company also issued warrants in connection with the PIPE Transaction ("PIPE Warrants"), including certain warrants ("Stapled Warrants") which were listed on Nasdaq using the ticker symbol "BNCWZ" beginning April 15, 2026. No 200,000 shares of preferred stock as Series C Junior Participating Preferred Stock in connection with the Stockholder Rights Agreement described below; no shares of that series have been issued. The Company's equity at July 31, 2026 included:
| Successor | |||||||||||||||||||||||||||||||||||||||||
| Shares | Potential Shares(A) | ||||||||||||||||||||||||||||||||||||||||
| Authorized | Issued and Outstanding | Warrants(B) | Stock Rights(C) | RSUs(D) | Options(E) | Total | |||||||||||||||||||||||||||||||||||
Common stock(F) | |||||||||||||||||||||||||||||||||||||||||
Preferred stock(G)(H) | |||||||||||||||||||||||||||||||||||||||||
Total | |||||||||||||||||||||||||||||||||||||||||
A.Excludes shares issuable upon conversion of the Convertible Promissory Note (Note 5), which is convertible only at the holder's election on or before June 1, 2027. The share count varies with the CAD/USD exchange rate.
B.Includes unexercised Public Warrants and PIPE Warrants.
C.Represents the 200,000 shares of Series C Junior Participating Preferred Stock reserved for issuance upon exercise of the Series C Junior Participating Preferred Stock Rights, subject to the terms of the Stockholder Rights Agreement described below. The Series C Junior Participating Preferred Stock Rights were not exercisable at July 31, 2026, and no shares of Series C Junior Participating Preferred Stock have been issued.
D.Restricted stock units ("RSUs") represent the right to receive, upon vesting and lapse of restrictions, one share of the Company's common stock for each unit granted.
E.Stock options provide optionholders the opportunity to purchase shares of the Company's common stock in the future at the exercise price of the option.
F.Par value of $0.00001 per share. Each shareholder of common stock is entitled to one vote per share, ratable dividends, when and as declared by the Board, and liquidation preferences subordinate to preferred stock.
G.Represents up to 200,000 shares of Series C Junior Participating Preferred Stock with a par value of $0.00001 per share, reserved for issuance upon exercise of the associated preferred stock purchase rights. Each Series C Junior Participating Preferred Stock Rights entitles the holder to purchase 1/1000th of a share of Series C Junior Participating Preferred Stock, and each share of Series C Junior Participating Preferred Stock is designed to be economically equivalent to 1,000 shares of common stock. After the first issuance of a share, or fraction of a share, of Series C Junior Participating Preferred Stock, shareholders of Series C Junior Participating Preferred Stock are entitled to quarterly dividends in an amount per share equal to the greater of (i) $1,000 and (ii) 1,000 times the aggregate per share amount of all cash dividends, plus 1,000 times the aggregate per share amount of all non-cash dividends or other distributions other than a dividend payable in shares of common stock, paid in-kind, subject to adjustment for stock splits, stock dividends, and combinations. Holders are similarly entitled to preferential amounts on liquidation and to equivalent consideration in a merger or consolidation At July 31, 2026, no Series C Junior Participating Preferred Stock Rights were exercised and the Company had not issued any shares of Series C Junior Participating Preferred Stock.
H.The Board is authorized, subject to the laws of the state of Nevada or other applicable law and without further stockholder action, to designate one or more series of preferred stock and to fix the number of shares, designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock, including, but not limited to, dividend, conversion, and voting rights as well as redemption terms and liquidation preferences. In the event of the Company's liquidation, holders of preferred stock are entitled to a distribution per share in the amount of the liquidation preference, if any, fixed or determined in accordance with the terms of such preferred stock plus, if applicable, an amount per share equal to accumulated and unpaid dividends in respect of such preferred stock, whether or not earned or declared, to the date of such distribution before any payment or distribution on the common stock or any other class of stock junior to the preferred stock upon liquidation. Neither the sale, lease, or exchange of all or substantially all of the property and assets of the Company, nor any consolidation or merger of the Company, is deemed to be a liquidation for the purposes of preferred stock liquidation preferences.
Predecessor Equity
For periods prior to the Acquisition Date, the Company presents the equity of Fat Panda as the accounting predecessor, which consisted of 1,410 shares of unlimited authorized common stock with no par value, which are different than the Company's equity and therefore not comparable. While the Company eliminates the equity it holds in Fat Panda as a wholly-owned subsidiary, the Company issued 39,000 shares of its common stock to the Selling Fat Panda Shareholders as part of the consideration paid in the Fat Panda Acquisition (Note 2).
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Stockholder Rights Agreement
On December 26, 2025, the Board adopted a limited duration shareholder rights agreement ("Stockholder Rights Agreement"). This agreement is designed to reduce the probability that any person, entity, or group can gain control of the Company through open-market accumulation without providing all shareholders with an appropriate control premium or affording the Board sufficient time to make well-informed decisions in the best interests of all shareholders. In accordance with the Stockholder Rights Agreement, the Company issued, as a dividend, one right ("Series C Junior Participating Preferred Stock Right") for each share of the Company's common stock held at January 8, 2026, and for each share of certain outstanding common stock warrants. Each Series C Junior Participating Preferred Stock Right allows its holder to purchase 1/1000th of a share of Series C Junior Participating Preferred Stock at an exercise price of $33.50 per Series C Junior Participating Preferred Stock Right. Each share of Series C Junior Participating Preferred Stock is equivalent to 1,000 shares of the Company's common stock. The Series C Junior Participating Preferred Stock Rights have a limited term and will expire on December 26, 2026, or earlier, as specified in the Stockholder Rights Agreement.
Under the terms of the Stockholder Rights Agreement, if any person or group obtains beneficial ownership of 15.0 % or more of the Company's outstanding common stock ("Acquiring Party"), subject to certain exceptions, including an exception for current holders exceeding this percentage who do not acquire additional shares, the Series C Junior Participating Preferred Stock Rights become exercisable. All holders of Series C Junior Participating Preferred Stock Rights, excluding those held by the Acquiring Party that will become void and non-exercisable, are entitled to purchase shares of the Company's common stock at a 50.0 % discount to the prevailing market price, at an exchange ratio of one share of common stock, or one one-thousandth of a share of Series C Junior Participating Preferred Stock (or of another class or series of preferred stock with equivalent rights, preferences, and privileges), per outstanding Series C Junior Participating Preferred Stock Right, subject to adjustment.
Equity Activities
Share Repurchase Program
In September 2025, the Board approved a share repurchase program to repurchase up to $250.0 million total dollar value in outstanding shares of the Company's common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases, or otherwise, in accordance with applicable federal securities laws, based on available capital resources and other financial and operational performance metrics, market conditions, securities law limitations, and other factors. There is no minimum number of shares required to be repurchased under the share repurchase program, and the share repurchase program may be suspended or discontinued at any time. The Company repurchased and retired 1,434,112 shares, at a weighted-average price of $2.63 , for a total of $3.8 million, excluding $— million transaction costs, during the three months ended July 31, 2026, presented as a reduction of stockholders' equity. At July 31, 2026, the Company had repurchased and retired a total of 4,676,322 shares equaling a total dollar value of $21.1 million, excluding transaction costs, under the program.
ATM Program
In August 2025, the Company entered into an at-the-market offering agreement ("ATM Program") with Cantor Fitzgerald & Co. ("ATM Agent"), pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $50.0 million from time to time through the ATM Agent, acting as the Company's sales agent or principal. Sales under the ATM Program, if any, will be made by means of ordinary brokers' transactions on Nasdaq or otherwise at market prices prevailing at the time of sale, or at prices related to prevailing market prices. Under the ATM Program, the Company has provided the ATM Agent with customary indemnification rights, and the ATM Agent will be entitled to a commission of up to 3.0 % of the gross proceeds from each sale of shares made through, or to, the ATM Agent. Since the inception of the ATM Program through July 31, 2026, the Company has sold and issued 856,275 shares at a total dollar value of $13.1 million, gross of $0.2 million transaction costs, under the ATM Program. The Company did not sell any shares under the ATM Program during the three months ended July 31, 2026.
PIPE Transaction
In August 2025, the Company entered into securities purchase agreements with a group of institutional and accredited investors pursuant to which it issued and sold shares of its common stock and the PIPE Warrants in a private placement:
●41,754,478 shares of common stock at a purchase price of $10.10 per share;
●7,750,510 pre-funded warrants, each immediately exercisable at an exercise price of $0.00001 per share ("Pre-funded Warrants"); and
●49,504,988 Stapled Warrants, each exercisable at $15.15 per share.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Additionally, the Company issued the following fully-vested compensatory warrants to 10X BNB Cayman Sponsor, an affiliate of the Asset Manager, and YZi Labs Management Ltd. (together, the "Strategic Advisors"):
●5,940,598 warrants issued to the Strategic Advisors, valued at $105.6 million, to provide strategic advice and guidance relating to the Company's business, operations, growth initiatives and industry trends in the digital asset technology sector ("Strategic Advisor Warrants"); and
●990,099 warrants issued to the Asset Manager, valued at $15.0 million, under the AMA ("Asset Manager Warrants").
On August 5, 2025, the Company closed the PIPE Transaction, which was settled through a combination of cash, cash equivalents, and digital assets. The Company received $409.9 million in cash and cash equivalent proceeds, net of $23.9 million of issuance costs, and $66.3 million in digital assets, consisting of USDT and BTC. The Company allocated $305.0 million in proceeds to warrant liabilities based on the fair value of the Stapled Warrants with the remaining gross proceeds of $195.1 million recorded in additional paid-in capital, net of $9.3 million allocated issuance costs. To allocate total issuance costs of $23.9 million, the Company valued Pre-funded Warrants and Strategic Advisor Warrants at the fair value of its common stock given the nominal exercise price. Issuance costs of $14.6 million were allocated to the Stapled Warrants and expensed in August 2025.
Warrants
The Company has issued the following outstanding warrants at July 31, 2026:
| Nasdaq Symbol | Issue Date | Expiry Date | Warrants Outstanding(A) | Exercise Price | |||||||||||||||||||||||||
Stapled Warrants(B) | BNCWZ | August 2025 | August 2028 | $ | |||||||||||||||||||||||||
Pre-funded Warrants(C) | n.a. | August 2025 | n.a. | — | |||||||||||||||||||||||||
Strategic Advisor Warrants(D) | n.a. | August 2025 | August 2030 | — | |||||||||||||||||||||||||
Asset Manager Warrants | n.a. | August 2025 | August 2030 | ||||||||||||||||||||||||||
Public Warrants | BNCWW | February 2022 | February 2027 | ||||||||||||||||||||||||||
2022 Underwriter Warrants(E) | n.a. | February 2022 | February 2027 | ||||||||||||||||||||||||||
A.Each warrantholder may exercise their warrant for one share of the Company's common stock, except for the Public Warrants and 2022 Underwriter Warrants that are exercisable for 1/12th and 1/12th of a common share per warrant, respectively.
B.The Company holds a mandatory exercise right to force exercise of the Stapled Warrants if the volume-weighted average price of its common stock exceeds $20.20 for 20 out of 30 consecutive trading days.
C.Pre-funded Warrants have an exercise price of $0.00001 per share and do not have an expiration date.
D.The Strategic Advisor Warrants have an exercise price of $0.00001 per share.
E.Includes 761,670 and 269,492 warrants with exercise prices of $60.00 and $61.95 held by underwriters and their employees, respectively.
During the period from June 7, 2025 through July 31, 2025, 1,434,418 and 21,065 Public Warrants and 2022 Underwriter Warrants were exercised for 17,582 and 66 of the Company's common shares, representing $42.5 million and $0.6 million fair value at date of grant, respectively.
At July 31, 2026, outstanding and exercisable warrants had the following characteristics:
Intrinsic value | $ | ||||
Weighted-average exercise period (in years) | |||||
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Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Equity-Based Compensation
The Compensation Committee of the Board, which must approve all grants and is composed entirely of independent members of the Board, has granted stock options and RSUs to its employees, consultants, officers, and members of the Company's Board under the following equity incentive plans at July 31, 2026:
| Common Shares Equivalents | Outstanding | |||||||||||||||||||||||||||||||||||||
Plan(A) | Authorized | Issued | Remaining Available | RSUs | Options(B) | Total | ||||||||||||||||||||||||||||||||
2026 Inducement Plan(C) | ||||||||||||||||||||||||||||||||||||||
2021 Equity Incentive Plan(D) | ||||||||||||||||||||||||||||||||||||||
2017 Equity Incentive Plan(E) | ||||||||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||
A.The Predecessor did not adopt any equity incentive plans or otherwise issue equity-based compensation.
B.The Company issued options with a 10 -year contractual term and a vesting period ranging from one month to thirty-two months . Options outstanding include:
| NQSO | ISO | Total | ||||||||||||||||||
2021 Equity Incentive Plan | ||||||||||||||||||||
2017 Equity Incentive Plan | ||||||||||||||||||||
Total | ||||||||||||||||||||
C.In April 2026, the Board approved the 2026 Inducement Plan, which permits the Compensation Committee to grant equity-based awards, including stock options, stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), and RSUs.
D.The 2021 Equity Incentive Plan permits the Board to grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs"), SARs, RSAs, RSUs, and other equity linked awards. If an equity award expires, or otherwise terminates without having been exercised in full, or settled in cash instead of the issuance of shares, then shares subject to such awards are again available for grant under the 2021 Equity Incentive Plan.
E.The Company may modify or amend the 2017 Equity Incentive Plan without shareholder approval, which permits the Compensation Committee to grant equity-based awards, including stock options, SARs, RSAs, RSUs, shares granted as a bonus or in lieu of another award, and other stock-based performance awards. Any shares subject to forfeited, expired, or otherwise terminated awards without issuance are again available for grant under the 2017 Equity Incentive Plan.
Activities
The Company presents equity-based compensation within the following line items in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss):
| Successor | ||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | |||||||||||||
Selling, general and administrative expenses | $ | $ | ||||||||||||
The following table summarizes the change in equity-based compensation awards to employees and members of the Company's Board.
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Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Employees
| RSUs | Options | ||||||||||||||||||||||||||||||||||
| Grant Date Fair Value Per Unit | Weighted Average Per Share | ||||||||||||||||||||||||||||||||||
| Units | Underlying Shares | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||||
Outstanding at June 7, 2025 | $ | $ | |||||||||||||||||||||||||||||||||
Granted | |||||||||||||||||||||||||||||||||||
Forfeited and cancelled | ( | ||||||||||||||||||||||||||||||||||
Outstanding at July 31, 2025 | $ | ||||||||||||||||||||||||||||||||||
Outstanding at April 30, 2026 | |||||||||||||||||||||||||||||||||||
Forfeited and cancelled | ( | ||||||||||||||||||||||||||||||||||
Expired | ( | ||||||||||||||||||||||||||||||||||
Outstanding at July 31, 2026 | $ | ||||||||||||||||||||||||||||||||||
Exercisable at July 31, 2026 | $ | ||||||||||||||||||||||||||||||||||
Board Members
| RSUs | Options | ||||||||||||||||||||||||||||||||||
| Grant Date Fair Value Per Unit | Weighted Average Per Share | ||||||||||||||||||||||||||||||||||
| Units | Underlying Shares | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||||
Outstanding at June 7, 2025 | $ | $ | |||||||||||||||||||||||||||||||||
Vested(A) | ( | ||||||||||||||||||||||||||||||||||
Expired | ( | ||||||||||||||||||||||||||||||||||
Outstanding at July 31, 2025 | $ | ||||||||||||||||||||||||||||||||||
Outstanding at April 30, 2026 | |||||||||||||||||||||||||||||||||||
Forfeited and cancelled | ( | ||||||||||||||||||||||||||||||||||
Outstanding at July 31, 2026 | $ | ||||||||||||||||||||||||||||||||||
Exercisable at July 31, 2026 | $ | ||||||||||||||||||||||||||||||||||
A.Includes accelerated vesting of 1,529 RSUs in July 2025.
Unrecognized Compensation Expense
At July 31, 2026, the Company has not yet recognized compensation expense for the following awards:
| Vesting Condition | Weighted-Average Recognition Period (Years) | Shares | Unrecognized Compensation Expense | |||||||||||||||||
Time-based | $ | |||||||||||||||||||
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Basic and Diluted Earnings (Loss) per Share
The Company computes earnings per share ("EPS") in accordance with ASC 260, Earnings per Share. Basic EPS is computed by dividing undistributed earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The diluted impact from potential common stock instruments is calculated using the treasury stock method, and if-converted method as applicable, unless the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share:
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Net income (loss) available to common shareholders | ||||||||||||||||||||
Net income (loss) | $ | ( | $ | ( | $ | |||||||||||||||
Net income (loss) available to common shareholders, basic | ( | ( | ||||||||||||||||||
Net income (loss) available to common shareholders, basic and diluted | $ | ( | $ | ( | $ | |||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||
Common shares outstanding | ||||||||||||||||||||
Common share equivalents(A) | ||||||||||||||||||||
Weighted average shares outstanding, basic and diluted | ||||||||||||||||||||
Earnings (loss) per share | ||||||||||||||||||||
Basic | $ | ( | $ | ( | $ | |||||||||||||||
Diluted | $ | ( | $ | ( | $ | |||||||||||||||
A.Includes fully-vested, Pre-funded Warrants issued for nominal exercise prices and Strategic Advisor Warrants.
The following table summarizes the outstanding securities that were not included in the computation of diluted income (loss) per common share as they were anti-dilutive:
Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Warrants | ||||||||||||||||||||
Stapled Warrants | ||||||||||||||||||||
Asset Manager Warrants | ||||||||||||||||||||
Public Warrants | ||||||||||||||||||||
2022 Underwriter Warrants | ||||||||||||||||||||
Unvested RSUs(A) | ||||||||||||||||||||
Stock Options | ||||||||||||||||||||
Convertible Promissory Note(B) | ||||||||||||||||||||
Total | ||||||||||||||||||||
A.Incremental shares computed using the treasury stock method.
B.Denominator adjustment computed using the if-converted method.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
The following table summarizes the Company's weighted-average shares of all the potential equity (both dilutive and antidilutive) on a fully diluted basis:
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Common shares | ||||||||||||||||||||
Common share equivalents | ||||||||||||||||||||
Pre-funded Warrants | ||||||||||||||||||||
Strategic Advisor Warrants | ||||||||||||||||||||
Dilutive Shares | ||||||||||||||||||||
Warrants(A) | ||||||||||||||||||||
Stapled Warrants | ||||||||||||||||||||
Asset Manager Warrants | ||||||||||||||||||||
Public Warrants | ||||||||||||||||||||
2022 Underwriter Warrants | ||||||||||||||||||||
Total warrants | ||||||||||||||||||||
Unvested RSUs | ||||||||||||||||||||
Stock Options | ||||||||||||||||||||
Convertible Promissory Note(B) | ||||||||||||||||||||
Total dilutive shares | ||||||||||||||||||||
Total | ||||||||||||||||||||
A.Includes warrants that are out-of-the-money. Amounts shown represent common stock equivalents assuming warrant exercise on a cash basis.
B.Assumes note conversion at the weighted average foreign exchange rate for each period.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
The following table summarizes the Company's common shares outstanding as well as potential shares at each period-end:
| July 31, 2026 | April 30, 2026 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
Common shares | |||||||||||
Common share equivalents | |||||||||||
Pre-funded Warrants | |||||||||||
Strategic Advisor Warrants | |||||||||||
Dilutive Shares | |||||||||||
Warrants(A) | |||||||||||
Stapled Warrants | |||||||||||
Asset Manager Warrants | |||||||||||
Public Warrants | |||||||||||
2022 Underwriter Warrants | |||||||||||
Total warrants | |||||||||||
Unvested RSUs | |||||||||||
Stock Options | |||||||||||
Convertible Promissory Note(B) | |||||||||||
Total dilutive shares | |||||||||||
Total | |||||||||||
A.Includes warrants that are out-of-the-money. Amounts shown represent common stock equivalents assuming warrant exercise on a cash basis.
B.Assumes note conversion based upon foreign exchange in effect at July 31, 2026.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 7 — Variable Interest Entities
Consolidated VIEs
The Company consolidates VIEs in which the Company is deemed to have both the power to direct the most significant activities of the entities and the right to receive benefits, or the obligation to absorb losses, that could potentially be significant to the entities. The Company did not identify any VIEs that it does not consolidate.
The table below presents the carrying value and classification of the assets and liabilities of VIEs consolidated within the Condensed Consolidated Balance Sheets, after elimination of intercompany balances:
| July 31, 2026 | April 30, 2026 | ||||||||||||||||||||||
| (Unaudited) | (Audited) | ||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | ||||||||||||||||||||
BNC BNB Cayman | $ | $ | $ | $ | |||||||||||||||||||
CEA BRS LLC | |||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
CEA BRS LLC and BNC BNB Cayman
CEA BRS LLC, a wholly-owned subsidiary of CEA Industries Inc., and its subsidiary, BNC BNB Cayman, hold the Company's unrestricted digital assets (Note 4), but do not otherwise conduct activities sufficient to finance their activities without additional subordinated financial support. Therefore, the Company considers each entity as a VIE. CEA Industries Inc. consolidates both entities as it has the power to direct the activities that most significantly impact each entity's economic performance, which, subject to the terms of the AMA, include the management of the digital assets held by each entity.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 8 — Fair Value Measurement
The carrying values and fair values of the Company's assets or liabilities recorded at fair value on a recurring or non-recurring basis, as well as other financial instruments for which fair value is disclosed, at July 31, 2026 and April 30, 2026 were as follows:
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
July 31, 2026 (Unaudited) | |||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Digital assets | |||||||||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||
Related party note payable, current | |||||||||||||||||||||||||||||
Warrants | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | |||||||||||||||||||||||||
April 30, 2026 (Audited) | |||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Digital assets | |||||||||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||
Related party note payable, current | |||||||||||||||||||||||||||||
Other current related party liabilities, at fair value | |||||||||||||||||||||||||||||
Warrants | |||||||||||||||||||||||||||||
Related party note payable, non-current | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | |||||||||||||||||||||||||
Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.
The Company's liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
| Liabilities | |||||||||||
| Warrants | Cash Incentive Award(A) | ||||||||||
April 30, 2026 | $ | $ | |||||||||
Transfers(B) | |||||||||||
Transfers to Level 3 | |||||||||||
Transfers from Level 3 | |||||||||||
Gains (losses) included in net income(C) | |||||||||||
Gain on change in fair value of warrant liability | ( | ||||||||||
Other affiliate operating expenses | ( | ||||||||||
Payments, net | ( | ||||||||||
July 31, 2026 | $ | $ | |||||||||
A.See Note 10 for information regarding this affiliate agreement.
B.Transfers are assumed to occur at the beginning of the respective period.
C.Increases in the fair value of liabilities represent losses included in net income.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Liabilities Carried at Fair Value on a Recurring Basis
Stapled Warrants
The Company equally weights observed market pricing data of publicly-traded Stapled Warrants with a Monte-Carlo option pricing model to estimate their fair value, using the following inputs:
| July 31, 2026 | |||||
Stock price | $ | ||||
Expected volatility | % | ||||
Risk-free interest rate | % | ||||
Dividend yield | % | ||||
Holding period (years) | |||||
Assets and Liabilities Carried at Fair Value on a Non-Recurring Basis
Identified Intangibles
In connection with the Company's tradename impairment assessment (Note 2), the Company estimates the cash flows that it does not need to pay to use a tradename to generate revenues using an estimated, market-based percentage of expected revenues. If the carrying amount of the intangible asset is higher than those aggregate, undiscounted cash flows, the Company impairs the intangible asset to its estimated fair value equal to those discounted cash flows.
The Company initially records identified intangibles at fair value at initial measurement and on the date of impairment, if any, else the Company reports finite-lived identified intangibles at their amortized cost basis, which may be different from their estimated fair value at a reporting date.
Goodwill
In connection with the Company's goodwill impairment assessment (Note 2), the Company valued its Fat Panda reporting unit using a weighted valuation methodology, which incorporated (a) an income approach using a discounted cash flow analysis, and (b) a market approach using publicly-traded companies similar to the Company. The Company records goodwill at its fair value at initial measurement and on the date of impairment, if any, else the Company reports goodwill at its lowest, last known fair value, which may be different from its estimated fair value at a reporting date.
Assets and Liabilities for which Fair Value Only Disclosed
Debt Obligations
The Company determined the carrying value of current debt and notes payable approximates fair value given the short-term nature of the borrowings.
Equity-based Compensation
Options
The fair value of each option grant is estimated at the grant date using the Black-Scholes option-pricing model. The following table summarizes the assumptions used to estimate the grant‑date fair value of options issued during the period from June 7, 2025 through July 31, 2025:
Stock price | $ | ||||
Expected volatility | % | ||||
Risk-free interest rate | % | ||||
Dividend yield | % | ||||
Holding period (years) | |||||
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
RSUs
The Company values RSU awards at the fair value of the underlying shares of the Company's common stock as such awards are entitled to dividends and are only subject to time-based vesting.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 9 — Taxes
The Company is subject to taxation in the United States (federal and various state jurisdictions), Canada (federal and provincial), and the Cayman Islands. The Cayman Islands does not impose corporate income tax, and, accordingly, the statutory income tax rate for the Company's Cayman Islands subsidiary is zero percent. The U.S. federal statutory rate is 21.0%, and the Canadian combined federal and provincial statutory rate is approximately 27.0% (Manitoba).
Effective Income Tax Rate Reconciliation
The Company's income (loss) before income taxes, income tax expense (benefit), and effective income tax rate were as follows:
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Income (loss) before income tax expense (benefit) | $ | ( | $ | ( | $ | |||||||||||||||
Income tax expense (benefit) | ( | |||||||||||||||||||
Effective income tax rate | ( | % | % | % | ||||||||||||||||
Net Operating Loss Carryforwards
At July 31, 2026, the Company had approximately $75.0 11.2 million of these NOL carryforwards will expire, if not utilized, in calendar years 2034 through 2037. NOLs generated in tax years beginning after December 31, 2017 do not expire but may be used to offset no more than 80.0 % of taxable income in any given year. State NOL carryforwards have varying expiration periods that range from 5 to 20 years, depending on the jurisdiction.
The Company's Canadian subsidiary had no material NOL carryforwards at July 31, 2026. The Company's Cayman Islands subsidiary is not subject to income tax and accordingly does not have NOL carryforwards.
Section 382 Considerations
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, and applicable state law, the Company's ability to utilize its pre-change NOL carryforwards may be limited if the Company experiences an "ownership change," generally defined as a greater than 50.0 % cumulative change in equity ownership by value over a rolling three-year period. The Company evaluated its equity transactions, including the PIPE Transaction, and determined that an ownership change occurred at the time of the PIPE Transaction. As a result, the Company’s ability to utilize a portion of its pre-change NOL carryforwards is subject to annual limitations under Section 382. Based on the application of these limitations and projected taxable income, management determined that approximately $3.0 million of such NOL carryforwards is expected to expire unutilized prior to expiration. Accordingly, the related tax benefits have not been recognized as deferred tax assets.
Valuation Allowance
The Company assesses, on a quarterly basis, whether it is more likely than not that its deferred tax assets will be realized. In making this determination, the Company considers all available positive and negative evidence, including its history of cumulative losses, projected future taxable income, the period over which deferred tax assets are expected to reverse, and the availability of tax-planning strategies. The weight given to each piece of evidence is commensurate with the extent to which it can be objectively verified.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
At July 31, 2026, based primarily on the existence of cumulative losses in recent years and the inherent uncertainty of forecasting future taxable income for its U.S. operations, the Company concluded that it is more likely than not that its U.S. federal and state deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against its U.S. net deferred tax assets. The Company intends to maintain the valuation allowance until sufficient positive evidence exists to support its reversal. No valuation allowance has been recorded against the deferred tax assets of the Company's Canadian subsidiary, as the Company has determined it is more likely than not that those deferred tax assets will be realized.
Uncertain Tax Positions
At July 31, 2026 and April 30, 2026, the Company had no unrecognized tax benefits, and has recorded a $0.2 million reserve for Canadian excise taxes. The Company does not anticipate any significant change in its uncertain tax benefit balance during the twelve months following July 31, 2026.
The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company has not accrued any interest or penalties related to uncertain tax positions at July 31, 2026.
Open Tax Years
The Company files income tax returns in U.S. federal, various U.S. state, and Canadian federal and provincial jurisdictions. The following tax years remain subject to examination by the relevant taxing authorities:
| Open Tax Years Ended April 30, | ||||||||||||||
| Jurisdiction | From | Through | ||||||||||||
United States | ||||||||||||||
Federal | 2022 | 2027 | ||||||||||||
State | 2021 | 2027 | ||||||||||||
Canada(A) | 2023 | 2027 | ||||||||||||
Cayman Islands(B) | n.a. | n.a. | ||||||||||||
A.Includes both federal and provincial tax years.
Tax Legislation
One Big Beautiful Bill Act
On July 4, 2025, the President signed H.R. 1, the One Big Beautiful Bill Act ("OBBB Act"), into law. The OBBB Act includes several changes to U.S. federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and experimental expenditures, reinstatement of 100.0% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.
The OBBB Act also includes certain changes to the U.S. taxation of foreign activity, including changes to foreign tax credits, the global intangible low-taxed income ("GILTI") regime, the foreign-derived intangible income ("FDII") regime, and the base erosion and anti-abuse tax ("BEAT"), among other changes. These foreign-related changes are generally effective for tax years beginning after December 31, 2025.
The Company has accounted for the impact of the OBBB Act, where required, in the period of enactment. The OBBB Act did not have a material impact on the Company's consolidated financial statements for the fiscal period ended July 31, 2026, and the Company does not currently expect the OBBB Act to have a material impact on its consolidated income tax provision in future periods.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 10 — Transactions with Affiliates and Affiliated Entities
CEO Transition Agreement
On March 16, 2026, the Company, Mr. David Namdar, its Chief Executive Officer, and Abound LLC, a Puerto Rico limited liability company pursuant to which Mr. Namdar performed services for the Company, entered into an agreement ("Transition Agreement"), approved by the Board, that awarded Mr. Namdar (a) a $375,000 consulting fee for services Mr. Namdar performed for the Company since August 5, 2025, but for which the Company had not provided any compensation, (b) a $50,000 monthly consulting fee as compensation for services provided from the date of the Transition Agreement until his separation from the Company in July 2026, and (c) a $538,318 lump sum cash payment ("Cash Incentive Award") in lieu of an equity incentive award. In addition, the Company paid Mr. Namdar $900,000 at the date of separation in July 2026 in exchange for restrictive conditions, including confidentiality, non-compete, non-solicitation, non-disparagement, and non-assistance to litigants restrictions.
The Company recorded compensation expense of $135,484 within "Selling, general and administrative expenses" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and paid $1,623,802 in cash to Mr. Namdar through Abound LLC during the three months ended July 31, 2026.
AMA Controlled by a Former Board Member
Mr. Hans Thomas, a member of the Board until March 2026, owns the majority of the Asset Manager. Under the AMA (Note 1), the Company incurred management fees of $1.1 million during the three months ended July 31, 2026, presented as "Management fees to affiliate" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). At July 31, 2026, the Company accrued unpaid asset management fees of $1.4 million within "Other current related party liabilities" in the Condensed Consolidated Balance Sheets, and the Asset Manager and its affiliates hold all of the Asset Manager Warrants. See Note 11 regarding AMA litigation.
Seller Note Payable to Employee
The Company issued the Tax Indemnification Note to, and created the Escrow Deposit for the potential benefit of, the Selling Fat Panda Shareholders, one of whom is the President of Fat Panda, a current employee of the Company. In addition, the Company issued the Fat Panda Promissory Notes to the President of Fat Panda (Note 2). During the three months ended July 31, 2026 and the period from June 7, 2025 through July 31, 2025, the Company incurred interest expense totaling $25,813 and $15,516 , respectively, presented as "Interest expense to affiliate" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), of which the Company paid $12,853 and $7,758 . See Note 5 for additional detail regarding these notes payable, which the Company presents as "Related party note payable" in the Condensed Consolidated Balance Sheets. The Company does not reflect the Escrow Deposit in these Unaudited Condensed Consolidated Financial Statements as a third-party administrator controls those funds; however, the release of the Escrow Deposit, which depends upon finalization of working capital adjustments at the Acquisition Date, may impact the purchase price the Company paid for Fat Panda in the Fat Panda Acquisition (Note 2).
Agreements and Transaction with a Board Member
On June 19, 2024, Mr. Nicholas J. Etten, a former member of the Board, and the Company entered into a consulting agreement (the "2024 Agreement"), which was replaced on July 28, 2025 with a new consulting agreement (the "2025 Agreement"), whereby Mr. Etten would provide advisory services related to acquisition sourcing, strategic consulting, and investor coordination, and would be compensated at a rate of $2,500 per week, subject to downward adjustment based on hours worked. During the period from June 7, 2025 through July 31, 2025, the Company paid $10,250 to Mr. Etten for consulting services under the 2025 Agreement. In January 2026, the Company identified excess payments totaling $6,300 made to Mr. Etten under the 2024 Agreement which Mr. Etten refunded to the Company in April 2026.
Mr. Etten terminated the 2025 Agreement with effect from January 1, 2026, and no amounts were payable to him thereunder at July 31, 2026. On June 10, 2026, Mr. Etten resigned from the Board and entered into a separation agreement providing for a payment of $85,000 and reimbursement of up to $50,000 of legal fees, in exchange for a release of claims and customary covenants. He will also assist with the Company's ongoing litigation matters for eighteen months at $450 per hour for time exceeding ten hours per month. No amounts were incurred under that provision during the three months ended July 31, 2026. The Company recognized $85,000 during the three months ended July 31, 2026, $20,750 during the period June 7, 2025 through July 31, 2025, and $10,500 during the period May 1, 2025 through June 6, 2025 of related expense within "Selling, general and administrative expenses," none of which remained unpaid at July 31, 2026 aside from reimbursable legal costs.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Severance Agreement with a Former Officer and Board Member
On May 4, 2026, Mr. Anthony K. McDonald resigned as the Company's President and as a member of the Board. In connection with his departure, the Company and Mr. McDonald entered into a severance agreement under which, in exchange for a release of claims and customary post-employment covenants, the Company agreed to pay Mr. McDonald $250,000 in substantially equal bi-weekly installments over twelve months and reimbursement for legal fees of $10,000 .
During the three months ended July 31, 2026, the Company recognized $250,000 of expense within "Selling, general and administrative expenses" related to the foregoing, of which $57,692 was paid. At July 31, 2026, $192,308 remained unpaid and is presented within "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets. All remaining amounts are payable within twelve months of July 31, 2026. Additionally, during the three months ended July 31, 2026, the company paid $10,000 for legal fees on behalf of Mr. McDonald incurred in connection with the negotiation of the severance agreement.
Cooperation Agreement with YZILabs
On June 23, 2026, the Company entered into a cooperation agreement (the "Cooperation Agreement") with YZi Labs Management Ltd. ("YZILabs") which held 2,150,481 21,215,863
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 11 — Commitments and Contingencies
The Company was subject to the following commitments and contingencies at July 31, 2026:
Indemnifications
In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and that provide general indemnifications, including indemnifications to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company's breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors, and employees of acquired companies, in certain circumstances. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on the Company's experience, the Company expects the risk of material loss to be remote.
Litigation
From time to time, in the normal course of business, the Company is subject to claims and legal proceedings. Litigation is inherently unpredictable, and the Company's assessments may change as matters progress. The Company expenses legal fees as incurred and records a liability for contingent losses when it is both probable that a loss has been incurred and the amount can be reasonably estimated. An unfavorable outcome to any matter, if material, could adversely affect the Company's financial condition, liquidity, or results of operations.
AMA Litigation
The Company is party to the AMA with the Asset Manager, which by its terms continues for a twenty-year term expiring in 2045 and provides for a management fee representing a flat fee of 1.4 % of the fair value of assets within the Company's DAT Strategy. The AMA provides that, if the Company terminates the AMA during the term for any reason, or if the Asset Manager terminates the AMA following a material breach by the Company, the Company shall pay the Asset Manager, as liquidated damages, all fees and other compensation that would have accrued through the end of the term, payable monthly in accordance with the agreement's payment provisions. The Asset Manager is controlled by Mr. Hans Thomas, who served as a member of the Company's Board of Directors until March 2026.
On May 22, 2026, the Company filed a complaint against the Asset Manager in the United States District Court for the District of Delaware seeking a declaration that the AMA is void from inception as unconscionable and that all fees paid under it be returned to the Company and, in the alternative, a declaration that the liquidated damages provision in Section 13(a) is an unenforceable penalty under Delaware law. On July 28, 2026, the Asset Manager moved to dismiss the complaint, contending among other things that Section 13(a) is an enforceable liquidated damages provision and that any amount payable under it would be paid monthly over the remainder of the term rather than in a single accelerated payment. The Company filed its opposition to the motion on August 14, 2026. The motion remains pending, and the Company cannot predict its outcome or the timing of any ruling.
The Company has not terminated the AMA, and no amount is presently due under Section 13(a). The provision nonetheless remains in effect and its enforceability has not been determined, which constrains the Board's ability to terminate or restructure the Company's treasury management arrangements and continues to affect the strategic alternatives available to the Company.
While the Company accrues current monthly management fees under the AMA (Note 10), it has not recorded a liability in respect of Section 13(a). Any obligation under the provision would arise only upon a termination that has not occurred. Further, the Company is unable to estimate the amount of any possible loss, or range of possible loss, since the amount of any such obligation would depend on the resolution of the pending litigation regarding the provision's enforceability. An adverse determination as to enforceability, followed by a termination of the AMA, could result in obligations material to the Company's financial condition, results of operations, and liquidity.
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Abraham Gomez Matter
In February 2026, Abraham Gomez, an individual, filed a civil complaint in the Superior Court of the State of California, County of Tulare, Abraham Gomez v. CEA Industries, Inc., et al. (Case No. VCU331863), against the Company and Mr. Hans Thomas, a former member of the Board. The complaint asserts various claims against the defendants, including claims for fraud, promissory estoppel, quantum meruit and unjust enrichment, arising from alleged investment-related discussions and alleged services purportedly performed for the benefit of the Company. The plaintiff seeks damages, including compensatory damages according to proof (which the complaint alleges exceed approximately $2.8 million), together with interest, attorneys' fees, costs and other relief.
On March 27, 2026, the Company removed the action to the United States District Court for the Eastern District of California, where it is pending as Case No. 1:26-cv-02403-KES-SAB. On April 3, 2026, the Company moved to dismiss the complaint for lack of personal jurisdiction and for failure to state a claim upon which relief can be granted. The motion was fully briefed, the court heard argument on August 26, 2026, and the court took the motion under submission. The Company intends to defend the action vigorously.
No liability has been recorded in respect of this matter. At this preliminary stage, the Company is unable to estimate the amount or range of any reasonably possible loss, if any, that may result from the proceeding.
Saad Naja Demand Letter
On July 17, 2026, counsel for Saad Naja delivered a pre-litigation demand letter to Mr. David Namdar, the Company's former Chief Executive Officer, addressed to him personally and in his capacity as an officer of the Company. Mr. Naja was part of the outside deal team that brought the private placement to the Company and is not affiliated with the Company. The letter asserts claims against Mr. Namdar personally arising out of Mr. Naja's alleged involvement in the transactions relating to the Company's July 2025 private placement, including alleged representations regarding an executive role and associated compensation, and demands a payment of $8.0 million by Mr. Namdar personally in resolution of those claims. No claim has been asserted against the Company, and no litigation has been commenced.
No liability has been recorded in respect of this matter. Because no claim has been asserted against the Company and the matter is at a preliminary stage, the Company is unable to estimate the amount or range of any reasonably possible loss, if any, arising from this matter, including in respect of any indemnification obligation.
Fat Panda
Customer Rewards Program
Fat Panda offers a "Buy 10, Get 1 Free" card redemption program that it started in the year ended 2022. Customers at Fat Panda's retail stores may collect redemption cards, which do not expire, upon purchase and redeem the card for a complimentary product after purchasing ten items. While the Company does not believe accumulated redemptions to be material, it cannot estimate its potential economic exposure and has not accrued a liability for such redemptions.
Fat Panda Acquisition
The Company has not recorded any net assets or liabilities in connection with the Escrow Deposit, which the Company and Selling Fat Panda Shareholders have not mutually released (Note 2), or the Tax Indemnification Note (Note 5).
Industrial Climate Control System Installation Contracts
The Company has not yet completed the delivery and installation of certain industrial climate control systems, for which the Company holds non-refundable deposit assets of $0.1 million, net of reserves. The Company does not have any material exposure to customers in excess of deposit assets held.
2025 Equity Incentive Plan Awards
Neither Mr. Etten's nor Mr. McDonald's restricted stock units, granted under the 2025 Equity Incentive Plan, were affected by their respective separation agreements. Because that plan did not receive the vote required for approval at the special meeting held July 22, 2026, no grant date has been established and no compensation expense has been recognized with respect to these awards in any period presented (Note 2).
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Leases
At July 31, 2026, the Company has 36 non-cancellable leases on retail, office, and manufacturing spaces, including a retail location not yet operational, expiring through March 2033, none of which the Company subleases. Leases held by the Company include renewal options and escalation clauses, though the Company has not considered such renewal provisions in the determination of the lease term as it is not reasonably certain that the Company will exercise these options. The terms of the leases do not impose any financial restrictions or covenants.
One lease pertains to 11,491 square feet of manufacturing and office space in Louisville, CO used for the Company's industrial climate control system operations that expires in January 2027 while the remaining leases relate to an aggregate 49,046 square feet of retail, office, and manufacturing space in Manitoba, Saskatchewan, and Ontario, Canada for Fat Panda's operations.
The Company made the following rent payments and incurred the following expense presented within "Selling, general and administrative expenses" in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss):
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Rent expense | $ | $ | $ | |||||||||||||||||
Cash paid for operating leases | ||||||||||||||||||||
The Company's operating right-of-use assets and lease liabilities are as follows:
| Condensed Consolidated Balance Sheets Line Items | July 31, 2026 | April 30, 2026 | |||||||||||||||
| (Unaudited) | (Audited) | ||||||||||||||||
Operating lease right-of-use asset | $ | $ | |||||||||||||||
Operating lease liability, current | Current portion of operating lease liability | ||||||||||||||||
Operating lease liability, long-term | |||||||||||||||||
Future undiscounted, minimum lease payments for the Company's non-cancellable operating leases at July 31, 2026 were as follows:
| Fiscal Years Ending April 30, | July 31, 2026 | ||||
Remaining nine months during fiscal year 2027 | $ | ||||
2028 | |||||
2029 | |||||
2030 | |||||
2031 | |||||
Thereafter | |||||
Total undiscounted, minimum lease payments | |||||
Less: imputed interest | ( | ||||
Present value of minimum lease payments | $ | ||||
Other information related to the Company's leases includes:
| July 31, 2026 | April 30, 2026 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
Weighted-average remaining lease term (years) | |||||||||||
Weighted-average discount rate | % | % | |||||||||
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Table of Contents CEA Industries Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 12 — Subsequent Events
Developments in the Company's legal proceedings and Nasdaq matter occurring subsequent to July 31, 2026 are described in Note 11 and are not repeated here. The following events occurred subsequent to July 31, 2026 through the issuance date of these Unaudited Condensed Consolidated Financial Statements. Events subsequent to that date have not been considered in these financial statements.
Preferred Share Class Withdrawal
In September 2026, the Company filed certificates of withdrawal with the Nevada Secretary of State eliminating two series of preferred stock previously designated, no shares of which were issued or outstanding. The withdrawals did not affect the Company's authorized capital stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, which include additional information about our accounting policies, practices, and the transactions underlying our financial results, as well as with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2026, as filed with the SEC. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Cautionary Note Regarding Forward-Looking Statements" appearing elsewhere herein and the risks and uncertainties described or identified in "Item 1A – Risk Factors" in our Annual Report on Form 10-K for the year ended April 30, 2026, as updated from time to time in the Company's filings with the SEC, and Part II, Item 1A of this Quarterly Report entitled "Risk Factors."
Introduction
CEA Industries Inc. is the largest publicly-traded digital asset treasury ("DAT") focused exclusively on BNB, the native token of the BNB Chain ecosystem. We seek to continue to build and manage the largest corporate treasury of BNB to provide institutional-grade exposure to BNB Chain and to generate income on our eligible BNB holdings through active treasury management, derivatives, or through the receipt of new tokens or coins distributed by a project to a wide range of individuals in the crypto community ("Airdrops") (the "DAT Strategy"). We may also generate returns through additional digital asset-related activities such as validation and staking services, lending, and other DeFi protocols in the future, though we have not staked any BNB through July 31, 2026. At July 31, 2026, we held 515,544 BNB tokens with an aggregate fair value of $302.3 million, and digital assets, primarily BNB, represented 93.1% of our total assets, while our Retail and Industry segment operating businesses represent a significantly smaller portion of our overall assets based on economic exposure.
Our strategy is built around a simple thesis: BNB is a scarce, utility-driven digital asset that serves as a core economic asset within one of the most active, and growing, blockchain ecosystems in the world. We seek to provide public equity market investors with exposure to BNB through a Nasdaq-listed, SEC-reporting company that combines direct BNB ownership, public company governance, audited financial reporting, treasury controls, custody infrastructure, and capital markets access. We view BNB as a strategic treasury asset and intend to continue evaluating opportunities to acquire additional digital assets as part of our capital allocation strategy.
We believe our platform is differentiated from direct token ownership, private digital asset vehicles, exchange-traded products, and operating companies that hold digital assets as part of a diversified treasury strategy. Our objective is not merely to hold BNB passively, but to build the leading public company platform for BNB ownership, treasury management, and participation in the BNB ecosystem.
We launched the DAT Strategy following the closing of a private placement on August 5, 2025, that raised approximately $500.0 million in cash and digital assets (the "PIPE Transaction") with up to $750.0 million of additional proceeds available through warrant exercises.
We acquired Fat Panda on June 6, 2025 and continue to operate its core retail nicotine vape operations in Canada.
We have prepared the discussion of our results of operations for the fiscal quarter ended July 31, 2025 by combining the Predecessor and Successor results of operations and cash flows during the three months ended July 31, 2025 ("Combined Quarterly Period") and comparing the combined data to the results of operations and cash flows of the Successor for the three months ended July 31, 2026. We believe that the discussion of our combined operational results, while on different bases of accounting related to the application of purchase accounting, is appropriate as we highlight operational changes for the Predecessor as well as accounting related items specific to the Successor.
Overview of DAT Strategy
Our DAT Strategy represents a significant departure from traditional corporate treasury strategies, which typically involve holding cash, cash equivalents, and short-term investments. Instead, our financial condition and results of operations are significantly influenced by changes in the market price of BNB. Digital asset markets have historically exhibited significant volatility and are subject to evolving regulatory frameworks and technological risks. As a result, fluctuations in the market price of BNB will have a material impact on our financial condition, results of operations, and the market price of our common stock. Investors should carefully consider the risks associated with our DAT Strategy described under Part II, Item 1A-Risk Factors.
We operate the DAT Strategy through our wholly-owned subsidiary, CEA BRS LLC, a Delaware limited liability company, as a special purpose entity to hold and manage certain cryptocurrency assets in accordance with the DAT Strategy.
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Our BNB holdings are held in custody through Ceffu, a non-U.S. institutional digital asset custody platform operating within the Binance ecosystem. Ceffu uses multi-party computation wallet infrastructure and maintains segregated account structures designed for institutional holders. While Ceffu operates as a separate entity from the Binance exchange, our custody arrangement creates concentration exposure to the broader Binance ecosystem. Disruptions to Ceffu’s operations, changes in its regulatory status, or adverse developments affecting the Binance ecosystem could materially impact our ability to access, transfer, or liquidate our BNB holdings.
Key Drivers of Results of Operations
Our results of operations are influenced by several key factors, including: changes in the market price of BNB and other ancillary digital assets held by us; fair value adjustments recognized under applicable accounting standards, including our issued warrants treated as liabilities; the generation of Airdrop income; operating expenses associated with maintaining our public company infrastructure; and strategic decisions regarding the acquisition, holding, or disposition of digital assets. Because we hold a substantial quantity of digital assets, particularly BNB, changes in the market price of BNB have significantly affected our reported earnings in the past and may continue to significantly affect our reported earnings. These fluctuations may not reflect changes in our operating performance but instead reflect market-driven changes in the value of our digital asset holdings.
Historically, our results of operations also included significant transactional expenses we incurred in connection with our acquisition of Fat Panda, the PIPE Transaction, and our shareholder advisory expenses in connection with our Board committee reconstitution and shareholder activism; however, we do not anticipate incurring such costs in connection with our ongoing operations.
BNB Holdings
Since the PIPE Transaction, we have accumulated 515,544 BNB. During this same period, the market price of BNB declined significantly by 32.3%, from the $865.99 weighted-average price we paid per BNB, to $586.36 per BNB at July 31, 2026. As a result, the aggregate fair value of our BNB holdings decreased from our $446.5 million cost basis to $302.3 million, driven by market price volatility rather than changes in the quantity of BNB held. The decline in BNB market prices had a materially greater impact on the carrying value of digital assets than the operating results of our Retail and Industry business during the same period.
In addition to changes in the market value of BNB tokens, we recognized a substantial decrease in Airdrop-related income associated with those holdings. We maintain eligibility to receive Airdrops distributed within the Binance ecosystem for those BNB tokens we hold at Ceffu, however Airdrop activity has declined since we launched our DAT Strategy. This substantial decline in Airdrop-related income reflects reduced Airdrop activity within the Binance ecosystem during the current period. While Airdrop income contributed positively to results, it did not offset the impact of the decline in BNB market prices since the PIPE Transaction.
A portion of our BNB treasury yield has historically been generated through participation in Binance Launchpool and HODLer Airdrops – platform programs through which BNB holders receive newly issued tokens by locking or holding BNB. Since we launched our DAT Strategy, the frequency and scale of these programs declined materially compared to historical program periods, contributing to a reduction in platform-delivered yield through July 31, 2026. Taken together with the decline in Airdrop activity described above, these trends reflect a broader moderation in yield generation during the period. We cannot predict the timing, frequency, or magnitude of future Launchpool or HODLer Airdrop allocations, and continued reduction in these programs may adversely affect our treasury yield and results of operations.
Warrant Liabilities
Our warrant liabilities were also a significant driver of our reported results of operations for the reported periods, and we believe they will continue to contribute meaningful volatility to our earnings, independent of our underlying operating performance. During the three months ended July 31, 2026, we recognized a non-cash gain of $10.0 million related to the liability for the stapled warrants issued in connection with the PIPE Transaction (the "Stapled Warrants"), which was a primary driver to partially offset net losses. Because the fair value of these out-of-the-money warrant liabilities generally fluctuates inversely with the trading price and volatility of our common stock and the underlying digital assets, as well as the passage of time and changes in our assumptions about warrant exercise behavior that can change significantly from period to period, the resulting fair value adjustments can produce substantial non-cash gains or losses that do not reflect our core operating performance, and we caution investors that our reported net income or loss for any given period may be disproportionately influenced by these mark-to-market changes rather than by the underlying profitability of our operating segments.
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Digital Asset Market Conditions
Our treasury strategy is designed to accumulate and compound BNB over time, with a focus on growing the value of our digital asset holdings on a per-share basis as a key long-term measure of shareholder value creation. Digital asset markets are inherently cyclical, and short-term price fluctuations — while material to our U.S. GAAP-reported results in any given quarter — do not alter our management's conviction in the long-term trajectory of BNB and the broader Binance ecosystem. We believe our disciplined approach to treasury management positions the Company to benefit from market recoveries while managing risk through custody, yield optimization, and strategic capital allocation.
Since the PIPE Transaction, digital asset markets experienced periods of significant price volatility. The market price of BNB fluctuated in response to a variety of factors, including macroeconomic conditions, investor sentiment toward digital assets, developments affecting cryptocurrency exchanges and blockchain networks, and regulatory developments in the United States and other jurisdictions. Because we hold a significant quantity of BNB, changes in the market price of BNB had, and will continue to have, a substantial impact on our balance sheet and results of operations. Investors should consider that fluctuations in our financial results during the period were driven primarily by changes in digital asset market prices and Airdrop yield rather than changes in our operating activities.
Our Retail and Industry Business
We operate our Fat Panda and industrial climate control systems businesses within our Retail and Industry segment. At July 31, 2026, Fat Panda operates 34 retail locations, including 30 Fat Panda branded stores and 4 Electric Fog branded outlets, along with an e-commerce platform. Fat Panda also manufactures a proprietary line of premium e-liquids in-house and maintains a portfolio of trademarks and related intellectual property. Revenue from our industrial climate control systems business represents a relatively small portion of consolidated revenue, totaling $0.1 million and $0.2 million for the three months ended July 31, 2026 and the period from June 7, 2025 through July 31, 2025, respectively.
Recent Developments
Leadership Transition.
On July 22, 2026, Mr. David Namdar concluded his service as Chief Executive Officer in accordance with a transition agreement entered into in March 2026. The Board of Directors (the "Board") appointed William B. Miller, our Chief Financial Officer, to serve additionally as Interim Principal Executive Officer, without additional compensation, until the Board appoints a new or interim chief executive officer. Mr. Miller continues to serve as our principal financial officer and principal accounting officer. On July 20, 2026, the Company entered a consulting agreement with W4 LLC, an entity of which Alex Odagiu is the sole owner, providing that Mr. Odagiu would serve as the Company's Interim President, reporting to the Board. Anthony K. McDonald resigned as President and as a director on May 4, 2026. The Board's search for a new chief executive officer is ongoing.
Cooperation Agreement and Board Composition.
On June 23, 2026, we entered into a cooperation agreement (the "Cooperation Agreement") with YZi Labs Management Ltd. ("YZILabs") resolving the consent solicitation and related activism campaign commenced in November 2025 (the "Consent Solicitation"). Upon execution of the Cooperation Agreement, YZILabs terminated the Consent Solicitation and withdrew its related demands; Nicholas J. Etten resigned from the Board; the Board was reconstituted to six directors and Ling "Ella" Zhang, Alex Odagiu, and Matthew Roszak were appointed as directors; and the Board agreed to form a chief executive officer search committee (formed June 29, 2026) and to appoint a new independent director mutually agreeable to all parties (appointment remains pending). In addition, YZILabs agreed to standstill, voting, and mutual non-disparagement covenants for the term of the agreement. The Board also adopted amended and restated bylaws on June 23, 2026. See Note 10 to our Unaudited Condensed Consolidated Financial Statements for additional information.
2026 Special Meeting of Stockholders.
On July 22, 2026, we held our 2026 Special Meeting in Lieu of Annual Meetings of Stockholders. Stockholders elected six directors and ratified the appointment of our independent registered public accounting firm. Proposals to approve the 2025 Equity Incentive Plan and the 2026 Equity Incentive Plan did not receive the vote required for approval. Complete voting results are reported in our Current Report on Form 8-K filed on July 24, 2026 for additional information.
Nasdaq Listing Compliance.
On May 7, 2026, we received notice from The Nasdaq Stock Market LLC ("Nasdaq") that we did not comply with Listing Rule 5620(a) because we had not held an annual meeting within twelve months of our fiscal year end. We submitted a plan of compliance on June 22, 2026 and held the Special Meeting on July 22, 2026. On August 5, 2026, Nasdaq notified us that we had regained compliance and that the matter is closed.
Collateralized Borrowing.
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On April 30, 2026, we entered into an uncommitted master loan facility with BitGo Prime, LLC ("BitGo"), under which we borrowed $15.0 million during the three months ended July 31, 2026 and secured by pledged BNB. See Note 5 to our Unaudited Condensed Consolidated Financial Statements and "— Financial Condition, Liquidity and Capital Resources" for additional information.
Components of Results of Operations
Revenue
We earn revenues from the two operating businesses within our Retail and Industry segment:
●Retail sales of vaping products through our Fat Panda retail locations in Central Canada and e-commerce sales through Fat Panda's online platform and
●Sales of industrial climate control systems for the controlled environment agriculture industry.
Our revenues do not include any activities within our BNB Treasury Management segment, including the income we earn on our BNB holdings such as income earned from Airdrops.
Fat Panda
Revenues earned by Fat Panda from its retail stores at point of sale are presented at the stated sales price, gross of transaction costs such as credit card processing fees, and net of sales taxes and applicable sales discounts and promotions.
Industrial Climate Control System
We also earn revenue from the design, engineering, and sale of environmental control technologies and components for the controlled environment agriculture industry. Contracts may span multiple phases of a customer's project life cycle, from facility design and system engineering to equipment delivery and start-up, though we do not provide construction or installation services. Generally, we accept a customer's deposit to acquire the necessary equipment and recognize revenue only when we, or our supplier, ship the finished equipment and fulfill our contractual performance obligations.
Cost of Revenue
Like our revenues, our cost of revenue arises solely from our Fat Panda and Industrial Climate Control System businesses within our Retail and Industry segment that consists primarily of the cost of inventory sold, including certain labor costs and charges for inventory excess or obsolescence, shipping and handling costs, and applicable excise taxes.
Operating Expenses
Our operating expenses generally consist of fees we accrue to 10X Capital Partners LLC (the "Asset Manager"); selling, general and administrative expenses; and net realized and unrealized gains and losses on our digital assets, primarily on our BNB holdings. During the three months ended July 31, 2026, we also incurred significant advisory expenses in connection with the Consent Solicitation.
Management fees to affiliate
We expense contractual asset management fees incurred in connection with the Asset Management Agreement with the Asset Manager (the "AMA") for assets within our DAT Strategy on a monthly basis. Such fees are based on a fixed percentage of the value of assets subject to the AMA.
Selling, general and administrative expenses
Selling, general, and administrative expenses include costs incurred in the day-to-day operations of the business, including employee compensation and benefits, stock-based compensation issued to directors and employees, occupancy and facilities costs, professional and legal fees, insurance, advertising, and marketing.
Shareholder advisory expenses
We incurred significant legal, strategic, and investor communications advisor costs to protect shareholder interests in connection with our response to the Consent Solicitation through its resolution on June 23, 2026 when the Cooperation Agreement was executed. These matters required significant time and resources from the Board and management, but we do not expect to incur significant additional costs related to this matter after July 31, 2026.
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Unrealized and Realized Loss on Digital Assets
Unrealized and realized loss on digital assets represents net unrealized and realized fair value gains and losses on our digital assets, primarily BNB holdings. Unrealized gains and losses result from the remeasurement of digital assets at fair value at each reporting date using quoted prices, and are driven primarily by fluctuations in the market price of our digital assets rather than changes in the quantity of digital assets held. Realized gains and losses are recognized upon the sale or other disposition of digital assets and are determined using the specific identification method.
Other affiliate operating expenses
Other affiliate operating expenses represent a liability recognized for an incentive award granted to our former Chief Executive Officer in connection with a transition agreement in March 2026, payable in a variable amount of cash in lieu of an equity incentive award that we paid in July 2026 in satisfaction of this award.
Other Income (Loss), Net
Our other income represents the income or loss generated from non-operating activities, including the income we receive on our BNB holdings, as well as interest we pay on our debt obligations and changes in the fair value of warrants we have issued and treat as liabilities for accounting purposes. During the period from June 7, 2025 through July 31, 2025, we also incurred costs in connection with our acquisition of Fat Panda.
Airdrop income
Represents income generated from new tokens or coins distributed by projects within the Binance ecosystem to our eligible BNB holdings. We hold the majority of our BNB tokens with Ceffu, a non-U.S. institutional digital asset custody platform operating within the Binance ecosystem, which enables us to maintain eligibility to receive Airdrops. Airdrop income is measured at the fair value of the tokens received on the date of distribution. The timing, frequency, and magnitude of future airdrop allocations are determined by third-party projects and the Binance platform and are outside our control.
Gain on change in fair value of warrant liability
Non-cash gains or losses resulting from the remeasurement of our Stapled Warrants issued as part of the PIPE Transaction are treated as liabilities. Changes in fair value are driven primarily by fluctuations in the market price of the publicly-traded warrants as well as our assumptions around the implied volatility and other inputs used in our valuation model during periods when the publicly-traded warrants become less liquid. Generally, reductions in the market price of our common stock cause us to report unrealized gains since the warrants are more out-of-the-money and their value declines, and the reduced likelihood of warrant exercise reduces our expected liability. The fair value of the warrants is determined on a gross basis, and does not consider the value of the cash contribution to us upon exercise.
Interest expense
Interest expense represents the interest payable by us on our outstanding debt obligations, including borrowings under our collateralized loan facility.
Interest expense to affiliate
Interest expense to affiliate represents the interest payable by us on our outstanding debt obligations to affiliates including a $4.0 million bridge loan used to acquire Fat Panda that we paid in full in December 2025 and convertible and non-convertible note payables issued in connection with the Fat Panda acquisition. We include the amortization of debt discounts or premiums as well as applicable foreign currency translation adjustments associated with those instruments.
Business combination expenses
These expenses represent transaction costs incurred in connection with the acquisition of Fat Panda, including legal, advisory, and other professional fees directly attributable to the business combination. These costs are expensed as incurred and are not capitalizable as part of the purchase price allocation.
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Other income (loss), net
Other income and expense items include foreign currency transaction gains and losses arising from our Canadian retail vape operations, interest income on cash deposits, and other non-operating items.
Results of Operations
Because fair value changes in digital assets are recorded through our consolidated statements of operations, our BNB Treasury Management segment results—and consequently our consolidated net income—will be subject to significant volatility based on fluctuations in the market price of BNB. Investors should expect material period-to-period variations in our reported net income that may bear no relationship to the operating performance of our Retail and Industry segment.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| $ | % | |||||||||||||||||||||||||||||||||||||
Revenue | $ | 7,165 | $ | 4,580 | $ | 2,928 | $ | 7,508 | $ | (343) | (4.6) | % | ||||||||||||||||||||||||||
Cost of revenue | 5,201 | 3,207 | 2,002 | 5,209 | (8) | (0.2) | ||||||||||||||||||||||||||||||||
Gross profit | 1,964 | 1,373 | 926 | 2,299 | (335) | (14.6) | ||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||
Management fees to affiliate | 1,103 | — | — | — | 1,103 | n.m. | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 5,427 | 1,630 | 905 | 2,535 | 2,892 | 114.1 | ||||||||||||||||||||||||||||||||
Shareholder advisory expenses | 1,391 | — | — | — | 1,391 | n.m. | ||||||||||||||||||||||||||||||||
Unrealized loss on digital assets | 15,294 | — | — | — | 15,294 | n.m. | ||||||||||||||||||||||||||||||||
Other affiliate operating expenses | (20) | — | — | — | (20) | n.m. | ||||||||||||||||||||||||||||||||
Total operating expenses | 23,195 | 1,630 | 905 | 2,535 | 20,660 | 815.0 | ||||||||||||||||||||||||||||||||
Operating income (loss) | (21,231) | (257) | 21 | (236) | (20,995) | n.m. | ||||||||||||||||||||||||||||||||
Other income (loss), net | ||||||||||||||||||||||||||||||||||||||
Airdrop income | 284 | — | — | — | 284 | n.m. | ||||||||||||||||||||||||||||||||
Gain on change in fair value of warrant liability | 9,982 | — | — | — | 9,982 | n.m. | ||||||||||||||||||||||||||||||||
Interest expense | (314) | (252) | — | (252) | (62) | 24.6 | ||||||||||||||||||||||||||||||||
Interest expense to affiliate | (26) | (16) | — | (16) | (10) | 62.5 | ||||||||||||||||||||||||||||||||
Business combination expenses | — | (721) | — | (721) | 721 | n.m. | ||||||||||||||||||||||||||||||||
Total other income (loss), net | 9,926 | (989) | — | (989) | 10,915 | n.m. | ||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | (11,305) | (1,246) | 21 | (1,225) | (10,080) | 822.9 | ||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 95 | (60) | 2 | (58) | 153 | n.m. | ||||||||||||||||||||||||||||||||
Net income (loss) | (11,400) | (1,186) | 19 | (1,167) | (10,233) | 876.9 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (215) | (47) | 35 | (12) | (203) | n.m. | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | $ | (11,615) | $ | (1,233) | $ | 54 | $ | (1,179) | $ | (10,436) | 885.2 | |||||||||||||||||||||||||||
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Revenues
While our revenues decreased $0.3 million for the three months ended July 31, 2026 compared to the Combined Quarterly Period, $0.1 million of the decrease relates to our Industrial Climate Control Systems business, which we omit from our historical results as those operations were not part of the Predecessor and therefore not comparable.
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| $ | % | |||||||||||||||||||||||||||||||||||||
Fat Panda | ||||||||||||||||||||||||||||||||||||||
Retail | $ | 6,784 | $ | 4,192 | $ | 2,761 | $ | 6,953 | $ | (169) | (2.4) | % | ||||||||||||||||||||||||||
E-commerce | 316 | 223 | 166 | 389 | (73) | (18.8) | ||||||||||||||||||||||||||||||||
Other | — | 7 | 1 | 8 | (8) | n.m. | ||||||||||||||||||||||||||||||||
Total Fat Panda | 7,100 | 4,422 | 2,928 | 7,350 | (250) | (3.4) | ||||||||||||||||||||||||||||||||
Industrial Climate Control Systems | ||||||||||||||||||||||||||||||||||||||
Equipment and systems sales | 65 | 108 | — | 108 | (43) | (39.8) | ||||||||||||||||||||||||||||||||
Other | — | 50 | — | 50 | (50) | n.m. | ||||||||||||||||||||||||||||||||
Total industrial climate control systems | 65 | 158 | — | 158 | (93) | (58.9) | ||||||||||||||||||||||||||||||||
Total revenue, net | $ | 7,165 | $ | 4,580 | $ | 2,928 | $ | 7,508 | $ | (343) | (4.6) | |||||||||||||||||||||||||||
Fat Panda
Revenue for the three months ended July 31, 2026 was $7.1 million, compared to $7.4 million for the Combined Quarterly Period, representing a decrease of $0.3 million, or approximately 3.4%. Retail revenue decreased by $0.2 million as a result of the discontinuance of a product line. The decrease was partially offset by higher revenue due to increased prices driven by increases in Canadian provincial excise taxes that led to higher excise taxes paid by our customers, partially offset by a decline in volume primarily related to the price increases. Fat Panda's e-commerce revenue declined $0.1 million from lower business to business sales resulting from a refocus to higher gross margin retail sales.
Industrial Climate Control Systems
We earned $0.1 million from the sale of Industrial Climate Control Systems during the three months ended July 31, 2026 and $0.2 million during the period from June 7, 2025 through July 31, 2025, a decrease of $0.1 million primarily representing the delivery of equipment systems under several smaller equipment orders.
Cost of Revenue
We recognized $0.1 million of associated costs during the three months ended July 31, 2026, and $0.2 million during the period June 7, 2025 through July 31, 2025 from our Industrial Climate Control Systems business. The nominal margin is a result of project management and manufacturing salaries and overhead offsetting the margin from equipment sales.
The following table presents the results of Fat Panda that relate to both the Predecessor and Successor periods:
Fat Panda
| Successor | Predecessor | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | $ | % | ||||||||||||||||||||||||||||||||||||
Fat Panda | $ | 5,089 | $ | 3,029 | $ | 2,002 | $ | 5,031 | $ | 58 | 1.1 | % | |||||||||||||||||||||||||||||
Fat Panda's cost of revenue was $5.1 million for the three months ended July 31, 2026 compared to $5.0 million for the Combined Quarterly Period, an increase of $0.1 million, or 1.1%. The increase was primarily driven by the write off of inventory for a discontinued product line.
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Operating Expenses
All of our operating expenses, other than certain selling, general and administrative costs, pertain to corporate and BNB Treasury Management business segment activities.
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| $ | % | |||||||||||||||||||||||||||||||||||||
Management fees to affiliate | $ | 1,103 | $ | — | $ | — | $ | — | $ | 1,103 | n.m. | |||||||||||||||||||||||||||
Selling, general and administrative expenses | 5,427 | 1,630 | 905 | 2,535 | 2,892 | 114.1 | % | |||||||||||||||||||||||||||||||
Shareholder advisory expenses | 1,391 | — | — | — | 1,391 | n.m. | ||||||||||||||||||||||||||||||||
Unrealized loss on digital assets | 15,294 | — | — | — | 15,294 | n.m. | ||||||||||||||||||||||||||||||||
Other affiliate operating expenses | (20) | — | — | — | (20) | n.m. | ||||||||||||||||||||||||||||||||
Total operating expenses | $ | 23,195 | $ | 1,630 | $ | 905 | $ | 2,535 | $ | 20,660 | 815.0 | |||||||||||||||||||||||||||
Selling, General, and Administrative Expenses
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | Change In | ||||||||||||||||||||||||||||||||||
| $ | % | |||||||||||||||||||||||||||||||||||||
Retail and Industry | ||||||||||||||||||||||||||||||||||||||
Compensation expense | $ | 1,206 | $ | 518 | $ | 431 | $ | 949 | $ | 257 | 27.1 | % | ||||||||||||||||||||||||||
Professional and contractor fees | 84 | 549 | 135 | 684 | (600) | (87.7) | ||||||||||||||||||||||||||||||||
Advertising and marketing expense | 43 | 72 | 63 | 135 | (92) | (68.1) | ||||||||||||||||||||||||||||||||
Equity-based compensation | 1 | 7 | — | 7 | (6) | (85.7) | ||||||||||||||||||||||||||||||||
Other | 1,063 | 484 | 276 | 760 | 303 | 39.9 | ||||||||||||||||||||||||||||||||
Total Retail and Industry | 2,397 | 1,630 | 905 | 2,535 | (138) | (5.4) | ||||||||||||||||||||||||||||||||
BNB Treasury Management | ||||||||||||||||||||||||||||||||||||||
Compensation expense | 44 | — | — | — | 44 | n.m. | ||||||||||||||||||||||||||||||||
Other | 82 | — | — | — | 82 | n.m. | ||||||||||||||||||||||||||||||||
Total BNB Treasury Management | 126 | — | — | — | 126 | n.m. | ||||||||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||
Compensation expense | 726 | — | — | — | 726 | n.m. | ||||||||||||||||||||||||||||||||
Professional and contractor fees | 1,359 | — | — | — | 1,359 | n.m. | ||||||||||||||||||||||||||||||||
Advertising and marketing expense | 108 | — | — | — | 108 | n.m. | ||||||||||||||||||||||||||||||||
Equity-based compensation | 66 | — | — | — | 66 | n.m. | ||||||||||||||||||||||||||||||||
Other | 645 | — | — | — | 645 | n.m. | ||||||||||||||||||||||||||||||||
Total Corporate | 2,904 | — | — | — | 2,904 | n.m. | ||||||||||||||||||||||||||||||||
Total | $ | 5,427 | $ | 1,630 | $ | 905 | $ | 2,535 | $ | 2,892 | 114.1 | |||||||||||||||||||||||||||
Retail and Industry
Our Retail and Industry segment includes the results of operations for both our Fat Panda and Industrial Climate Control Systems businesses. The Industrial Climate Control Systems operations, which we do not present in the Predecessor period and are therefore not comparable, incurred $0.3 million of compensation expense, $0.1 million of professional and contractor fees, and $0.1 million of other general and administrative expense during the three months ended July 31, 2026 and $0.4 million of compensation expense, $0.3 million of professional and contractor fees, and $0.1 million of other general and administrative expense for the period from June 7, 2025 through July 31, 2025.
The $0.2 million increase in selling, general, and administrative costs related to the operations of Fat Panda and includes increases of $0.4 million of compensation expense and $0.3 million of foreign currency translation adjustments, partially offset by a $0.4 million decrease in professional and contractor fees and a $0.1 million decrease in advertising and marketing expenses.
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BNB Treasury Management
We incurred $0.1 million of selling, general, and administrative costs comprised of compensation costs as well as custody and bank fees for the three months ended July 31, 2026.
Corporate
For the three months ended July 31, 2026, we incurred $2.9 million of selling, general, and administrative costs, which included $1.4 million of professional and contractor fees driven by legal, accounting, and advisory fees, $0.7 million of compensation expense, approximately $0.2 million of advertising, marketing and equity-based compensation, and $0.6 million of other corporate costs.
Operating Expenses Applicable Solely to the Successor Period
Management fees to affiliate
We incurred $1.1 million of management fees under the AMA, representing a flat fee of 1.4% of the fair value of assets within our DAT Strategy, which included our BNB holdings, with a weighted-average fair value of $312.8 million for the three months ended July 31, 2026.
Shareholder advisory expenses
We incurred $1.4 million of professional fees for legal, strategic, and communications advice for the three months ended July 31, 2026 as part of our response to an activist shareholder campaign that required significant time and resources from the Board and management until entry into a cooperation agreement with YZILabs in June 2026 that resolved the matter. We do not expect to incur additional material costs in connection with this matter.
Unrealized Loss on Digital Assets
For the three months ended July 31, 2026, we experienced unrealized losses of $15.3 million, of which $15.0 million related to a decline in the market value of our BNB holdings and $0.4 million related to a decline in the market value of Bitcoin ("BTC").
Other affiliate operating expenses
In March 2026, we granted a cash incentive award to Mr. David Namdar, our former Chief Executive Officer, in connection with a transition agreement, valued at an estimated $0.6 million at April 30, 2026. During the three months ended July 31, 2026, we adjusted the estimated fair value of that award to the actual, lower cash paid in satisfaction of that award in July 2026.
Other income (loss), net
Fat Panda did not have any other income or expense prior to our acquisition. However, we incurred $0.7 million of costs to acquire Fat Panda, expensed as business combination expenses as well as interest expense of $0.3 million in connection with a bridge loan used to acquire Fat Panda that we repaid in December 2025. Additionally, we continue to incur interest expense in connection with notes payable to a former owner and current employee of Fat Panda. Since the closing of the PIPE Transaction, we also generate income and incur expenses in connection with our DAT Strategy.
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | Combined Quarterly Period | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| $ | % | |||||||||||||||||||||||||||||||||||||
Airdrop income | $ | 284 | $ | — | $ | — | $ | — | $ | 284 | n.m. | |||||||||||||||||||||||||||
Gain on change in fair value of warrant liability | 9,982 | — | — | — | 9,982 | n.m. | ||||||||||||||||||||||||||||||||
Interest expense | (314) | (252) | — | (252) | (62) | 24.6 | ||||||||||||||||||||||||||||||||
Interest expense to affiliate | (26) | (16) | — | (16) | (10) | 62.5 | ||||||||||||||||||||||||||||||||
Business combination expenses | — | (721) | — | (721) | 721 | n.m. | ||||||||||||||||||||||||||||||||
Total other income (loss), net | $ | 9,926 | $ | (989) | $ | — | $ | (989) | $ | 10,915 | n.m. | |||||||||||||||||||||||||||
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Airdrop income
For the three months ended July 31, 2026, we collected Airdrops valued at $0.3 million on our BNB holdings, based on the U.S. dollar equivalent of the tokens received. Generally, Airdrop activity has continued to decrease in the greater BNB ecosystem and there can be no assurance that activity will increase in the future as we cannot predict the timing or magnitude of future Airdrops, and continued reduction in Airdrops frequency or size could have an adverse effect on our results of operations.
Gain on change in fair value of warrant liability
We issued Stapled Warrants in connection with the PIPE Transaction, recognized as a liability under U.S. GAAP, and to which we allocated $305.0 million of value. Since the issuance, the market price of our common stock has declined and the Stapled Warrants began to trade separately on Nasdaq under the symbol "BNCWZ" in April 2026. Increases (decreases) in the market price of our common stock generally correspond to a higher (lower) value of the Stapled Warrants, resulting in a loss (gain) on such warrants, as it becomes more (less) likely warrant holders will exercise their warrants. The fair value of the Stapled Warrants represents a gross value and does not offset amounts by the cash we would receive upon exercise of such warrants.
During the three months ended July 31, 2026, the estimated fair value of the Stapled Warrants declined primarily as a result of lower traded prices of the Stapled Warrants, with a lower common stock price and a shorter remaining contractual term also contributing to the decrease.
Interest expense
For the three months ended July 31, 2026, we incurred $0.3 million of interest expense on $15.0 million borrowed under our new loan facility collateralized by BNB.
During the period from June 7, 2025 through July 31, 2025, we incurred $0.3 million of interest expense on a $4.0 million bridge loan we used to finance the acquisition of Fat Panda that we fully repaid in December 2025, which was unrelated to our DAT strategy.
Interest expense to affiliate
We incurred interest expense that included amounts paid as well as amortization of debt discount on a promissory note and convertible promissory note issued to the President of Fat Panda and current employee in connection with the Fat Panda Acquisition, outstanding over a longer period of time during the three months ended July 31, 2026 than during the period from June 7, 2025 through July 31, 2025.
Business combination expenses
We expensed $0.7 million of professional, advisory, and legal costs in connection with our acquisition of Fat Panda during the period from June 7, 2025 through July 31, 2025.
Income Tax Provision
Our income tax provision is generally not comparable between the Predecessor and Successor periods as the nature and amount of our pre-tax income substantially differs and the Predecessor is solely subject to Canadian federal and provincial tax jurisdictions whereas the Successor is also subject to U.S. federal, state and local taxes. Our effective tax rates were (0.8)%, 4.8%, and 10.7% for the three months ended July 31, 2026, the period from June 7, 2025 through July 31, 2025, and the period from May 1, 2025 through June 6, 2025, respectively. Our effective tax rate for the three months ended July 31, 2026 and the period from June 7, 2025 through July 31, 2025 differed from the U.S. federal statutory rate of 21.0% primarily due to foreign statutory tax rate differences, particularly in the Cayman Islands where our income was not generally subject to tax, the impact of non-taxable gains on our warrant liability, and changes in our valuation allowance against deferred tax assets such as net operating loss carryforwards, and nondeductible expenses. See Note 9 to our Unaudited Condensed Consolidated Financial Statements for further details.
Foreign Currency Translation Adjustment
Our Fat Panda business uses Canadian dollars as its functional currency while we use U.S. dollars as our reporting currency. As a result, we record other comprehensive income related to the difference of certain period-end amounts between the two currencies, though such adjustments have not historically been material.
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Financial Condition, Liquidity, and Capital Resources
At July 31, 2026, we held cash and cash equivalents of $7.1 million; 515,544 BNB tokens with a fair value of $302.3 million, of which we pledged 44,198 BNB, valued at $25.9 million, in exchange for $15.0 million in net debt proceeds; and other digital assets with an aggregate fair value of $2.2 million. We borrowed a total of $16.8 million consisting of the BNB collateralized debt facility and notes payable to the prior owners of Fat Panda issued in connection with the related acquisition.
Our primary sources of liquidity include cash we receive from the sale of retail vape products and, to a lesser extent, the sale of industrial climate control system; cash received from our debt obligations; proceeds from the sale of shares of our common stock through at-the-market offerings or other capital raise activities; and the cash we would receive from the exercise of our outstanding warrants if the market value of our common stock rises above the warrants' exercise price and such in-the-money warrants are not exercised on a cashless basis. We may also sell our digital assets, including BNB tokens, at their then-current market price for cash, but do not generally intend to sell BNB tokens for working capital purposes.
Our primary uses of liquidity include acquisitions of digital assets, primarily BNB tokens, repurchases of our common stock, repayment of our debt obligations, and payment of selling, general, and administrative costs to operate as a publicly-traded company. We may also use cash to acquire, or otherwise fund, operating or other businesses.
Historically, we have incurred substantial costs in connection with the PIPE Transaction and the Consent Solicitation defense advisory costs. While there can be no assurance that we will not incur such costs in the future, we do not expect to incur such costs on a recurring basis.
Digital Assets
We hold a significant portion of our liquid assets in digital assets, which are measured at fair value with changes recognized in earnings, further described in Note 4 to our Unaudited Condensed Consolidated Financial Statements.
Our liquidity and capital resources are subject to substantial volatility in the market price of BNB and other digital assets. A decline in the market price of BNB or other digital assets would reduce the fair value of our digital assets and could adversely affect our ability to fund operations, invest in growth, or meet obligations as they come due. We seek to manage this risk by maintaining fiat liquidity; however, these measures may not fully mitigate market, custodial, regulatory, or other risks. A 10.0% increase (decline) in the price of BNB at July 31, 2026, holding all other factors constant, would have resulted in an additional unrealized gain (loss) of approximately $30.2 million. These potential fluctuations significantly exceed the operating income or loss expected from our Retail and Industry segment.
Although digital assets may be traded on various cryptocurrency exchanges, the liquidity of these assets may vary depending on market conditions. Periods of significant volatility or market stress may reduce liquidity, widen bid-ask spreads, and limit our ability to sell digital assets at favorable prices. Our ability to generate liquidity from our digital assets may depend in part on our ability to sell digital assets in the market. If we were required to liquidate a significant portion of our BNB holdings to meet liquidity needs, such sales could adversely affect the market price of BNB and reduce the value of our remaining holdings. Management evaluates the Company's liquidity requirements on an ongoing basis and may determine to sell or otherwise utilize portions of its digital asset holdings to fund operations, pursue strategic opportunities, or satisfy other capital requirements.
Digital Asset Treasury Risk Management
We have implemented policies and procedures designed to manage risks associated with holding digital assets. These measures include the use of institutional custodial platforms, internal controls governing the authorization and execution of digital asset transactions, and monitoring market conditions affecting our digital asset holdings. Despite these measures, digital assets are subject to risks that differ from traditional financial assets, including cybersecurity risks, technological risks associated with blockchain networks, and the potential for rapid changes in market conditions. We continuously evaluate and update our risk management practices as our digital asset treasury strategy evolves.
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At-the-Market Program
In August 2025, we entered into an at-the-market offering agreement (the "ATM Program") with Cantor Fitzgerald & Co. ("ATM Agent"), pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through the ATM Agent, acting as our sales agent or principal. Sales under the ATM Program, if any, will be made by means of ordinary brokers' transactions on Nasdaq or otherwise at market prices prevailing at the time of sale, or at prices related to prevailing market prices. Under the ATM Program, we have provided the ATM Agent with customary indemnification rights, and the ATM Agent will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of shares made through, or to, the ATM Agent. Since the inception of the ATM Program, we have sold and issued 856,275 shares at a total dollar value of $13.1 million, gross of $0.2 million of transaction costs, under the ATM Program. We did not sell any shares under the ATM Program during the three months ended July 31, 2026.
Share Repurchase Program
In September 2025, our Board authorized a share repurchase program pursuant to which we may repurchase up to $250.0 million total dollar value of our common stock on a perpetual basis from the date of authorization. We fund these share repurchases through a combination of cash on hand, future cash flow from operations, and borrowings under our debt obligations. Under the share repurchase program, we may purchase common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases, or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, or by any combination of such methods, in each case subject to compliance with all SEC rules and other legal requirements. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, debt covenant restrictions, general business conditions, the market price of our stock, self-imposed trading blackout periods, and the availability of alternative investment opportunities. There is no minimum number of shares required to be repurchased under the share repurchase program, and the share repurchase program may be suspended or discontinued at any time. We repurchased and cancelled 1,434,112 shares of common stock at an average price per share of $2.63 for a total dollar value of $3.8 million, excluding $— million transaction costs, during the three months ended July 31, 2026. By July 31, 2026, the Company had repurchased and retired a total of 4,676,322 shares equaling a total dollar value of $21.1 million, excluding transaction costs, under the program.
Debt Obligations
BitGo Facility
On April 30, 2026, we entered into an uncommitted master loan facility with BitGo pursuant to which the Company may borrow digital assets or cash from BitGo from time to time. BitGo is not obligated to make any loan, and we have no committed borrowing capacity. Each loan is documented in a separate loan agreement by the parties setting forth the specific terms, including principal amount, fees, collateral requirements, and the date on which the loan is to commence and mature. Each loan may have a fixed term, or may include a call option held by BitGo or prepayment option held by the Company, as specified in each loan agreement. Borrowings under the master loan agreement are secured by collateral in favor of BitGo. Collateral may include BNB, cash, or other forms agreed upon by the parties. The collateral’s required value is typically higher than the borrowed amount, subject to margin calls as set forth in the master loan agreement. If the value of posted collateral falls below the margin call threshold, the Company must promptly post additional collateral. Failure to maintain sufficient collateral can result in an event of default and remedies available to BitGo, including the right to liquidate pledged collateral. BitGo holds BNB collateral owned by the Company in a segregated custody account in the Company's name, and BitGo is not permitted to use such BNB to secure any other loan or account. The final stated maturity of the facility represents the greater of the maturity of the master loan agreement or the maturity of any fixed term loan agreement thereunder.
We pledged $25.5 million of BNB tokens at the time of borrowing, for which we received $15.0 million of USD Coin ("USDC"). Each loan bears a loan fee of 9.50% per annum. At July 31, 2026, $15.0 million aggregate principal amount was outstanding and our pledged BNB had a fair value of $25.9 million. Our ability to sell, transfer, or otherwise use the pledged digital assets is restricted for the duration of the borrowings, the proceeds of which we have used, and expect to use, for share repurchases and working capital.
Each borrowing is a fixed term loan. BitGo may not require repayment before maturity, and we have no contractual right to prepay. We therefore do not expect to be able to reduce these borrowings, or to release the pledged BNB, before the applicable maturity dates.
We are required to pledge collateral equal to 170% of the amount borrowed. If the value of our pledged collateral falls below 150% of the loan balance, BitGo may require us to post additional collateral immediately; if it falls below 120% of the amount loaned, BitGo may liquidate the collateral. Because BNB is also our principal treasury asset, such a decline would reduce the value of our collateral and our other digital asset holdings at the same time.
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The master loan agreement requires that our net equity, as defined, be at least $25.0 million at the end of each calendar month and that our ratio of total assets to net equity not exceed 200%. If either requirement is not satisfied, or if BitGo determines in its sole discretion that the assets loaned to us are at risk of being treated as a security, BitGo may require us to immediately repay all outstanding loans and accrued fees. Because share repurchases reduce our net equity, this requirement constrains the amount of our common stock that we are able to repurchase.
Promissory Note
In connection with the Fat Panda Acquisition, we issued an interest-only promissory note (the "Promissory Note") in the principal amount of $0.7 million to the President of Fat Panda, bearing interest at a rate of 7.0% per annum, payable monthly. The Promissory Note matures in November 2026.
Convertible Promissory Note
We issued a convertible promissory note in the principal amount of $0.7 million to the President of Fat Panda, bearing interest at a rate of 7.0% per annum. The holder has the right to convert the outstanding principal amount of the convertible promissory note into shares of our common stock at a conversion price of $19.00 per share at any time on or before June 1, 2027. If no conversion election is made by the holder on or prior to such date, we are required to repay the entire outstanding principal balance plus accrued and unpaid interest in cash. To the extent the holder elects conversion, the settlement would not require the use of cash and would instead result in the issuance of additional shares of common stock.
Tax Indemnification Note
We issued a non-interest-bearing note in the amount of $0.4 million to the former Fat Panda shareholders that does not have a fixed maturity date. We must repay the note in full within 15 days following the date that Canada Revenue Agency issues a letter confirming a certain tax liability does not exist in connection with the Fat Panda Acquisition. Conversely, the note payable is reduced in the amount of any tax liability assessed.
Summary of Cash Flows
The following summarizes our cash flow data for each of the periods presented:
| Successor | Predecessor | |||||||||||||||||||
| Three Months Ended July 31, 2026 | Period from June 7, 2025 through July 31, 2025 | Period from May 1, 2025 through June 6, 2025 | ||||||||||||||||||
Net cash used in operating activities | $ | (6,475) | $ | (1,798) | $ | (239) | ||||||||||||||
Net cash used in investing activities | (123) | (10,571) | — | |||||||||||||||||
Net cash provided by financing activities | 10,684 | 3,910 | — | |||||||||||||||||
Cash Flow from Operating Activities
For the Three Months Ended July 31, 2026
Cash used in operating activities for the three months ended July 31, 2026 was $6.5 million. We received $7.1 million in cash from Fat Panda vape sales and $0.1 million from the sale of industrial climate control systems and related services. We paid $4.7 million for inventory (which includes excise tax paid on inventory items purchased from suppliers), and excise taxes on production of $0.4 million. We also paid $3.3 million for other professional fees, $2.0 million in cash compensation, other legal fees of $1.7 million, $0.7 million for shareholder advisory costs, $0.5 million for rent, utilities, insurance and other office expenses, $0.2 million for directors' and officers' insurance, and $0.2 million for advertising and marketing.
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For the Period from June 7, 2025 through July 31, 2025
Cash used in operating activities for the period from June 7, 2025 through July 31, 2025 was $1.8 million. We received $4.4 million in cash from Fat Panda vape sales and $0.2 million from the sale of industrial climate control systems and related services. We paid $3.6 million for inventory (which includes excise tax paid on inventory items purchased from suppliers), and excise taxes on production of $0.3 million. We also paid $1.1 million for other professional fees, $0.7 million for acquisition-related expenses, $0.5 million in cash compensation, $0.1 million for advertising and marketing, and $0.1 million for rent, utilities, insurance and other office expenses.
For the Period from May 1, 2025 through June 6, 2025
Cash used in operating activities for the period from May 1, 2025 through June 6, 2025 was $0.2 million. We received $2.9 million in cash from Fat Panda vape sales, for which we paid $2.4 million for inventory, including excise taxes on inventory items purchased from suppliers, $0.3 million in excise tax for produced items, and $0.4 million in cash compensation.
Cash Flow from Investing Activities
Cash used in investing activities for the three months ended July 31, 2026 was $0.1 million, representing cash paid to acquire property and equipment.
Cash used in investing activities for the period from June 7, 2025 through July 31, 2025 was $10.6 million, representing the cash paid to acquire Fat Panda.
Cash Flow from Financing Activities
Cash provided by financing activities for the three months ended July 31, 2026 was $10.7 million, including proceeds from notes payable of $15.0 million, partially offset by $4.3 million we paid to repurchase shares of our common stock under the Share Repurchase Program.
Cash provided by financing activities for the period from June 7, 2025 through July 31, 2025 was $3.9 million, representing the issuance of a $4.0 million bridge loan, net of issuance discounts, that we fully repaid in December 2025.
Fat Panda, our accounting Predecessor, did not receive or pay any cash for financing activities during the period from May 1, 2025 through June 6, 2025.
Other Changes in Financial Position
In addition to the changes in our financial position from April 30, 2026 to July 31, 2026 described in "—Results of Operations" and "—Summary of Cash Flows," the following activities also occurred:
●In connection with the BitGo Facility, we pledged $9.5 million worth of BNB at a cost basis of $13.2 million as collateral for USDC 15.0 million borrowings at the time of each draw, bringing the total fair value of BNB pledged to $25.9 million at July 31, 2026.
Commitments and Contingencies
See Note 11 to our Unaudited Condensed Consolidated Financial Statements, included as part of this Quarterly Report, for a discussion of commitments and contingencies, including contractual payment obligations.
Known Trends and Uncertainties Affecting Our Business
Management is aware of several trends and uncertainties that may affect our financial condition and results of operations, including: continued volatility in digital asset markets; evolving regulatory frameworks governing digital assets and cryptocurrency exchanges; technological developments affecting blockchain networks and decentralized applications; and macroeconomic conditions affecting investor demand for digital assets. Trends and uncertainties specific to the Company are described below.
Market Price of BNB
Our digital assets, primarily BNB, represented 93.1% of our total assets at July 31, 2026, and we carry them at fair value, so changes in the market price of BNB are recognized in the period of change and are the principal driver of period-to-period variability in our results. At July 31, 2026, our 515,544 BNB had a fair value of $302.3 million against a cost basis of $446.5 million. That price is volatile, unrelated to the operating performance of our Retail and Industry business, and outside our control, and we expect it to remain the most significant factor affecting our financial condition and results of operations.
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Collateral Obligations under the BitGo Facility
At July 31, 2026, $15.0 million was outstanding under the BitGo Facility, secured by pledged BNB with a fair value of $25.9 million against a 170% collateral requirement. If collateral value falls below 150% of the loan balance we must immediately post additional collateral, and below 120% BitGo may liquidate it. Because BNB is also our principal treasury asset, a price decline would reduce our collateral and our unpledged holdings at the same time. The facility also requires net equity, as defined, of at least $25.0 million at each month end and a ratio of total assets to net equity not exceeding 200%. We were in compliance with the collateral coverage, net equity and total assets to net equity requirements of the BitGo Facility at July 31, 2026. Further, the BitGo Facility has no committed borrowing capacity and no right to prepay.
Airdrop Activity
We recognized $0.3 million of Airdrop income for the three months ended July 31, 2026. Airdrop activity within the Binance ecosystem, including Launchpool and HODLer Airdrop allocations, has declined materially since we launched our DAT Strategy, and we expect that decline to continue to constrain our treasury yield. These distributions are not contractual and their timing and magnitude are outside our control, so amounts recognized in any period are not indicative of future periods and we do not regard them as a recurring source of income or liquidity.
The AMA
We incurred $1.1 million of management fees under the AMA for the three months ended July 31, 2026, calculated as a flat fee of 1.4% of the fair value of assets within our DAT Strategy, which accrues without regard to our results of operations. The AMA runs by its terms through 2045, and we are seeking a declaration that it is void from inception. Unless we obtain that relief, we expect to continue incurring the fee at this rate. See Note 11 to our Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Estimates
The preparation of our Unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions that in certain circumstances affect amounts reported therein. In preparing these financial statements, our estimates and judgments are based on historical experience, information from third-party valuation professionals and various other assumptions, giving due consideration to materiality. We consider the accounting policies discussed below to be critical to the understanding of our consolidated financial statements. Actual results could differ from our estimates and assumptions, and any such difference could be material to our consolidated financial statements, particularly as many of the critical policies relate to our DAT Strategy, for which we have little history with which to compare the accuracy of our estimates. These significant accounting policies are described more fully in Note 2 to our Unaudited Condensed Consolidated Financial Statements.
Warrant Liabilities
We classify the Stapled Warrants issued in connection with the PIPE Transaction as liabilities measured at fair value. These were initially recorded at a fair value of $305.0 million at the date of issuance and are remeasured at each reporting period, with changes in fair value recognized in earnings. The determination of fair value requires significant estimates and assumptions, including expected volatility, risk-free interest rate, and expected term. During the three months ended July 31, 2026, we recognized a $10.0 million gain from changes in the fair value of warrant liabilities. Given the magnitude of changes in the estimated fair value of the warrant liability and the sensitivity of the valuation to changes in the underlying assumptions, small changes in these inputs could result in material differences in the reported fair value. In April 2026, the Stapled Warrants began trading on Nasdaq under the ticker symbol "BNCWZ." Since management does not believe the Stapled Warrants trade with sufficient liquidity on which we can solely rely on the traded market price, we equal-weight the traded market price with its internal valuation model, with assistance from an independent valuation agent.
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Digital Assets
We hold significant digital asset positions, including BNB, BTC, and Tether ("USDT"), which are accounted for at fair value with changes recognized in earnings in accordance with ASC 350-60. Fair value is determined using observable, quoted market prices on principal exchanges, classified within Level 1 of the fair value hierarchy. While the fair value measurements themselves rely on observable inputs, management judgment is required in evaluating the determination of the principal market for each digital asset and in the valuation of digital assets received through non-cash transactions, including Airdrops. Additionally, management periodically reassesses whether the selected principal market continues to represent the most advantageous market for each digital asset. Key indicators monitored by management in this assessment include changes in trading volume, liquidity, and the availability of reliable pricing data across exchanges. During the three months ended July 31, 2026, we recognized unrealized losses of $15.3 million. Given the inherent price volatility of digital assets, changes in fair value between reporting periods could be material to our Unaudited Condensed Consolidated Financial Statements.
Goodwill and Intangible Assets
We account for business combinations under the acquisition method of accounting and allocate the purchase price we pay to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. Any purchase consideration in excess of the fair value of net assets acquired is recorded as goodwill. We determine the fair value of tangible and identifiable intangible assets acquired and liabilities assumed using the best available information, which incorporates various estimates and assumptions, including, but not limited to, future expected cash flows, useful lives, discount rates, and royalty rates. These estimates are based on historical data, internal estimates, and external sources. Unanticipated events may affect the validity of these assumptions.
In connection with the Fat Panda Acquisition, we initially recorded $4.2 million of goodwill, reduced by $0.8 million of measurement period and foreign exchange rate adjustments, and $5.2 million of definite-lived intangible assets. The fair value of the intangible assets was determined based on the relief-from-royalty method that required significant assumptions including the discount rate, revenue projections, the selected royalty rate, and estimated useful life. While we believe these assumptions to be reasonable and appropriate, changes in these estimates could result in different fair value amounts.
Goodwill
Goodwill represents the excess of the purchase price we paid to acquire Fat Panda over the fair value of identifiable net assets acquired. Goodwill is denominated in CAD, the functional currency of the acquired entity, and translated into USD at each reporting date, with changes recognized in accumulated other comprehensive income (loss). Goodwill impairment testing is performed at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For goodwill impairment testing purposes, we have determined that there is one reporting unit. During the quarter ended April 30, 2026, management performed a quantitative goodwill impairment test with the assistance of an independent third-party valuation firm. For purposes of this assessment, management estimated the fair value of the reporting unit using an equal weighting of the discounted cash flow method (income approach) and the guideline public company method (market approach), and determined that the estimated fair value of the reporting unit exceeded its carrying value. Accordingly, no impairment was identified. At July 31, 2026, the carrying value of goodwill was $3.4 million.
Definite-lived intangible assets
Definite-lived intangible assets consist of the Fat Panda trade names, which are expected to contribute to the future cash flows of Fat Panda over their estimated useful life of 10 years, and are amortized on a straight-line basis over their remaining expected useful life. Management periodically evaluates the remaining useful life and carrying value of the intangible assets to determine whether events or changes in circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include significant adverse changes in the business climate, declines in revenue performance relative to historical results, changes to applicable legal, regulatory, or contractual provisions, and reductions in underlying operating cash flows. During the quarter ended April 30, 2026, management identified triggering events and performed a recoverability test under ASC 360-10 by comparing estimated future undiscounted cash flows of the asset group to its carrying value. Based on this analysis, management concluded that the undiscounted cash flows exceeded the carrying value and no impairment was recorded. At July 31, 2026, the carrying value of definite-lived intangible assets was $4.5 million, net of accumulated amortization.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the financial reporting and tax bases of assets and liabilities. Management evaluates the realizability of deferred tax assets on a jurisdictional basis and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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During the three months ended July 31, 2026, we recorded a $1.0 million increase in our valuation allowance, primarily related to our results of operations in the United States, reflecting cumulative losses and updated forecasts of future taxable income. The valuation allowance remains affected by cumulative losses in certain jurisdictions and uncertainty about the timing of future reversals of deferred tax liabilities.
Future changes in the valuation allowance could materially affect our effective tax rate and results of operations.
We are subject to income taxes in the United States and Canada and subject to audit by taxing authorities. As part of the income tax provision, we evaluate our tax positions to determine whether it is more likely than not that such positions will be sustained upon examination based on their technical merits. For those positions that do not meet the recognition threshold, we record a liability for unrecognized tax benefits.
We account for uncertainty in income taxes under the recognition and measurement framework of ASC 740. An uncertain tax position is a position taken or expected to be taken in a tax return where there is uncertainty as to whether the relevant taxing authority would sustain the position upon examination.
Tax benefits are recognized only for positions that meet the more-likely-than-not recognition threshold, and the amount recognized is measured as the largest benefit that is greater than 50 percent likely to be realized upon settlement.
We record liabilities for unrecognized tax benefits related to these positions, as well as interest and penalties, where applicable. Changes in uncertain tax positions may result from new information, audit developments, expiration of statutes of limitation, or changes in tax law.
At July 31, 2026 and April 30, 2026, we had no unrecognized tax benefits under ASC 740.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, therefore are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of July 31, 2026 due in part to the material weakness in internal control over financial reporting described below, which has not been remediated.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2026, we did not maintain effective controls over certain aspects of the financial reporting process because: (i) we lack a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure commensurate with our financial reporting requirements; (ii) there is inadequate segregation of duties due to our limited number of accounting personnel; and (iii) we have insufficient controls and processes in place to adequately verify the accuracy and completeness of spreadsheets that we use for a variety of purposes, including revenue, taxes, stock-based compensation, earnings per share computations, and other areas, and on which we place significant reliance for our financial reporting. This material weakness has not been remediated at July 31, 2026.
Additional Deficiencies in Disclosure Controls and Procedures
In connection with a review of our corporate records and periodic report exhibits conducted during and after the quarter ended July 31, 2026, management identified deficiencies in our controls over the preparation and review of non-financial disclosure in our Exchange Act reports. Specifically, we did not maintain effective controls to verify that (i) the exhibit index in our periodic reports is complete and current as against our corporate records and our filings with the Nevada Secretary of State, (ii) the description of our securities filed as an exhibit to our Annual Report on Form 10-K accurately describes our authorized and outstanding capital stock, and (iii) the cover pages of our periodic reports list all classes of securities registered under Section 12(b) of the Exchange Act.
As a result, certificates of designation and a charter amendment were omitted from the exhibit index to our Annual Report on Form 10-K for the fiscal year ended April 30, 2026, the description of securities filed as an exhibit to that report contained inaccuracies regarding our capital stock, and the cover pages of certain of our periodic reports omitted a class of securities registered under Section 12(b). These deficiencies did not affect our consolidated financial statements or the amounts reported therein.
Remediation
We are taking steps to remediate the material weakness and the additional deficiencies described above.
With respect to the material weakness, effective March 9, 2026, we appointed William B. Miller as Chief Financial Officer. We remain committed to improving our financial organization when we are able, including by expanding our accounting staff and improving our systems and controls to reduce reliance on the manual nature of our existing systems. However, due to our size and financial resources, remediating the identified weaknesses may not be economically feasible in the near term. We do not expect the material weakness to be remediated until we have improved our internal control over financial reporting, and we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis.
With respect to the additional deficiencies, we have engaged Nevada counsel to review and reconcile our charter documents against the records of the Nevada Secretary of State, and we are implementing procedures under which the exhibit index and cover page of each periodic report will be verified against our corporate records prior to filing.
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Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management's control objectives.
Changes in Internal Control over Financial Reporting
On July 22, 2026, our Chief Executive Officer concluded his service and the Board appointed our Chief Financial Officer to serve additionally as Interim Principal Executive Officer. As a result, the principal executive officer, principal financial officer, and principal accounting officer functions are currently performed by a single officer. Because our material weakness includes an inadequate supervisory review structure and inadequate segregation of duties, this change is reasonably likely to materially affect our internal control over financial reporting. As previously disclosed, the Board is currently conducting a search for a new chief executive officer, and management is evaluating what additional controls are appropriate pending appointment of the new chief executive officer once the search concludes.
Other than as described above, there were no changes in our internal control over financial reporting during the quarter ended July 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Other Information
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 11 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, operating results, or prospects.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, discussed in more detail in the following section. These risks include, among others, the following key risks:
Risks Relating to the DAT Strategy
●Our financial condition is highly dependent on the market price of BNB, which has historically been subject to significant volatility.
●Our DAT Strategy is concentrated primarily in a single asset, which subjects us to risks specific to the Binance ecosystem.
●Our ability to generate yield on our BNB holdings depends primarily on Airdrops, which have declined and are unpredictable.
●Failures, vulnerabilities, or disruptions in the BNB Chain network could adversely affect the value of BNB and our digital asset holdings.
●Our digital asset holdings’ liquidity may be limited by market conditions.
●Certain of our digital assets are held at third-party exchanges and are subject to custodial and counterparty risks.
●We are subject to significant competition in the growing digital asset industry and the Company’s business, operating results and financial condition may be adversely affected if the Company is unable to compete effectively.
Risks Relating to Cryptocurrencies
●The further development and acceptance of BNB Chain and other cryptocurrency networks, which represent a relatively new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate.
●The digital asset trading platforms on which cryptocurrency trades are relatively new and largely unregulated or may not be complying with existing regulations.
●The availability of spot exchange-traded products and futures exchange-traded funds for BNB and other digital assets may adversely affect the market price of our common stock.
●The trading prices of many digital assets, including BNB, have experienced extreme volatility in recent periods and may continue to do so.
●We may be subject to regulatory developments related to cryptocurrencies and cryptocurrency markets, which could adversely affect our business, financial condition, and results of operations and the price of our common stock.
●Loss or theft of private keys or breaches of our digital wallets could result in the permanent loss of our BNB and materially adversely affect our business.
●The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of BNB and adversely affect our business.
●We do not maintain insurance covering the theft or loss of our digital assets, and the lack of legal recourse increases the risk of total loss.
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●The U.S. federal, state, local and non-U.S. income tax treatment of transactions in digital assets is unclear.
Risks Related to Investing in BNB
●BNB is subject to extreme price volatility, and any sustained decline in the market price of BNB could lead to substantial losses on our digital asset holdings and could adversely affect the market price of our common stock.
●BNB and BNB Chain have links to, and may be controlled by, Binance and its principals.
●The value of our common stock depends on the development and acceptance of BNB Chain. The slowing or stopping of the development or acceptance of BNB Chain may adversely affect an investment in our common stock.
●Digital assets represent a new and rapidly evolving industry, and the price of our common stock would depend on the acceptance of BNB.
●Regulatory changes or actions in foreign jurisdictions may affect the price of our common stock or restrict the use of BNB, mining activity or the operation of their networks or the global BNB markets in a manner that adversely affects our business, financial condition and results of operations and the price of our common stock.
Risk Related to Fat Panda Operations
●There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens, no matter how they arise, could have a material adverse impact on our business development efforts and our operations.
●The market for vaporizer products and related items is a niche market, subject to a great deal of uncertainty and is still evolving.
●Our success depends, in part, on the quality and safety of our products, as well as the perception of quality and safety in the vaporization products and consumption accessories industry generally.
●If provinces continue the trend of imposing, expanding, and increasing taxes on vaporizer products, it could materially and adversely affect our business.
●We face intense competition and may fail to compete effectively.
●We may become subject to significant product liability litigation.
Risks Related to our Current Controlled Environment Agriculture Operations
●To the extent we continue in the controlled environment agriculture industry, we will need to expand our customer base, expand and develop our products and services and increase marketing and achieve timely contract execution.
●International trade disputes, tariffs, international shipping and domestic trucking issues all contribute to the challenges we face in obtaining the products we need for contract performance. We have experienced and are likely to continue to experience inflationary effects on the cost of products and labor, which is likely to adversely affect our margins. The failure to procure the products we need to satisfy our customer contracts would disrupt our business, harm our reputation, result in losses and potentially cause us to lose our market.
●The build side of the controlled environment agriculture industry is very competitive. To be able to compete successfully, we will need to offer a wide range of products, have adequate capital for expansion, supply and execution, and develop robust marketing.
Risks Related to Our Common Stock
●Our common stock may be delisted if we fail to comply with Nasdaq’s continued listing standards.
●Nasdaq may review our Board composition and our capital structure under its change of control, voting rights and business combination rules, and an adverse determination could result in the delisting of our common stock.
●Our securities prices may be volatile and may decrease substantially.
●Our Board is authorized to reclassify any unissued shares of our preferred stock into one or more classes, which could convey special rights and privileges to its owners.
●Registration rights and Rule 144 sales contain risks for shareholders.
●We have a substantial number of options and public warrants outstanding, which if exercised for shares of common stock, may put pressure on the market price of a share.
●We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
●The market price of our securities may be adversely affected by the sale of shares by our management or large stockholders.
●Investors may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Risks Related to Our Business and Operations
●We do not currently have a permanent Chief Executive Officer, and our principal executive officer, principal financial officer, and principal accounting officer functions are performed by a single officer.
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●Our stockholders did not approve our 2025 Equity Incentive Plan and 2026 Equity Incentive Plan, which limits our ability to attract, retain and motivate personnel and could result in compensation expense materially greater than we would otherwise have recognized.
●Stockholder activism has disrupted our business and may recur.
●Our Stockholder Rights Agreement could delay or prevent a change of control, which could limit the market price of our common stock.
●We are party to the AMA which contains terms that are materially adverse to our stockholders, and we may be unable to reform or terminate the AMA without incurring substantial costs despite pending litigation against the Asset Manager.
●Our borrowings are secured by pledged BNB, and a decline in the price of BNB could require us to post additional collateral on short notice or permit our lender to liquidate our pledged BNB.
●The Company has identified a material weakness in its internal control over financial reporting.
Risk Factors
Risks Related to the DAT Strategy
Our financial condition is highly dependent on the market price of BNB, which has historically been subject to significant volatility.
Our financial condition is highly dependent on the market price of BNB, which has historically been subject to significant volatility. At July 31, 2026, we held 515,544 BNB tokens with an aggregate fair value of $302.3 million, representing the substantial majority of our total assets. As a result, our financial condition, results of operations, and the market price of our common stock may be materially affected by fluctuations in the market price of BNB. The price of BNB has historically experienced significant volatility and may continue to fluctuate substantially in response to numerous factors, many of which are beyond our control. These factors include, among others: overall cryptocurrency market conditions and investor sentiment; technological developments affecting blockchain networks; regulatory developments in the United States or other jurisdictions; changes in trading volumes or liquidity in markets for BNB; macroeconomic factors, including inflation, interest rates and financial market conditions; trading activity by large holders of BNB or other digital assets; and market speculation, media coverage, or social media commentary relating to digital assets. Digital asset markets may be more volatile and less regulated than traditional financial markets, and prices may fluctuate significantly over short periods of time. Because BNB represents a substantial portion of our assets, even modest declines in the market price of BNB could materially reduce the value of our assets and stockholders’ equity and may negatively affect our reported financial results. In addition, because changes in the fair value of our digital assets are reflected in our statements of operations, fluctuations in the market price of BNB may cause significant volatility in our reported earnings.
During the fiscal year ended April 30, 2026, we recognized an unrealized loss of $130.3 million and a realized loss of $1.3 million on digital assets primarily as a result of declines in the price of BNB. During the three months ended July 31, 2026, we recognized an additional unrealized loss of $15.3 million on digital assets. Under our accounting policies, unrealized gains and losses from changes in the fair value of our digital asset holdings are recorded in our consolidated statements of operations. Accordingly, our reported net income or loss may be significantly affected by fluctuations in the market price of BNB, and these fluctuations could cause our financial results to vary substantially from period to period, independent of the performance of our operating businesses. A significant decline in the market price of BNB could adversely affect our ability to fund our operations, pursue strategic initiatives, pay dividends, service any indebtedness, or otherwise execute our business strategy. In addition, our stock price may be correlated with the price of BNB and other digital assets, and declines in the price of BNB could adversely affect the trading price of our common stock.
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Our DAT Strategy is concentrated primarily in a single asset, which subjects us to risks specific to the Binance ecosystem.
Our DAT Strategy currently focuses primarily on acquiring and holding BNB. As a result, our digital asset holdings are concentrated in a single digital asset rather than diversified across multiple assets or asset classes. This concentration increases our exposure to risks specific to BNB and the broader Binance ecosystem. The value and functionality of BNB are closely tied to the continued development, operation and adoption of the BNB Chain blockchain and the broader Binance ecosystem. Negative developments affecting BNB Chain, the Binance ecosystem, or entities associated with the development or promotion of BNB could adversely affect the value, liquidity, or market perception of BNB. These developments could include technological failures, security vulnerabilities, regulatory actions, reputational harm, or reduced developer or user adoption of BNB Chain. In addition, changes to the economic design, governance structure, or technical features of BNB or the BNB Chain network, including changes to token supply mechanisms, validator governance, or transaction fee structures, could negatively affect the value of BNB. Because we do not currently intend to diversify our digital asset holdings, any adverse developments affecting BNB or the Binance ecosystem could have a disproportionately negative impact on our financial condition and results of operations. Notwithstanding the foregoing, we may in the future diversify our digital asset holdings and reserve all rights to do so at the direction of our Board. Any digital assets into which we diversify may expose the Company to risks similar to those described above, as well as additional risks that may be specific to the particular digital asset or blockchain technology ecosystem in which such asset operates.
Our ability to generate yield on our BNB holdings depends primarily on Airdrops, which have declined and are unpredictable.
We do not currently stake our BNB or otherwise generate yield on our digital asset holdings other than through Airdrops. Airdrops are distributions of tokens made by projects building on BNB Chain to holders of BNB, typically in connection with a new token launch. We do not control whether, when, or on what terms any Airdrop occurs. Airdrops are made at the discretion of third-party projects, may be conditioned on holding requirements, custody arrangements, or participation mechanics that we do not satisfy or that change without notice, and may be discontinued entirely.
Airdrop activity in the BNB ecosystem has decreased for the last two quarters, and we cannot assure you that it will increase or that we will receive Airdrops of any particular size or frequency in the future. Airdrop activity is closely correlated with broader digital asset market conditions. New projects are launched, funded, and distributed more frequently during periods of rising digital asset prices, and launch activity contracts during periods of declining prices. As a result, Airdrop yield is likely to decline at the same time the market price of BNB declines rather than offsetting it, and we should not be expected to realize yield that mitigates a decline in the carrying value of our digital asset holdings. Because our borrowings are secured by pledged BNB, a decline in the price of BNB may increase our collateral obligations at the same time that our Airdrop yield decreases. See—Risks Related to Investing in BNB—BNB is subject to extreme price volatility, and any sustained decline in the market price of BNB could lead to substantial losses on our digital asset holdings and could adversely affect the market price of our common stock.
Tokens received in Airdrops may also be illiquid, thinly traded, subject to transfer restrictions or vesting, or of uncertain value, and we may be unable to sell them at prices we consider acceptable or at all. The tax treatment of Airdrop receipts is unclear in certain respects and may result in taxable income at the time of receipt without a corresponding realization of cash. Any continued reduction in the frequency, size, or value of Airdrops could adversely affect our results of operations.
Failures, vulnerabilities, or disruptions in the BNB Chain network could adversely affect the value of BNB and our digital asset holdings.
BNB operates on the BNB Chain blockchain network, which relies on complex software, cryptographic protocols, and a distributed network of validators to process transactions and maintain the integrity of the blockchain. The BNB Chain network may be subject to technical failures, software bugs, consensus failures, or other vulnerabilities that could compromise the network’s security or functionality. In addition, blockchain networks have historically been targets of cyberattacks, including attempts to exploit vulnerabilities in network software or associated applications. Any successful attack or exploit affecting the BNB Chain network could disrupt network operations, reduce confidence in the network, or adversely affect the market price of BNB. Any such developments could materially and adversely affect the value of our digital asset holdings.
The validator structure of the BNB Chain network may expose it to governance or operational risks.
The BNB Chain network relies on a limited number of validators to confirm transactions and maintain the network. Compared to some other blockchain networks, the validator structure of BNB Chain may involve a relatively concentrated group of participants. Concentration among validators could increase the risk of coordinated actions, governance disputes, or operational disruptions affecting the network. If validators were to act in a manner that adversely affects the operation or perceived integrity of the network, confidence in the Binance ecosystem could decline. Any such decline in confidence could negatively affect the market price of BNB and the value of our digital asset holdings.
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Certain of our digital assets are held at third-party exchanges and are subject to custodial and counterparty risks.
Certain of our digital assets are held at third-party exchanges or custodial platforms. These assets may be recorded as receivables rather than digital assets on our condensed consolidated balance sheet when they are held on such platforms. Digital asset exchanges and custodians have historically been subject to cyberattacks, fraud, insolvency, operational failures, and regulatory enforcement actions.
Ownership and control of digital assets are generally determined by possession of cryptographic private keys or other access credentials. We rely on third-party custodians to safeguard control of our digital assets, including the management of private keys. If the private keys or access credentials associated with our digital assets that are held by those third-party custodians were lost, destroyed, compromised, misused, or otherwise became inaccessible, we could lose access to our digital assets permanently. Unlike traditional financial accounts, digital asset transactions are generally irreversible, and there may be no central authority capable of restoring access to lost assets. Any loss or theft of our digital assets, including as a result of the foregoing, could materially and adversely affect our financial condition.
If any exchange or custodial platform that holds our digital assets were to become insolvent, experience a security breach, suspend withdrawals, or otherwise fail to safeguard our assets, we could experience delays in accessing our digital assets or suffer a partial or total loss of those assets. In the event of an insolvency of a custodial platform, we may be treated as an unsecured creditor and may not recover the full value of our assets. In addition, exchanges and custodial platforms may impose withdrawal limits, suspend trading, or otherwise restrict transfers of digital assets during periods of market volatility or regulatory uncertainty. Such restrictions could limit our ability to access or liquidate our digital assets in a timely manner. These assets are not maintained in segregated wallets under our exclusive control and may be pooled with assets of other customers of such exchanges. Unlike bank deposits, digital assets held at exchanges are generally not insured by the Federal Deposit Insurance Corporation or any other governmental agency. We do not maintain insurance covering losses of digital assets held at exchanges or custodians, and to the extent a custodian maintains its own insurance, we may have no direct rights under that coverage. We are exposed to counterparty risk if these exchanges experience financial difficulty, security breaches, cyberattacks, operational failures, regulatory enforcement actions, or become insolvent. The digital asset industry has experienced significant exchange failures and insolvencies, including the collapse of FTX Trading Ltd. in November 2022, which resulted in substantial losses for customers and creditors. If an exchange at which we hold digital assets were to fail, enter bankruptcy, or become subject to regulatory seizure, we may be unable to recover some or all of our digital assets, and any recovery could be subject to significant delays and uncertainty. The loss of digital assets held at such exchanges could materially and adversely affect our financial condition, results of operations, and the trading price of our common stock.
Digital assets, including BNB, are subject to an evolving and uncertain regulatory landscape.
Digital assets, including BNB, are subject to evolving and uncertain regulatory frameworks in the United States and internationally. The regulatory status of digital assets and related activities is subject to significant uncertainty, and regulations may vary significantly among jurisdictions. Changes in laws, regulations, or enforcement priorities by U.S. or foreign regulators, including the SEC, CFTC, U.S. Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN"), state regulators, or international bodies, could adversely affect our ability to acquire, hold, transact in, or derive value from our digital asset holdings. In particular, if BNB or other digital assets we hold were to be classified as securities under U.S. federal or state laws, we could become subject to registration requirements under the Securities Act of 1933 or the Investment Company Act of 1940, which could impose significant compliance costs, restrict our ability to transact in such assets, or require us to dispose of our holdings. Anti-money laundering and know-your-customer regulations applicable to digital assets may become more stringent and could increase our compliance costs or limit our ability to transact in digital assets. Tax treatment of digital asset transactions is also subject to uncertainty and may change in ways that adversely affect our financial results. Any regulatory developments that restrict or prohibit our digital asset activities could have a material adverse effect on our business, financial condition, and results of operations.
BNB could be determined to be a security under U.S. federal securities laws, which could materially affect the value and tradability of our digital assets.
The regulatory status of many digital assets, including BNB, remains uncertain. Regulatory authorities in the United States and other jurisdictions have taken the position that certain digital assets may constitute securities under applicable law. If BNB were determined to be a security under U.S. federal securities laws, trading platforms that currently list BNB may be required to register as securities exchanges, broker-dealers or alternative trading systems, or they may cease offering trading in BNB. Any determination that BNB constitutes a security, or any enforcement action by regulatory authorities relating to BNB or trading platforms that support BNB trading, could significantly reduce the liquidity and market value of BNB. Such developments could make it more difficult for us to buy or sell or value BNB, could result in delistings of BNB from trading platforms, and could materially and adversely affect the value of our digital asset holdings and our financial condition.
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Adverse publicity or developments involving the Binance ecosystem could negatively affect the value of BNB.
The market value of BNB may be influenced by the reputation and perceived stability of the broader Binance ecosystem, including entities associated with the development, promotion, or operation of platforms that support BNB or the BNB Chain network. Negative media coverage, regulatory actions, litigation, or other adverse developments involving such entities could negatively affect market sentiment toward BNB. Any loss of confidence in the Binance ecosystem could reduce demand for BNB, impair liquidity in markets for BNB, and negatively affect the value of our digital asset holdings.
While we report substantial digital asset holdings, the liquidity of these assets may be limited by market conditions.
At July 31, 2026, we held digital assets with an aggregate fair value of $304.5 million. Although digital asset markets operate continuously, the liquidity of BNB and other digital assets may be limited during periods of market stress or volatility. Order book depth in digital asset markets may be insufficient to support large transactions without materially affecting market prices. Because we hold a substantial quantity of BNB, any attempt by us to sell a significant portion of our holdings could exert downward pressure on the market price of BNB. In addition, a significant portion of the outstanding supply of BNB may be held by a relatively small number of market participants, and sales by large holders could also adversely affect market prices. If market liquidity were to decline, we may be unable to liquidate our digital asset holdings at favorable prices or within desired timeframes. Large sales of BNB by us or other significant holders could adversely affect the market price of BNB, and we may not be able to liquidate our holdings without significant losses. Any inability to convert our digital assets to fiat currency when needed could have a material adverse effect on our liquidity, financial condition, and ability to continue as a going concern.
Fair value accounting for digital assets may cause significant volatility in our financial statements.
Under applicable accounting standards, including ASC 350-60, digital assets such as BNB are measured at fair value, with changes in fair value recognized in earnings during each reporting period. As a result, fluctuations in the market price of BNB may result in significant unrealized gains or losses in our financial statements. These fair value adjustments may cause substantial volatility in our reported earnings and may not reflect the underlying performance of our operations. Investors may find it difficult to evaluate our financial performance because our results may be significantly affected by changes in the market price of BNB that are unrelated to our operating activities.
We are subject to significant competition in the growing digital asset industry and the Company’s business, operating results and financial condition may be adversely affected if the Company is unable to compete effectively.
The Company is operating in a competitive environment and will compete against other companies and other entities with similar strategies, including companies with significant holdings in BNB and other digital assets, and the Company’s business, operating results and financial condition may be adversely affected if the Company is unable to compete effectively.
Risks Related to Cryptocurrencies
The further development and acceptance of BNB Chain and other cryptocurrency networks, which represent a relatively new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of BNB Chain and other cryptocurrency networks may adversely affect an investment in the Company.
Cryptocurrency such as BNB may be used, among other things, to buy and sell goods and services or to transfer and store value by users. The cryptocurrency networks and chains are a new and rapidly evolving industry of which BNB Chain is a prominent, but not unique, part. The growth of the cryptocurrency industry in general, and BNB Chain in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the cryptocurrency industry, as well as BNB Chain, include:
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●continued worldwide growth in the adoption and use of BNB and other cryptocurrencies, including those competitive with BNB;
●government and quasi-government regulation of BNB and other cryptocurrencies and their use, or restrictions on or regulation of access to and operation of BNB Chain or similar cryptocurrency systems;
●the maintenance and development of the open-source software protocol of BNB Chain;
●changes in consumer demographics and public tastes and preferences;
●the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; and
●general economic conditions and the regulatory environment relating to cryptocurrencies and cryptocurrency service providers.
A decline in the popularity or acceptance of BNB Chain and other cryptocurrency networks may harm the price of our common stock. There is no assurance that BNB Chain, or the service providers necessary to accommodate it, will continue in existence or grow. Furthermore, there is no assurance that the availability of and access to cryptocurrency service providers will not be negatively affected by government regulation or supply and demand of BNB.
The digital asset trading platforms on which cryptocurrency trades are relatively new and largely unregulated or may not be complying with existing regulations.
Cryptocurrency markets, including spot markets for BNB, are growing rapidly. The digital asset trading platforms through which BNB and other cryptocurrencies trade are new and largely unregulated or may not be complying with existing regulations. These markets are local, national and international and include a broadening range of cryptocurrencies and participants. Significant trading may occur on systems and platforms with minimum predictability. Spot markets may impose daily, weekly, monthly or customer-specific transaction or withdrawal limits or suspend withdrawals entirely, rendering the exchange of BNB for fiat currency difficult or impossible. Participation in spot markets requires users to take on credit risk by transferring BNB from a personal account to a third-party’s account.
Digital asset trading platforms do not appear to be subject to, or may not comply with, regulation in a manner similar to other regulated trading platforms, such as national securities exchanges or designated contract markets. Many digital asset trading platforms are unlicensed, are unregulated, operate without extensive supervision by governmental authorities, and do not provide the public with significant information regarding their ownership structure, management team, corporate practices, cybersecurity, and regulatory compliance. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. Digital asset trading platforms may be out of compliance with existing regulations.
As a result, trading activity on or reported by these digital asset trading platforms is generally significantly less regulated than trading in regulated U.S. securities and commodities markets and may reflect behavior that would be prohibited in regulated U.S. trading venues. Furthermore, many digital asset trading platforms lack certain safeguards put in place by more traditional exchanges to enhance the stability of trading on the platform and prevent flash crashes, such as limit-down circuit breakers. As a result, the prices of cryptocurrencies such as BNB on digital asset trading platforms may be subject to larger and/or more frequent sudden declines than assets traded on more traditional exchanges. Tools to detect and deter fraudulent or manipulative trading activities (such as market manipulation, front-running of trades, and wash-trading) may not be available to or employed by digital asset trading platforms or may not exist at all. As a result, the marketplace may lose confidence in, or may experience problems relating to, these venues and the digital assets that trade on these venues.
No digital asset trading platform on which cryptocurrency trades is immune from these risks. The closure or temporary shutdown of digital asset trading platforms due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in cryptocurrency and can slow down the mass adoption of it. Further, digital asset trading platform failures can have an adverse effect on cryptocurrency markets and the price of cryptocurrency and could therefore have a negative impact on the performance of our common Stock.
Negative perception, a lack of stability in the digital asset trading platforms, manipulation of cryptocurrency trading platforms by customers and/or the closure or temporary shutdown of such trading platforms due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in cryptocurrency generally and result in greater volatility in the market price of BNB and other cryptocurrency and our common stock. Furthermore, the closure or temporary shutdown of a cryptocurrency trading platform may impact the Company’s ability to determine the value of its cryptocurrency holdings.
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The availability of spot exchange-traded products (“ETPs”) and futures exchange-traded funds (“ETFs”) for BNB and other digital assets may adversely affect the market price of our common stock.
Although BNB and other digital assets have experienced a surge of investor attention since BNB was invented in 2017, until recently investors in the United States had limited means to gain direct exposure to BNB through traditional investment channels, and instead generally were only able to hold BNB through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys. Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold BNB directly, as well as the potential reluctance of financial planners and advisers to recommend direct BNB holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to BNB through investment vehicles that hold BNB and issue shares representing fractional undivided interests in their underlying BNB holdings. These vehicles, which were previously offered only to “accredited investors” on a private placement basis, have in the past traded at substantial premiums to net asset value, possibly due to the relative scarcity of traditional investment vehicles providing investment exposure to BNB.
Although we are a holding company, and we believe we offer a different value proposition than a BNB investment vehicle such as a spot BNB ETP or a BNB futures ETF, investors may nevertheless view our common stock as an alternative to an investment in a spot BNB ETP or BNB futures ETF, and choose to purchase shares of a spot BNB ETP or BNB futures ETF instead of our common stock. They may do so for a variety of reasons, including if they believe that ETPs or ETFs offer a “pure play” exposure to BNB that is generally not subject to federal income tax at the entity level as we are, or the other risk factors applicable to an operating business, such as ours. Additionally, unlike spot BNB ETPs or BNB futures ETFs, we (i) do not seek for our shares of common stock to track the value of the underlying BNB we hold before payment of expenses and liabilities, (ii) do not benefit from various exemptions and relief under the Securities Exchange Act of 1934, as amended, including Regulation M, and other securities laws, which enable ETPs and ETFs to continuously align the value of their shares to the price of the underlying assets they hold through share creation and redemption, (iii) are a Nevada corporation rather than a statutory trust and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives and (iv) are not required to provide daily transparency as to our BNB holdings or our daily net asset value. Furthermore, recommendations by broker-dealers to buy, hold or sell complex products and non-traditional ETPs or ETFs, or an investment strategy involving such products, may be subject to additional or heightened scrutiny that would not be applicable to broker-dealers making recommendations with respect to our common stock. Based on how we are viewed in the market relative to ETPs and ETFs, and other vehicles which offer economic exposure to BNB, futures BNB ETFs, and similar vehicles offered on international exchanges, any premium or discount in our common stock relative to the value of our BNB holdings may increase or decrease in different market conditions.
As a result of the foregoing factors, availability of spot ETPs or futures ETFs for BNB and other digital assets could have a material adverse effect on our business, financial condition and results of operations and the market price of our common stock.
A disruption of the Internet may affect the operation of the cryptocurrency networks, which may adversely affect the cryptocurrency industry and an investment in the Company.
The cryptocurrency networks rely on the Internet. A significant disruption of Internet connectivity could disrupt the cryptocurrency networks’ functionality until such disruption is resolved. A disruption in the Internet could adversely affect an investment in the Company. In particular, some variants of cryptocurrencies have experienced a number of denial-of-service attacks, which have led to temporary delays in block creation and cryptocurrency transfers.
Cryptocurrencies are also susceptible to border gateway protocol hijacking (“BGP hijacking”). Such an attack can be a very effective way for an attacker to intercept traffic en route to a legitimate destination. BGP hijacking impacts the way different nodes and miners are connected to one another to isolate portions of them from the remainder of the network, which could lead to a risk of the network allowing double-spending and other security issues. If BGP hijacking occurs on any cryptocurrency network, participants may lose faith in the security of cryptocurrency, which could affect cryptocurrency’s value and consequently the value of our common stock.
Any Internet failures or Internet connectivity-related attacks that impact the ability to transfer cryptocurrency could have a material adverse effect on the price of cryptocurrency and the value of an investment in the Company.
The trading prices of many digital assets, including BNB, have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further declines in the trading prices of BNB, could have a material adverse effect on the value of our common stock and our common stock could lose all or substantially all of their value.
The trading prices of many digital assets, including BNB, have experienced extreme volatility in recent periods and may continue to do so. For instance, there were steep increases in the value of certain digital assets, including BNB, over the course of 2021, and multiple market observers asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022 in digital asset trading prices, including for BNB. These episodes of rapid price appreciation followed by steep drawdowns have occurred multiple times throughout BNB’s history. BNB prices have continued to exhibit extreme volatility.
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Extreme volatility may persist and the value of our common stock may significantly decline in the future without recovery. The digital asset markets may still be experiencing a bubble or may experience a bubble again in the future. For example, in the first half of 2022, each of Celsius Network, Voyager Digital Ltd., and Three Arrows Capital declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. In November 2022, FTX Trading Ltd. (“FTX”), one of the largest digital asset exchanges by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency, which were subsequently corroborated by its CEO. Shortly thereafter, FTX’s CEO resigned and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation, or similar proceedings around the globe, following which the U.S. Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives, including its former CEO. In addition, several other entities in the digital asset industry filed for bankruptcy following FTX’s bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC (“Genesis”). In response to these events (collectively, the “2022 Events”), the digital asset markets have experienced extreme price volatility and other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital asset markets. The 2022 Events have also negatively impacted the liquidity of the digital asset markets as certain entities affiliated with FTX engaged in significant trading activity. If the liquidity of the digital asset markets continues to be negatively impacted by these events, digital asset prices, including BNB, may continue to experience significant volatility or price declines and confidence in the digital asset markets may be further undermined.
Extreme volatility in the future, including further declines in the trading price of BNB, could have a material adverse effect on the value of our common stock and our common stock could lose all or substantially all of its value. Furthermore, negative perception and a lack of stability and standardized regulation in the cryptocurrency economy may reduce confidence in the cryptocurrency economy and may result in greater volatility in the price of BNB and other cryptocurrencies, including a depreciation in value.
We face significant risks relating to disruptions, forks, gain-of-control attacks, hacks, network disruptions, or other adverse events or other compromises to the cryptocurrency blockchains, which could materially and adversely impact our business, financial condition and results of operations.
Blockchain networks are maintained by decentralized networks of participants, and as such are susceptible and vulnerable to a variety of risks, including disruptions, security breaches, and fundamental technical issues. These networks are vulnerable to attacks by malicious actors who gain control of a significant portion of the network’s validating authority. In such an event, the attacker could potentially double-spend transactions, reverse previously confirmed transactions, or otherwise disrupt the normal operations of the network. Successful attacks have historically undermined trust in affected blockchain networks and could materially decrease the value of cryptocurrency assets.
Additionally, forks, or splits in the underlying protocol, may occur when participants fail to reach consensus on proposed upgrades or changes. Forks can lead to the creation of duplicate networks, confusion among market participants, dilution of the original network’s value, and disruption of the network’s operations. Hard forks, in particular, can materially and adversely impact the perceived stability and value of digital assets, leading to reduced demand and price declines.
Further, hacks and other security breaches targeting the core infrastructure of blockchain networks or major participants, such as exchanges and custodians, could severely impact the reputation and market confidence in these networks. Exploits of protocol-level vulnerabilities could also compromise the integrity of the cryptocurrency blockchains, resulting in a substantial loss of value.
The success and growth of cryptocurrency assets depend significantly on their continued security, stability, and scalability. Any technical failures, consensus breakdowns, governance disputes, or regulatory interventions that diminish confidence in the networks or impair their functionality could lead to a material decline in their market prices, which could materially and adversely impact our business, financial condition and results of operations. A sustained or significant decrease in the price or liquidity of cryptocurrencies, whether due to gain-of-control attacks, forks, hacks, network disruptions, or other adverse events, could negatively impact our business, financial condition, and results of operations. Furthermore, even the perception that any of these events could occur may lead to significant market volatility and price declines, adversely affecting our business, financial condition and results of operations.
Crypto assets and blockchains are subject to various “attack” risks.
All networked systems are vulnerable to various kinds of attacks. A blockchain may be vulnerable to several types of attacks, including:
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●a “33% attack,” where, if a validator or group of validators were to gain control of more than 33% of the total staked crypto asset on the applicable blockchain, a malicious actor could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain.
●a “50% attack” where, if a validator or group of validators acting in concert were to gain control of more than 50% of the total staked crypto asset on the blockchain, a malicious actor would be able to gain full control of the blockchain and the ability to manipulate the blockchain on a forward-looking basis, including censoring transactions following the achievement of threshold, double-spending and fraudulent block propagation, while the attacker maintains the threshold. In theory, the minority non-attackers might reach social consensus to reject blocks proposed by the malicious majority attacker, reducing the attacker's ability to engage in malicious activity, but there can be no assurance this would happen or that non-attackers would be able to coordinate effectively.
●a “>66% attack,” where, if a validator or group of validators acting in concert were to gain control of more than 66% of the total staked BNB on the blockchain, a malicious actor could permanently and irreversibly manipulate the blockchain, including censorship, double-spending, and fraudulent block propagation, both on a forward- and backward-looking basis. The attacker could unilaterally finalize their preferred chain without the votes of any other stakers and could also reverse past finalized blocks.
Further, smart contracts on the network may create systemic risk for the price of a crypto asset in the event of an exploit. If a significant portion of a crypto asset is held by a small number of holders sometimes referred to as “whales,” these holders have the ability to manipulate the price of the crypto asset.
Political or economic crises may motivate large-scale sales of digital assets, which would result in a reduction in values and materially and adversely affect us.
Cryptocurrencies, as an alternative to fiat currencies that are backed by central governments, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. For example, political or economic crises could motivate large-scale acquisitions or sales of digital assets either globally, regionally or locally. Large-scale sales of certain digital assets would result in a reduction in their value and could materially and adversely affect our investment and trading strategies, the value of our assets, our business, financial condition and results of operations, and the price of our common stock.
The value of cryptocurrencies and other digital assets may be subject to momentum pricing risk.
Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. Cryptocurrency and other digital asset market prices are determined primarily using data from various digital asset trading platforms, over-the-counter markets and derivative platforms. Momentum pricing may have resulted, and may continue to result, in speculation regarding future appreciation in the value of cryptocurrencies and other digital assets, inflating and making their market prices more volatile, and such effects may be material and adverse. As a result, cryptocurrencies, including BNB, and other digital assets may be more likely to fluctuate in value due to changing investor confidence in future appreciation (or depreciation) in their market prices, which could adversely materially affect the value of our cryptocurrency holdings and other digital asset inventory and thereby have a material adverse effect on our business, financial condition and results of operations and the market price of our common stock.
The emergence of DeFi subjects us to evolving risks and uncertainties relating to our investments and our services.
DeFi refers to a variety of blockchain-based applications or protocols that provide for peer-to-peer financial services using smart contracts and other technology rather than such services being offered by central intermediaries. There are various DeFi applications and protocols, each with its own unique risks and uncertainties. Common DeFi applications include borrowing/lending digital assets and providing liquidity or market making in digital assets and derivatives referencing digital assets. DeFi applications and ecosystems are demonstrating how public blockchains and smart contracts can revolutionize financial services, but the nascent technology comes with several risks that could materially and adversely affect our investments and trading strategies. It is difficult to quantify the amount of leverage that exists within the DeFi ecosystem and price volatility can result in deleveraging that moves asset prices dramatically. In addition, smart contracts may contain bugs which put funds at risk of theft or loss. Furthermore, in certain decentralized protocols, it may be difficult or impossible to verify the identity of a transaction counterparty necessary to comply with any applicable anti-money laundering, countering the financing of terrorism, or sanctions regulations or controls.
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The complexity and interconnectedness of digital asset networks, applications and economic systems enables new forms of malicious attacks that leverage a feature or vulnerability of one system to attack another. Such an attack may take the form of a temporary manipulation of the price of certain digital assets that trigger second order behaviors, such as automatic collateral liquidations on decentralized applications or digital asset trading platforms. Such an attack could adversely affect investments. A malicious actor can exploit the structure of one or a series of smart contracts or applications in ways that do not technically constitute exploitation of a “bug” or flaw in the smart contract or application. For example, such an exploit has occurred repeatedly in the Ethereum DeFi ecosystem, whereby a decentralized trading platform or lending application is designed to reference an external pricing source of a particular digital asset to determine when to liquidate collateral. By manipulating the price of the particular digital asset on a third-party platform (such as a digital asset trading platform), the pricing source used by the decentralized trading platform or application is consequently manipulated, which then leads to uneconomic collateral liquidations on the decentralized trading platform or application. Such liquidations may be processed automatically and could have a material adverse effect on our investments and trading strategies and an adverse impact on the price of our common stock.
Loss or theft of private keys or breaches of our digital wallets could result in the permanent loss of our BNB and materially adversely affect our business.
Digital assets such as BNB are controllable only by the possessor of the unique private keys relating to the digital wallet in which the assets are held. Safeguarding these private keys is critical. If our private keys are lost, destroyed, stolen, or otherwise compromised, we may be unable to access some or all our BNB. Likewise, if the digital wallets used to store our BNB are hacked or otherwise breached, our assets could be diverted, and such losses may be irreversible.
Recovery of lost or stolen assets may be impossible, and remedies against custodians or service providers may be limited. Even if recourse were theoretically available, litigation or enforcement in the jurisdictions where such custodians are located may be uncertain, costly and time-consuming. Any loss of BNB due to key mismanagement, wallet compromise or other security failure could materially adversely affect our financial condition, results of operations and the price of our common stock. We do not carry insurance against these losses.
Competition from central bank digital currencies and emerging payments initiatives involving financial institutions could adversely affect the value of BNB and other digital assets.
Central banks in various countries have introduced digital forms of legal tender (“CBDCs”). Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replace, BNB and other cryptocurrencies as a medium of exchange or store of value. Central banks and other governmental entities have also announced cooperative initiatives and consortia with private sector entities, with the goal of leveraging blockchain and other technology to reduce friction in cross-border and interbank payments and settlement, and commercial banks and other financial institutions have also recently announced a number of initiatives of their own to incorporate new technologies, including blockchain and similar technologies, into their payments and settlement activities, which could compete with, or reduce the demand for, BNB. As a result of any of the foregoing factors, the value of BNB could decrease, which could adversely affect the Company.
For example, China’s CBDC project was made available to consumers in January 2022, and governments including the United States, the United Kingdom, the European Union and Israel have been discussing the potential creation of new CBDCs. Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or replace, BNB and other digital assets as a medium of exchange or store of value. As a result, the emergence or growth of these or other digital assets could cause the market price of BNB to decrease, which could have a material adverse effect on our business, prospects, financial condition and operating results and the price of our common stock.
The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of BNB and adversely affect our business.
As a result of our DAT Strategy, our assets will be concentrated in our BNB holdings. Accordingly, the emergence or growth of digital assets other than BNB may have a material adverse effect on our financial condition. There are numerous alternative digital assets and many entities, including consortiums and financial institutions, are researching and investing resources into private or permissioned blockchain platforms or digital assets that do not use proof-of-work mining. For example, in late 2022, the Ethereum network transitioned to a “proof-of-stake” mechanism for validating transactions that requires significantly less computing power than proof-of-work mining. The Ethereum network has completed other major upgrades since then and may undertake additional upgrades in the future.
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Other alternative digital assets that compete with BNB in certain ways include “stablecoins,” which are designed to maintain a constant price because of, for instance, their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown rapidly as an alternative to BNB and other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms. On July 18, 2025, the GENIUS Act was passed and signed into law of the United States, which directs for a federal regulatory framework for the issuance of “payment stablecoins” that are designed to be used as a means of payment and settlement. The GENIUS Act prescribes a regulatory framework that would further reduce uncertainty of the legal status and treatment of “payment stablecoins” or other digital assets in general and clarify in certain instances that such digital assets would not be treated or regulated as “securities.”
The reliance on open-source code by digital asset networks exposes us to risks related to competitive networks and products built on such code, the failure of individuals to maintain that code and discovery of security vulnerabilities that could threaten the ability of such networks to operate.
Digital asset networks are open-source projects and, although there may be an influential group of leaders in the network community, generally there is no official developer or group of developers that formally controls the digital asset network. Without guaranteed financial incentives, there may be insufficient resources to address emerging issues, upgrade security or implement necessary improvements to the network in a timely manner. If the digital asset network’s software is not properly maintained or developed, it could become vulnerable to security threats, operational inefficiencies and reduced trust, all of which could negatively impact the digital assets’ long-term viability and have a material adverse effect on our business, financial condition and results of operations and the price of our common stock.
We do not maintain insurance covering the theft or loss of our digital assets, and the lack of legal recourse increases the risk of total loss.
We do not maintain cybersecurity, crime, specie or other insurance covering the theft, loss or destruction of our digital assets, and we may be unable to obtain such coverage on commercially reasonable terms or at all. Coverage of this type is available on a limited basis and is typically subject to high premiums, low limits relative to the value of our holdings, and broad exclusions. To the extent an exchange or custodian holding our assets maintains its own insurance, we may have no direct rights under that coverage and any limits may be shared among all of that platform's customers.
If we lose digital assets, whether through a cyberattack, an unauthorized transfer, the compromise of private keys, fraud or a custodial failure, we would bear the full amount of that loss with no insurance recovery. Digital asset transactions are generally irreversible and no central authority can restore access, so we may have no viable legal recourse. Unlike funds held at insured banking institutions, our digital assets are not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, and if another party is liable there is no guarantee it will have the resources to compensate us.
Our digital assets represented 93.1% of our total assets as of July 31, 2026. A single successful attack or custodial failure could result in the loss of substantially all of our assets and cause our stockholders to lose their entire investment.
The state, local and non-U.S. tax treatment of digital assets is unclear.
The taxing authorities of certain states (i) have announced that they will follow Notice 2014-21 issued by the Internal Revenue Service with respect to the treatment of digital assets for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital assets for fiat currency from state sales tax. It is unclear what further guidance on the treatment of digital assets for state tax purposes may be issued in the future. Any future guidance on the treatment of digital assets for state or local tax purposes could result in adverse tax consequences to us and could adversely affect the price of digital assets.
The treatment of digital assets for tax purposes by non-U.S. jurisdictions may differ from the treatment of digital currency for U.S. federal, state or local tax purposes. It is possible, for example, that a non-U.S. jurisdiction would impose sales tax or value-added tax on purchases and sales of digital assets for fiat assets. For instance, if a foreign jurisdiction with a significant share of the market of a digital assets users imposes onerous tax burdens on digital asset users, or imposes sales or value-added tax on purchases and sales of digital assets for fiat assets, such actions could result in decreased demand for digital currency in such jurisdiction, which could adversely affect the price of digital assets.
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Risks Related to Investing in BNB
BNB is subject to extreme price volatility, and any sustained decline in the market price of BNB could lead to substantial losses on our digital asset holdings and could adversely affect the market price of our common stock.
Historical prices of BNB have exhibited sudden and significant fluctuations due to shifts in market sentiment, speculative trading, macroeconomic trends, technology-related disruptions, and regulatory announcements. Because digital asset trading markets are relatively new, largely unregulated, and, at times, subject to limited liquidity, BNB may experience larger or more frequent price swings than traditional asset classes and may not be complying with existing regulations. As a result, trading activity on or reported by these digital asset trading platforms is generally significantly less regulated than trading in regulated U.S. securities and commodities markets and may reflect behavior that would be prohibited in regulated U.S. trading venues. Furthermore, many digital asset trading platforms lack certain safeguards put in place by more traditional exchanges to enhance the stability of trading on the platform and prevent flash crashes, such as limit-down circuit breakers. As a result, the prices of cryptocurrencies such as BNB on digital asset trading platforms may be subject to larger and/or more frequent sudden declines than assets traded on more traditional exchanges. A rapid decrease in the price of BNB—whether the result of negative perception, a lack of stability in the digital asset trading platforms, market manipulation of cryptocurrency trading platforms by customers, a cyber-security incident, regulatory action, or other factors—could materially reduce the value of any BNB we hold, force us to recognize impairment charges, trigger defaults or covenant breaches in any future financing arrangements, and depress the market price of our securities.
Additionally, a significant majority of the daily BNB trading volume occurs on the Binance Exchange, which is controlled by Binance, the original distributor of BNB. Most of the BNB in circulation has been reported to be held by the founder and former controller of Binance. As a result, trading activity by these parties could have a material impact on the price and trading volume of BNB on the Binance Exchange. While Binance and its former controller have indicated that they and their respective related entities do not actively trade BNB or undertake gross or net purchasing activities to support its price or increase trading volume, publicly available information is insufficient to enable a conclusion as to whether trading activity in BNB on the Binance Exchange by such parties (or others) is occurring in compliance with the Binance Exchange’s policies and procedures or having a material impact on the price or trading volume of BNB on the Binance Exchange or other secondary markets. Further, to the Company’s knowledge, Binance and its founder are not subject to trading restrictions in respect of BNB going forward; as such, prior conduct and indications of current intent are not necessarily indicative of future trading activities by these parties. Any allegations of BNB price or volume manipulation could result in regulatory actions against such parties and/or loss of confidence in BNB, and/or Binance generally, which could negatively impact the price of our common stock.
BNB and BNB Chain have links to, and may be controlled by, Binance and its principals.
Binance has links to BNB and BNB Chain, and Binance has historically played a major role in BNB Chain’s development. Binance typically has among the highest trading volume of BNB for any global trading platform. Users of the Binance trading platform who pay trading fees in BNB receive a trading discount, and users who maintain a certain minimum balance of BNB on Binance’s trading platform may qualify to receive additional benefits, such as additional reduced fees, lower interest rates, higher borrowing limits, and other benefits, from Binance. (Binance, Fee Schedule, https://www.binance.com/en/fee/schedule (last visited October 15, 2025)). Concurrent with the launch of the Binance’s exchange in July 2017, Binance or its affiliates minted 200 million BNB tokens on the Ethereum blockchain using Ethereum’s ERC-20 functionality. These tokens were initially created for the purpose of allowing the holder of BNB to pay for fees incurred from the use of the Binance exchange, among other uses. Binance according to the Binance Exchange white paper V 1.1 (the “BNB white paper”) issued the 200 million BNB as follows: 10% (20 million BNB) to angel investors in Binance Ltd., 40% (80 million BNB) to the founding employees of Binance exchange subject to a 4 year schedule, and 50% (100 million BNB) in what the BNB white paper termed an “ICO” (an abbreviation of “Initial Coin Offering”) in exchange for Ethereum (ETH) or the equivalent Ethereum price in Bitcoin in three consecutive tranches from July 1, 2017 to July 21, 2017. Neither the Asset Manager nor the Company is aware of the precise extent that the employees, principals and angel investors of Binance and its affiliates have retained their BNB that they originally received in the BNB ICO, or what percentage of outstanding BNB is currently owned by Binance and its associated persons (following open-market purchases or otherwise), but there can be no assurance that they do not currently control a majority of outstanding BNB. If Binance and persons associated with it did in fact possess control of a majority of outstanding BNB, it would give them the corresponding ability to control validator selection via voting, and numerous other governance decisions relating to the future of BNB Chain and BNB, such as forks, future development roadmaps, scaling decisions, etc., which they could in theory choose to exercise in a way that benefits themselves or their interests. In the BNB white paper, Binance represented it would use the proceeds of the BNB ICO to develop the Binance exchange. Moreover, Binance has been responsible for operating the deflationary burning program for BNB tokens, which was a significant force in their market value. U.S. regulators have scrutinized burn mechanisms in past enforcement actions, with the SEC citing issuer-controlled burn programs as evidence of efforts to influence a cryptocurrency’s value consistent with securities characteristics. If regulators were to reach a similar conclusion regarding BNB’s burn mechanism, it could increase the likelihood that BNB would be classified as a security and subject to heightened regulatory restrictions, adversely affecting its liquidity and price.
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Apart from the risks of potential centralized control, the perception that BNB Chain and BNB are associated with Binance could cause BNB’s value to be affected by developments involving or affecting Binance. For example, in 2023 the SEC filed a lawsuit against Binance, alleging, inter alia, that the offering and sale of BNB by Binance was an unregistered securities offering. The district court’s decision in SEC v. Binance Holdings Ltd. et al., 738 F.Supp.3d 20, 48-58 (D.D.C. Aug. 23, 2024), ruled that, while the SEC’s allegations regarding the manner in which Binance offered and sold BNB as part of the initial distribution of BNB were sufficient at the motion to dismiss stage, the SEC’s complaint did not include sufficient facts to support a plausible inference that any particular secondary sales of BNB satisfy the Howey test for an investment contract. In 2023, the Department of Justice, the Office of Foreign Assets Control, the Financial Crimes Enforcement Network, and the CFTC reached a series of settlements with Binance for charges involving violations of U.S. laws governing money laundering, sanctions, registration as a money services business, and registration under the Commodity Exchange Act, among others. If Binance were to be subject to operating restrictions or was no longer able to facilitate trading in BNB, the liquidity and market value of BNB would be negatively affected, causing our common stock to decline in value. If BNB were no longer able to be used for trading fee discounts on Binance, the demand for BNB would be negatively affected, which would likewise negatively impact BNB’s market value and therefore the price of our common stock. Likewise, negative developments, publicity, or sentiment relating to Binance or its principals could affect market demand for, and value of, BNB.
Proof-of-stake blockchains are a relatively recent innovation, and have not been subject to as widespread use or adoption over as long of a period of time as traditional proof-of-work blockchains.
Certain digital assets, such as Bitcoin, use a “proof-of-work” consensus algorithm. Bitcoin’s blockchain has been in continual operation since its “genesis” block was mined in 2009. Many newer blockchains that enable smart contract functionality are built on a consensus algorithm known as “proof-of-stake,” including the current Ethereum network following the completion of its transition to a “proof-of-stake” model in 2022. Proponents believe that there are certain advantages to the use of “proof-of-stake” models; however, the “proof-of-stake” consensus mechanisms and governance systems underlying many newer blockchain protocols, including BNB Chain, and their associated digital assets (including the BNB held by the Company), have not been tested at scale over as long of a period of time or subject to as widespread use or adoption. This is in contrast with, for example, Bitcoin’s proof-of-work consensus mechanism.
“Proof-of-stake” blockchains, and their associated digital assets, may have undetected vulnerabilities, structural design flaws, suboptimal incentive structures for network participants (e.g., validators), technical disruptions, or a wide variety of other problems, that might otherwise be apparent for a consensus protocol with a longer operational history, such as the bitcoin blockchain. If such problems were to occur, they could result in disrupted functions, or other unintended outcomes, which could further lead to (i) an outright failure that causes a total outage or disruption of network activity, or (ii) other operational problems or reputational damage, leading to a loss of users or adoption or a loss in value of the associated digital assets, including the Company’s assets. Over the long term, there can be no assurance that the “proof-of-stake” blockchain on which the Company’s assets rely will achieve widespread scale or adoption or perform successfully; any failure to do so could negatively impact our business, financial condition and results of operations and the price of our common stock.
The value of our common stock depends on the development and acceptance of BNB Chain. The slowing or stopping of the development or acceptance of BNB Chain may adversely affect an investment in our common stock.
Digital assets such as BNB were only introduced within the past 15 years, and the medium-to-long-term value of our common stock is subject to a number of factors over time relating to the capabilities and development of blockchain technologies, such as the recentness of their development, their dependence on the internet and other technologies, their dependence on the role played by users, developers, validators and the potential for malicious activity. BNB itself was launched only in 2017. For example, the realization of one or more of the following risks could materially adversely affect the value of our common stock: digital asset networks, including BNB Chain, and the software used to operate them are in the early stages of development. Given the recentness of the development of digital asset networks, digital assets may not function as intended and parties may be unwilling to use digital assets, which would dampen the growth, if any, of digital asset networks. Because BNB is a digital asset, the value of our common stock is subject to a number of factors relating to the fundamental investment characteristics of digital assets, including the fact that digital assets are bearer instruments and loss, theft, compromise, or destruction of the associated private keys could result in permanent loss of the asset.
BNB Chain, including the cryptographic and algorithmic protocols associated with the operation of BNB Chain, has only been in existence since 2017, and BNB markets have a limited performance record, making them part of a new and rapidly evolving industry that is subject to a variety of factors that are difficult to evaluate. For example, the following are some of the risks that could materially adversely affect the value of our common stock:
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●Digital assets, including BNB, are controllable only by the possessor of both the unique public key and private key or keys relating to the BNB Chain address, or “wallet”, at which the digital asset is held. Private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital asset held in such wallet. The loss, theft, compromise or destruction of a private key required to access a digital asset may be irreversible. If a private key is lost, stolen, destroyed or otherwise compromised and no backup of the private key is accessible, the owner would be unable to access the digital asset corresponding to that private key and the private key will not be capable of being restored by the digital asset network, resulting in the total loss of the value of the digital asset linked to the private key.
●Digital asset networks are dependent upon the internet. A disruption of the internet or a digital asset network, such as BNB Chain, would affect the ability to transfer digital assets, including BNB, and, consequently, their value.
●The foregoing notwithstanding, BNB Chain’s protocol is informally overseen by a collective of core developers who propose amendments to the relevant network’s source code. Core developers’ roles evolve over time, largely based on self-determined participation. If a significant majority of users and validators were to adopt amendments to BNB Chain based on the proposals of such core developers, BNB Chain would be subject to new protocols that may adversely affect the value of BNB.
●To the extent that any validators cease to record transactions that do not include the payment of a transaction fee in solved blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on BNB Chain until a block is validated by a validator who does not require the payment of transaction fees or is willing to accept a lower fee. Any widespread delays in the recording of transactions could result in a loss of confidence in a digital asset network.
●Many digital asset networks, including BNB Chain, face significant scaling challenges and are being upgraded with various features designed to increase the speed of digital asset transactions and the number of transactions that can be processed in a given period (known as “throughput”). These attempts to increase the volume of transactions may not be effective, and such upgrades may fail, resulting in potentially irreparable damage to BNB Chain and the value of BNB.
●Moreover, in the past, bugs, defects and flaws in the source code for digital assets have been exposed and exploited, including flaws that disrupted normal blockchain network or DApp and smart contract operations or disabled related functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital assets. The cryptography underlying BNB Chain or BNB as an asset could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing, algebraic geometry and quantum computing, could result in such cryptography becoming ineffective. In any of these circumstances, a malicious actor may be able to compromise the security of BNB Chain or take the treasury’s BNB, which would adversely affect the value of our common stock. Moreover, normal operations and functionality of BNB Chain may be negatively affected. Such losses of functionality could lead to BNB Chain losing attractiveness to users, nodes, validators, or other stakeholders, thereby dampening demand for BNB. Even if another digital asset other than BNB were affected by similar circumstances, any reduction in confidence in the source code or cryptography underlying digital assets generally could negatively affect the demand for digital assets and therefore adversely affect the value of our common stock.
●BNB Chain is still in the process of developing and making significant decisions that will affect policies that govern the supply and issuance of BNB as well as other BNB Chain protocols. The open-source nature of many digital asset network protocols, such as the protocol for BNB Chain, means that developers and other contributors are generally not directly compensated for their contributions in maintaining and developing such protocols. As a result, the developers and other contributors of a particular digital asset may lack a financial incentive to maintain or develop the network, or may lack the resources to adequately address emerging issues. Alternatively, some developers may be funded by companies whose interests are at odds with other participants in a particular digital asset network. If BNB Chain does not successfully develop its policies on supply and issuance, and other major design decisions or does so in a manner that is not attractive to network participants it could lead to a decline in adoption of BNB Chain and price of BNB.
●Software applications running on top of BNB Chain (often referred to as “decentralized applications” or “Dapps”, whether or not decentralized in fact) and smart contract developers depend on being able to obtain BNB to be able to run their programs and operate their businesses. In particular, decentralized applications and smart contracts require BNB in order to pay the transaction fees needed to pay validators to execute transactions and smart contract operations. As such, they represent a significant source of demand for BNB. BNB’s price volatility (particularly where BNB prices increase), or BNB Chain’s wider inability to meet the demands of decentralized applications and smart contracts in terms of inexpensive, reliable, and prompt transaction execution (including during congested periods), or to solve its scaling challenges or increase its throughput, may discourage such decentralized application and smart contract developers from using BNB Chain as the foundational infrastructure layer for building their applications and smart contracts. If decentralized application and smart contract developers abandon BNB Chain for other blockchain or digital asset networks or protocols for whatever reason, the value of BNB could be negatively affected.
Moreover, because digital assets, including BNB, have been in existence for a short period of time and are continuing to develop, there may be additional risks in the future that are impossible to predict as of date hereof.
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If validators exit BNB Chain, it could increase the likelihood of a malicious actor obtaining control.
Validators exiting the network could make BNB Chain more vulnerable to a malicious actor obtaining control of a large percentage of staked BNB, which might enable them to manipulate BNB Chain by censoring or manipulating specific transactions. If BNB Chain suffers such an attack, the price of BNB could be negatively affected, and a loss of confidence in BNB Chain could result. Any reduction in confidence in the transaction confirmation process or staking power of BNB Chain may adversely affect an investment in our common stock.
Blockchain technologies are based on theoretical conjectures as to the impossibility of solving certain cryptographical puzzles quickly. These premises may be incorrect or may become incorrect due to technological advances.
Blockchain technologies are premised on theoretical conjectures as to the impossibility, in practice, of solving certain mathematical problems quickly. Those conjectures remain unproven, however, and mathematical or technological advances could conceivably prove them to be incorrect. Blockchain technology companies may also be negatively affected by cryptography or other technological or mathematical advances, such as the development of quantum computers with significantly more power than computers presently available, that undermine or vitiate the cryptographic consensus mechanism underpinning BNB Chain and other distributed ledger protocols. If either of these events were to happen, markets that rely on blockchain technologies, such as BNB Chain, could quickly collapse, and an investment in our common stock may be adversely affected.
Due to the nature of private keys, BNB transactions are irrevocable and stolen or incorrectly transferred BNB may be irretrievable. As a result, any incorrectly executed BNB transactions could adversely affect our business, financial condition and results of operations and the price of our common stock.
BNB transactions are typically not reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been signed with private keys, verified and recorded in a block that is added to BNB Chain, an incorrect transfer of cryptocurrency, such as BNB, or a theft of BNB generally will not be reversible and the Company may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, the Company’s BNB or other assets could be transferred from the Company’s custodial accounts in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. To the extent that the Company is unable to successfully seek redress for such error or theft, such loss could adversely affect our business, financial condition and results of operations and the price of our common stock.
If a custodian’s internal procedures and controls are inadequate to safeguard the Company’s BNB holdings, and the Company’s private key(s) is (are) lost, destroyed or otherwise compromised and no backup of the private key(s) is (are) accessible, the Company will be unable to access its BNB, which could adversely affect our business, financial condition and results of operations and the price of our common stock. In addition, if the Company’s private key(s) is (are) misappropriated and the Company’s BNB holdings are stolen, including from or by a custodian, the Company could lose some or all of its BNB holdings, which could adversely impact our business, financial condition and results of operations and the price of our common stock.
Such events have occurred in connection with digital assets in the past. For example, in October 2022, an unidentified hacker or hackers found a bug in the BNB Smart Chain bridge’s code and used it to mint and withdraw about US$570 million worth of BNB tokens. Binance and the crypto community reacted quickly and were able to freeze most of the stolen money. However, around US$100 million worth of stolen assets were moved off-chain. To the extent that the Company is unable to seek a corrective transaction with such third party or is incapable of identifying the third party which has received the Company’s BNB through error or theft, the Company will be unable to revert or otherwise recover incorrectly transferred BNB. The Company will also be unable to convert or recover its BNB transferred to uncontrolled accounts. To the extent that the Company is unable to seek redress for such error or theft, such loss could adversely affect our business, financial condition and results of operations and the price of our common stock.
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BNB Chain’s decentralized governance structure may negatively affect its ability to grow and respond to challenges.
The governance of decentralized networks, such as BNB Chain, is by voluntary consensus and open competition. In other words, BNB Chain has no central decision-making body or clear manner in which participants can come to an agreement other than through voluntary, widespread consensus. As a result, a lack of widespread consensus in the governance of BNB Chain may adversely affect the network’s utility and ability to adapt and face challenges, including technical and scaling challenges. If a significant majority of users and validators adopt amendments to a decentralized network based on the proposals of core developers, such network will be subject to new protocols that may adversely affect the value of the relevant digital asset. However, BNB Chain would cease to operate successfully without both validators and users, and the core developers cannot formally compel them to adopt the changes to the source code desired by core developers, or to continue to render services or participate in BNB Chain. As a general matter, the governance of BNB Chain generally depends on most of members of the BNB Chain community ultimately reaching some form of voluntary agreement on significant changes.
The decentralized governance of BNB Chain may make it difficult to find or implement solutions or marshal sufficient effort to overcome existing or future problems, especially protracted ones requiring substantial directed effort and resource commitment over a long period of time, such as scaling challenges. BNB Chain’s failure to overcome governance challenges could exacerbate problems experienced by the network or cause the network to fail to meet the needs of its users, and could cause users, validators, and developer talent to abandon BNB Chain or to choose competing blockchain protocols, or lead to a drop in speculative interest, which could cause the value of BNB to decline. If the BNB Chain community is unable to reach consensus in the future, it could have adverse consequences for the network or lead to a fork, which could affect the value of BNB.
We face risks relating to the potential compromise of BNB Chain and other cryptocurrencies’ network security by emerging technologies, including artificial intelligence and quantum computing, which may materially and adversely impact our operations and financial condition.
The security and integrity of BNB Chain and other cryptocurrencies’ network are fundamentally dependent on the robustness of its cryptographic algorithms. BNB and other cryptocurrencies’ protocol relies heavily on public key cryptography and hashing algorithms to secure transactions, safeguard private keys, and prevent double-spending. Advances in emerging technologies, particularly artificial intelligence (“AI”) and quantum computing may pose significant risks to BNB Chain and other cryptocurrencies’ network’s security and operational stability.
Quantum computing, in particular, presents a long-term threat to the cryptographic assumptions underpinning BNB Chain and other cryptocurrencies. Should quantum computing achieve sufficient maturity, it could undermine the effectiveness of the cryptographic algorithms used to secure the blockchain, such as elliptic curve digital signature algorithms (ECDSA). A sufficiently powerful quantum computer could potentially reverse-engineer private keys from public addresses or compromise the blockchain’s consensus mechanism, leading to the theft of digital assets, double-spending, and other forms of fraud. Although current quantum computing capabilities are not yet at this level, advancements in quantum technologies could materialize more rapidly than anticipated, creating significant systemic risks for BNB Chain.
AI may also pose indirect security risks. AI-driven cyberattacks, including advanced phishing schemes, autonomous malware, and intelligent blockchain analysis tools, could increase the sophistication and success rate of attacks targeting BNB and other cryptocurrencies’ users, exchanges, custodians, and node operators. The use of AI to exploit vulnerabilities in software, validator hardware, or network protocols could threaten the stability and reliability of the BNB and other cryptocurrencies’ ecosystem.
There can be no assurance that BNB and other cryptocurrencies’ current cryptographic safeguards will be sufficient to protect against future technological advances. While research and development efforts are ongoing to develop quantum-resistant cryptographic protocols, BNB Chain and other cryptocurrencies’ network may face challenges in adopting such technologies at scale, particularly given its decentralized governance structure. Any successful attack or perceived vulnerability arising from AI or quantum computing could materially and adversely affect the price, liquidity, and adoption of BNB and other cryptocurrencies and could negatively impact our business, financial condition and results of operations.
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Any name change and any associated rebranding initiative by the core developers of BNB may not be favorably received by the digital asset community, which could negatively impact the value of BNB, our business, financial condition and results of operations and the price of our common stock.
From time to time, digital assets may undergo name changes and associated rebranding initiatives. For example, Bitcoin Cash may sometimes be referred to as Bitcoin ABC in an effort to differentiate itself from any Bitcoin Cash hard forks, such as Bitcoin Satoshi Vision, and in August 2024, MakerDAO, one of the largest decentralized finance protocols, rebranded to "Sky" and introduced new tokens to replace its established MKR governance token and DAI stablecoin. We cannot predict the impact of any name change and any associated rebranding initiative on BNB. After a name change and an associated rebranding initiative, a digital asset may not be able to achieve or maintain brand name recognition or status that is comparable to the recognition and status previously enjoyed by such digital asset. The failure of any name change and any associated rebranding initiative by a digital asset may result in such digital asset not realizing some or all of the anticipated benefits contemplated by the name change and associated rebranding initiative, and could negatively impact the value of BNB, our business, financial condition and results of operations and the price of our common stock.
Banks, financial institutions and BNB exchanges that our DAT Strategy relies on, may be located outside the United States, may not be subject to U.S. regulation, and may be less reliable than U.S.-equivalents.
In connection with the implementation of our DAT Strategy and the PIPE Transaction, the Company and/or Asset Manager entered into agreements with one or more U.S. state-chartered bank or other U.S. regulated financial institution to provide custodial, trading, and exchange-access services on our behalf. These banks or financial institutions may not be subject to U.S. federal regulation. These arrangements serve as an initial setup for our digital asset and certain fiat activities, including a cash deposit account for U.S. dollars. To increase yield, our service providers may subsequently migrate a substantial portion of related fiat and digital asset custody, trading, and yield-generation activities to offshore custodians or DeFi trading platforms, including U.S. dollar deposits. In addition, our trading and yield-generation activities, whether or not our accounts are held in custody at a U.S. regulated or regulated offshore custodian, are likely to require us to transfer digital assets and fiat currency to counterparties who may be unregulated and who may be located offshore. The use of such onshore unregulated or offshore custodians, banks, counterparties, and DeFi platforms, which may not be subject to U.S. regulation, would expose our assets to heightened risks, including: (i) counterparty risk and the potential insolvency of such custodians or DeFi trading platform operators, which may not be subject to capital, segregation, or supervisory requirements commensurate with those of the initial U.S. custodial, trading, and exchange-access service providers; (ii) regulatory and jurisdictional uncertainty, which could result in sudden changes to access or withdrawal rights; and (iii) increased risk of loss of, or inaccessibility to, our fiat or digital assets in the event of a custodial or bank failure, exchange freeze, government intervention or fraud. Any of these risks could materially and adversely affect our ability to safeguard our assets, reduce expected yields, and negatively impact our business, financial condition and results of operations as well as the price of our common stock.
Additionally, to the extent any of the Company’s activities involving BNB are conducted on BNB trading platforms outside the United States, trading on such exchanges is not regulated by any U.S. governmental agency and may involve certain risks not applicable to trading on U.S. exchanges. Certain foreign markets may be more susceptible to disruption than U.S. exchanges. These factors could adversely affect the performance of the Company and its common stock.
Our DAT Strategy may subject us to enhanced regulatory oversight.
Several spot BNB ETPs have received approval from the SEC to list their shares on a national securities exchange with continuous share creation and redemption at net asset value. Even though we are not, and will not expect to function in the manner of, a spot BNB ETP, it is possible that we nevertheless could face regulatory scrutiny from the SEC or other federal or state agencies due to our BNB holdings.
In addition, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine. If we are found to have purchased any of our BNB from bad actors that have used BNB to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in BNB by us may be restricted or prohibited.
We may incur indebtedness or enter into other financial instruments in the future that may be collateralized by our BNB holdings. We may also consider pursuing strategies to create income streams or otherwise generate funds using our BNB holdings. These types of BNB-related transactions are the subject of enhanced regulatory oversight. These and any other BNB-related transactions we may enter into, beyond simply acquiring and holding BNB, may subject us to additional regulatory compliance requirements and scrutiny, including under federal and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.
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Additional laws, guidance and policies may be issued by domestic and foreign regulators following the filing for Chapter 11 bankruptcy protection by FTX in November 2022. The FTX collapse may have increased regulatory focus on the digital assets industry. Increased enforcement activity and changes in the regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government or any new legislation affecting BNB, as well as enforcement actions involving or impacting our trading venues, counterparties and custodians, may impose significant costs or significantly limit our ability to hold and transact in BNB.
In addition, private actors that are wary of BNB or the regulatory concerns associated with BNB have in the past taken and may in the future take further actions that may have an adverse effect on our business, financial condition and results of operations and the market price of our common stock.
Regulatory changes or actions in foreign jurisdictions may affect the price of our common stock or restrict the use of BNB, validator activity or the operation of their networks or the global BNB markets in a manner that adversely affects our business, financial condition and results of operations and the price of our common stock.
Various foreign jurisdictions have, and may continue to adopt laws, regulations or directives that affect digital asset networks (including BNB Chain), the digital asset markets (including the BNB market), and their users, particularly digital asset exchanges and service providers that fall within such jurisdictions’ regulatory scope. For example, if China or other foreign jurisdictions were to ban or otherwise restrict validating activity, including by regulating or limiting manufacturers’ ability to produce or sell semiconductors or hard drives in connection with BNB validating activities, it would have a material adverse effect on digital asset networks (including BNB Chain), the digital asset market, and as a result, adversely impact our business, financial condition and results of operations and the price of our common stock.
A number of foreign jurisdictions have recently taken regulatory action aimed at digital asset activities. China has made transacting in cryptocurrencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. Both China and South Korea have banned initial coin offerings entirely and regulators in other jurisdictions, including Canada, Singapore and Hong Kong, have opined that initial coin offerings may constitute securities offerings subject to local securities regulations. In May 2021, the Chinese government announced renewed efforts to restrict cryptocurrency trading and mining activities. Regulators in the Inner Mongolia and other regions of China have proposed regulations that would create penalties for companies engaged in cryptocurrency mining activities and introduce heightened energy saving requirements on industrial parks, data centers and power plants providing electricity to cryptocurrency miners. The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange traded notes that reference certain types of digital assets, contending that they are “ill- suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime. A new bill, the Financial Services and Markets Bill (“FSMB”), became law in 2023. The FSMB brings digital asset activities within the scope of existing laws governing financial institutions, markets and assets. In addition, the European Council of the European Union approved the text of MiCA in October 2022. MiCA came into effect in 2024, establishing a regulatory framework for digital asset services across the European Union. MiCA is intended to serve as a comprehensive regulation of digital asset markets and imposes various obligations on digital asset issuers and service providers. The main aims of MiCA are industry regulation, consumer protection, prevention of market abuse and upholding the integrity of digital asset markets.
Foreign laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of one or more digital assets by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the digital asset economy in the European Union, China, Japan, Russia and the United States and globally, or otherwise negatively affect the value of BNB. Moreover, other events, such as the interruption in telecommunications or internet services, cyber-related terrorist acts, civil disturbances, war or other catastrophes, could also negatively affect the digital asset economy in one or more jurisdictions. For example, Russia’s invasion of Ukraine on February 24, 2022 led to volatility in digital asset prices, with an initial steep decline followed by a sharp rebound in prices. The effect of any future regulatory change on the Company or BNB is impossible to predict, but such change could be substantial and adverse to our business, financial condition and results of operations and the price of our common stock.
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Risks Related to Fat Panda Operations
If we fail to manage our business and growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.
Our success in the Fat Panda business will depend, in part, on our ability to manage our business and its growth. Any growth in, expansion of, or shift in the focus of our business, is likely to place a strain on our management and administrative resources, infrastructure and systems. As with acquired businesses, we expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources. We will also need to hire, train, supervise, and manage existing and new employees. Prior to the acquisition our operations have been handled by a limited number of persons at one location. The acquisition brings into our company over thirty retail locations and a wide range of different products. Learning the new business and its processes will be time consuming and will increase management responsibilities and divert management attention from the historical business. We cannot assure that we will be able to:
●optimize our product offerings effectively or efficiently or in a timely manner, if at all;
●achieve expected synergies or other anticipated benefits;
●allocate our human resources optimally;
●meet our capital needs;
●identify and hire qualified employees or retain valued employees;
●effectively incorporate the components of any business or product line that we may acquire in our effort to achieve growth and income; or
●continue to grow our business.
Our inability or failure to manage our business and its growth effectively could harm our business and materially adversely affect our operating results and financial condition. As a result of our rapid growth, we may find it difficult to build and maintain our business, which could limit our ability to innovate and operate effectively. Any failure to preserve our business could also negatively affect our ability to retain current and recruit new personnel, continue to perform at current levels or execute on our business strategy.
The market for vaporizer products and related items is a niche market, subject to a great deal of uncertainty and is still evolving.
Vaporizer products and related accessories comprise a significant portion of our product offerings through our retail outlets and within our manufacturing line up. These products represent core components of a niche market that is evolving rapidly, is characterized by a number of market participants and is subject to regulatory oversight and a potentially fluctuating regulatory framework. Rapid growth in the use of, and interest in, vaporizer products is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty, including, but not limited to, changes in governmental regulation, developments in product technology, perceived safety and efficacy of our products, perceived advantages of competing products and sale and use of materials that can be vaporized. Therefore, we are subject to many of the business risks associated with a new enterprise in a niche market. Continued technical evolution, market uncertainty, evolving regulation and the resulting risk of failure of our new and existing product offerings in this market could have a material adverse effect on our ability to build and maintain market share and on our business, results of operations and financial condition. Further, there can be no assurance that we will be able to continue to compete effectively in this marketplace.
We depend on third-party suppliers for many of our products and may experience supply shortages which could have a material adverse effect on our business.
We depend on third-party suppliers for many of our vaporization products and accessory consumption products that we sell in our retail outlets. Our customers associate certain characteristics of our products, including the weight, feel, draw, flavor, packaging and other unique attributes, to the brands we market, distribute and sell. The selection of our inventory is important. In the future, we may have difficulty obtaining the products we need from our suppliers as a result of unexpected demand or production difficulties that might extend lead times, as well as constraints relating to our low cash position. Also, products may not be available to us in quantities sufficient to meet our customer demand. Any interruption in supply and/or consistency of these products may adversely impact our ability to deliver products to our customers, may harm our relationships and reputation with our customers, and may have a material adverse effect on our business, results of operations and financial condition. Interruptions in supply or consistency of products could arise for a number of reasons, including but not limited to economic and civil unrest, public health crises, embargoes, and sanctions.
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We may enter into new markets or lines of business that offer new products, or may expand existing lines of business, which may subject us to additional risks.
From time to time, we may enter into new markets or lines of business that entail offering new products, or may expand existing lines of business. Our historical experience does not necessarily ensure that we will be able to successfully operate expanded lines of business or will be successful in launching new products or entering new markets. In addition, external factors, such as competitive alternatives, potential conflicts of interest, either real or perceived, and shifting market preferences, in addition to our lack of experience with or knowledge of new lines of business or markets may impact our implementation, expansion and operation of new and existing lines of business. Other related risks include:
●the potential diversion of management’s attention, available cash, and other resources from our existing businesses;
●unanticipated liabilities or contingencies;
●compliance with additional regulatory burdens;
●potential damage to existing customer relationships, lack of customer acceptance or an inability to attract new customers; and
●the inability to compete effectively in the new line or expanded line of business or in a new market.
Failure to successfully manage these risks in the implementation, expansion or operation of new and existing lines of business and markets or the offering of new products or services could have a material adverse effect on our reputation, business, results of operations and financial condition.
We may be unable to identify or contract with new suppliers in the event of a disruption to our supply.
In the event of a disruption to our supply of product inventory and in respect of the products we manufacture, we would have to identify new suppliers that can meet our needs. Only a limited number of suppliers may have the ability to produce certain products we sell at the volumes we need, and it could be costly or time-consuming to locate and approve such alternative sources. Moreover, it may be difficult or costly to find suppliers to produce small volumes of products in the event we are looking only to supplement our current supply as suppliers may impose minimum order requirements. In addition, we may be unable to negotiate pricing or other terms with our existing or new suppliers as favorable as those we currently enjoy. We cannot guarantee that a failure to adequately replace or supplement our existing suppliers would not have a material adverse effect on our business, results of operations and financial condition.
Demand for the products we distribute could decrease if the trend of our suppliers selling products directly to consumers or retailers continues or accelerates.
Retailers and consumers of vaporization products and consumption accessories have historically purchased certain amounts of these products directly from suppliers. Recently, direct to consumer sales of vaporization products and consumption accessories have accelerated, consistent with broader sales trends. If our customers were to increase their purchases of products directly from suppliers, or if suppliers further increase their efforts to sell such products directly to consumers or retailers, we could experience a significant decrease in our business, results of operations and financial condition. These, or other developments that remove us from, or limit our role in, the distribution chain, may harm our competitive position in the marketplace and reduce our sales and earnings and adversely affect our business.
We are vulnerable to third-party transportation risks, including governmental laws and common carriers’ policies that prevent the shipment of the types of products we sell.
We depend on fast and efficient shipping services to obtain our inventory and distribute our products that we manufacture. Any prolonged disruption of these services may have a material adverse effect on our business, financial condition and results of operations. Rising costs associated with transportation services used by us to receive or deliver our products, including tariffs, as well as delays as a result of factors outside of our control have had and may continue to have a material adverse effect on our business, financial condition and results of operations.
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The loss of a significant supplier would require us to rely more heavily on our other existing suppliers or to develop relationships with new suppliers. Such a loss may have an adverse effect on our product offerings and our business.
We generally make our purchases through purchase orders. As a result, we have experienced and may in the future experience inventory shortages or price increases on certain products. Furthermore, our industry occasionally experiences significant product supply shortages, and we sometimes experience customer order backlogs due to the inability of certain suppliers to make available to us certain products as needed. We cannot provide assurances that suppliers will maintain an adequate inventory of products to fulfill our orders on a timely basis, or at all, or that we will be able to obtain particular products on favorable terms, or at all. Additionally, we cannot provide assurances that product lines currently offered by suppliers will continue to be available to us. A decline in the supply or continued availability of the products of our suppliers, or a significant increase in the price of those products, could reduce our sales and negatively affect our operating results.
In addition, some of our suppliers have the ability to terminate their relationships with us at any time, or to decide to sell, or increase their sales of, their products through other resellers or channels. Although we believe there are numerous suppliers with the capacity to supply the products we distribute, the loss of one or more of our major suppliers could have an adverse effect on our product offerings and our business. Such a loss would require us to rely more heavily on our other existing suppliers, develop relationships with new suppliers or undertake our own manufacturing, which may cause us to pay higher prices for products due to, among other things, a loss of volume discount benefits currently obtained from our major suppliers. Any termination, interruption or adverse modification of our relationship with a key supplier or a significant number of other suppliers would likely adversely affect our operating income, cash flow and future prospects.
If we fail to maintain proper inventory levels, our business could be harmed.
We often purchase key products in quantity from suppliers to maintain inventory. We do this to minimize purchasing costs, the time necessary to stock our retail outlets and ameliorate the risk of non-delivery. However, we may be unable to sell the products we have purchased. Inventory levels in excess of customer demand have previously and may in the future, result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have a material adverse effect on our business, results of operations and financial condition. Conversely, if we underestimate demand for our products or if we fail to acquire the products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, reduce revenue, negatively impact customer relationships and diminish brand loyalty, which in turn could have a material adverse effect on our business, results of operations and financial condition.
Our success is dependent in part upon our ability to distribute popular products from new suppliers, as well as the ability of our existing suppliers to develop and market products that meet changes in market demand or regulatory requirements.
Many of the products we sell are generally subject to rapid changes in marketplace demand and regulatory requirements. For example, recent laws and regulations have prohibited the sale of certain types of products that we previously sold. Our success is dependent, in part, upon the ability of our suppliers to develop and market products that meet these changes. Our success is also dependent on our ability to develop relationships with and sell products from new suppliers that address these changes in market demand or regulatory requirements. To the extent products that address recent changes are not available to us, or are not available to us in sufficient quantities or on acceptable terms, we could encounter increased competition, which would likely adversely affect our business, results of operations and financial condition.
Changes in our customer, product or competition mix could cause our product margin and results of operations to fluctuate.
From time to time, we may experience changes in our customer mix, our product mix or our competition mix. Changes in our customer mix may result from geographic expansion or contractions, legislative, regulatory or enforcement priority changes affecting the products we distribute, selling activities within current geographic markets and targeted selling activities to new customer sectors. Changes in our product mix may result from marketing activities to existing customers, the needs of existing and prospective customers and from regulatory and legislative changes. Changes in our competition mix may result from new competitors entering into our business segment or existing competitors growing their operations. If customer demand for lower-margin products increases and demand for higher-margin products decreases, our business, results of operations and financial condition may suffer.
Our ability to distribute certain licensed brands and to use or license certain trademarks may be terminated or not renewed.
We are reliant upon brand recognition in the markets in which we compete, as the industry is characterized by a high degree of brand loyalty and a reluctance of consumers to switch to substitute or unrecognizable brands. Any loss in brand-name appeal to our existing customers as a result of product offerings changes could have a material adverse effect on our business, results of operations and financial condition.
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We may not be successful in maintaining the consumer brand recognition and loyalty of our products.
We compete in a market that relies on innovation and the ability to react to evolving consumer preferences. The vaporization products and consumption accessories industry is subject to changing consumer trends, demands and preferences. Therefore, products once favored may, over time, become disfavored by consumers or no longer perceived as the best option. Consumers in the vaporizer market have demonstrated a degree of brand loyalty, but suppliers must continue to adapt their products in order to maintain their status among customers as the market evolves. Our continued success depends in part on our ability and our supplier’s ability to continue to differentiate the brand names we carry at our locations and those that we own or license. Trends within the vaporization products and consumption accessories industry change often and our failure to anticipate, identify or react to changes in these trends could, among other things, lead to reduced demand for our products. Factors that have previously and may continue to affect consumer perception of our products include health trends and attention to health concerns associated with herbs, oils or other materials used with vaporizers, price-sensitivity in the presence of competitors’ products or substitute products and trends in favor of new vaporization products or technology consumption accessories products that are currently being researched and produced by participants in our industry. For example, in recent years, we have witnessed a shift in consumer purchases from vaporizers designed for dry herbs to those designed for liquids or wax type concentrates. A failure to react to similar trends in the future could enable our competitors to grow or establish their brands’ market share in these categories before we have a chance to respond.
Regulations have recently been and are likely to continue to be enacted in the future that would make it more difficult to appeal to consumers or to leverage the brands that we distribute, own or license. Furthermore, even if we are able to continue to distinguish our products, there can be no assurance that the sales, marketing and distribution efforts of our competitors will not be successful in persuading consumers of our products to switch to their products. Some of our competitors have greater access to resources than we do, which better positions them to conduct market research in relation to branding strategies or costly marketing campaigns. Any loss of consumer brand loyalty to our products or in our ability to effectively brand our products in a recognizable way will have a material effect on our ability to continue to sell our products and maintain our market share, which could have a material adverse effect on our business, results of operations and financial condition.
New products face intense media attention and public pressure.
Many of the vaporizers and other products are new to the marketplace as they change over time. Certain members of the media, politicians, government regulators and advocacy groups, including independent doctors, have called for the adoption of regulation for limiting sale of certain products and in some cases, an outright ban of such products pending increased regulatory review and a further demonstration of safety. Product bans would likely have the effect of adversely affecting our sales and marketing efforts of certain products in locations.
Our success depends, in part, on the quality and safety of our products, as well as the perception of quality and safety in the vaporization products and consumption accessories industry generally.
Our success depends, in part, on the quality and safety of the products we sell, including manufacturing issues, health concerns about the substances consumed using the products we sell, and unforeseen product misuse. Even a single incident of product defect or misuse, whether relating to products sold by us or just to our industry generally, could result in significant harm to our reputation. If any of our product offerings are found to be, or are perceived to be, defective or unsafe, or if they otherwise fail to meet our customers’ standards, our sales may be affected, and we could lose market share for our stores and/or become subject to liability claims to the extent a retailer could be responsible, any of which could result in a material adverse effect on our business, results of operations and financial condition.
Damage to our reputation, or that of any of our key suppliers or their brands, could affect our business performance.
The success of our business depends in part upon the positive image that consumers have of the brands we distribute. Incidents, publicity or events arising accidentally or through deliberate third-party action that harm the integrity or consumer support of the products we sell could affect the demand for those products. Unfavorable media, whether accurate or not, related to our industry, to us, or to the products we sell could negatively affect our sales, and consequently adversely affect our corporate reputation, stock price, ability to attract high-quality talent, or the performance of our business. Additional negative publicity or commentary on social media outlets also could cause consumers to react rapidly by avoiding the products we produce and those we sell, which could have a material adverse effect on our business, results of operations and financial condition.
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Significant increases in state and local regulation of our vaporizer products have been proposed and enacted, and are likely to continue to be proposed and enacted in numerous jurisdictions.
There has been increasing activity on the provincial and local regulatory levels with respect to scrutiny of vaporizer products. National, provincial and local governmental bodies have indicated that vaporization products and certain other consumption accessories may become subject to new laws and regulations. If one or more of the provinces in which we operate bring actions that prevent us from selling certain or all of our vaporizer products, we would be required to cease sales and distribution of those products at locations therein, which could have a material adverse effect on our business, results of operations and financial condition.
The Canadian federal government, as well as certain provincial governments have passed or propose to pass legislation which will restrict the extent to which e-cigarettes, e-liquid and other vaping products may be displayed or sold. Additionally, Canadian laws require health warnings to be placed on certain vaporizer products, which could reduce the appeal of these products. These regulations and future regulations could have a material adverse effect on our business, results of operations and financial condition.
Based on regulations surrounding health-related concerns related to the use of some of our vaporizer products, possible new or increased taxes by government entities intended to reduce use of our products or to raise revenue, additional governmental regulations concerning the marketing, labeling, packaging or sale of some of our products, negative publicity resulting from actual or threatened legal actions against us or other companies in our industry, all may reduce demand for, or increase the cost of, certain of our products, which could adversely affect our profitability and ultimate success.
If provinces continue the trend of imposing, expanding, and increasing taxes on vaporizer products, it could materially and adversely affect our business.
Supply of our products and increased sales taxes and economic conditions will affect our sales. Many customers buy our products with their discretionary income. To the extent taxes make our offered products more expensive, such as on vaporization products and consumption accessories, there may be a decline in sales during recessionary periods or at other times when disposable income is lower and taxes may be higher.
We may become involved in regulatory or agency proceedings, investigations, prosecutions, and audits.
Our business, and the businesses of the suppliers from which we acquire products we sell, requires compliance with many laws and regulations. Failure to comply with these laws and regulations could subject us or suppliers to regulatory or agency proceedings, investigations, or prosecutions, and could also lead to damage awards, fines and penalties. We or such suppliers may become involved in a number of government proceedings, investigations and audits. The outcome of any government proceedings, investigations, prosecutions, audits, and other contingencies could harm our reputation or the reputations of the brands that we sell, require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition. There can be no assurance that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial costs or a diversion of management’s attention and resources or have a material adverse impact on our business, financial condition and results of operations.
We are subject to increasing international control and regulation.
The World Health Organization’s Framework Convention on Tobacco Control (“FCTC”) is the first international public health treaty that establishes a global agenda to reduce initiation of tobacco use and regulate tobacco in an effort to encourage tobacco cessation. Over 180 governments worldwide have ratified the FCTC, including Canada. The FCTC has led to increased efforts to reduce the supply of and demand for tobacco products and to encourage governments to further regulate the tobacco industry. The tobacco industry and others expect significant regulatory developments to take place over the next few years, driven principally by the FCTC.
To the extent our existing or future products become subject to international regulatory regimes that we are unable to comply with or fail to comply with, they may have a material adverse effect on our business, results of operations and financial condition.
Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.
Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on us.
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We face intense competition and may fail to compete effectively.
The vaporization products and consumption accessories industry is characterized by brand recognition and loyalty, with product quality features, price, marketing and packaging constituting the primary methods of competition. Competition in the vaporization products and consumption accessories industry is particularly intense, and the market is highly fragmented.
Product defects could increase our expenses, damage our reputation or expose us to liability.
We may not be able to adequately address product defects. Product defects in vaporizers and other accessories may harm the health or safety of our end-consumers. In addition, remedial efforts could be particularly time-consuming and expensive if product defects are only found after we have sold the defective product in volume. Any actual or perceived defects in our products could result in unsold inventory, product recalls, repairs or replacements, damage to our reputation, increased customer service costs and other expenses, as well as divert management attention and expose us to liabilities. Furthermore, a product liability claim brought against us by our customers or end-consumers could be time-consuming and costly to defend and, if successful, could require us to make significant payments.
We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.
In the ordinary course of business, we may become the subject of various claims, lawsuits and governmental proceedings seeking damages or other remedies concerning our commercial operations, the products we distribute, our employees and other matters, including potential claims by individuals alleging injury or other harm caused by the products we distribute. Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of the businesses. The products we distribute may contain lithium ion or similar type batteries that can explode or release hazardous substances. In addition, defects in the products we distribute could result in death, personal injury, property damage, pollution, release of hazardous substances or damage to equipment and facilities. Actual or claimed defects in the products we distribute may give rise to claims against us for losses and expose us to claims for damages.
We maintain insurance to cover certain of our potential losses, and we are subject to various self-retentions, deductibles and caps under our insurance. We face the following risks with respect to our insurance coverage:
●we may not be able to continue to obtain insurance on commercially reasonable terms;
●we may incur losses from interruption of our business that exceed our insurance coverage;
●we may be faced with types of liabilities that will not be covered adequately or at all by our insurance;
●our insurance carriers may not be able to meet their obligations under the policies; or
●the dollar amount of any liabilities may exceed our policy limits.
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on us. Finally, even in cases where we maintain insurance coverage, our insurers may raise various objections and exceptions to coverage that could make uncertain the timing and amount of any possible insurance recovery.
We may become subject to significant product liability litigation.
The tobacco and e-cigarette industries have experienced and continue to experience significant product liability litigation and other claims, such as those related to marketing of tobacco and e-cigarettes to minors. As a result of their relative novelty, electronic cigarette, vaporizer product and other consumption product manufacturers, suppliers, distributors and sellers have only recently become subject to litigation. While we have not been a party to any product liability litigation, several lawsuits have been brought against other manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. We may be subject to similar claims in the future relating to our vaporizer products. We may also be named as a defendant in product liability litigation against one of our suppliers by association, including in class action lawsuits. In addition, we may see increasing litigation over our vaporizer products or the regulation of our products as the regulatory regimes surrounding these products develop. We may face substantial costs due to increased product liability litigation relating to new regulations or other potential defects associated with our vaporizer and other consumption products, including litigation arising out of faulty devices or improper usage, which could have a material adverse effect on our business, results of operations and financial condition.
There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of products.
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The scientific community has not yet extensively studied the long-term health effects of the use of vaporizers, electronic cigarettes or e-liquids products.
Vaporizers, electronic cigarettes and related products were recently developed, and therefore the scientific community has not had a sufficient period of time to study the long-term health effects of their use. Currently, there is no way of knowing whether these products are safe for their intended use. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation. Loss of demand for our product, product liability claims and increased regulation stemming from unfavorable scientific studies on these products could have a material adverse effect on our business, results of operations and financial condition.
Reliance on information technology means a significant disruption could affect our communications and operations.
We increasingly rely on information technology systems for our internal communications, controls, reporting and relations with customers, vendors and suppliers, and information technology is becoming a significantly important tool for our sales staff. Our marketing and distribution strategy is dependent upon our ability to closely monitor consumer and market trends on a highly specified level, for which we are reliant on our sophisticated data tracking systems, which are susceptible to disruption or failure. In addition, our reliance on information technology exposes us to cyber-security risks, which could have a material adverse effect on our ability to compete. Security and privacy breaches may expose us to liability and cause us to lose customers, or may disrupt our relationships and ongoing transactions with other entities with whom we contract throughout our supply chain. The failure of our information systems to function as intended, or the penetration by outside parties intent on disrupting business processes, could result in significant costs, loss of revenue, assets or personal or other sensitive data and reputational harm.
Internet security poses a risk to our e-commerce sales.
At present, we generate a portion of our sales through e-commerce sales on our own websites. We manage our websites and e-commerce platform internally and, as a result, any compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, results of operations and financial condition. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure Internet transmission of confidential information, such as credit and other proprietary information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology used by us to protect client transaction data. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause material interruptions in our operations. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss and/or litigation. Our security measures may not prevent security breaches. Our failure to prevent these security breaches may result in consumer distrust and may adversely affect our business, results of operations and financial condition.
Security and privacy breaches may expose us to liability and cause us to lose customers.
Provincial and national laws require us to safeguard our customers’ financial information, including credit information, as well as our employees’ information. Although we have established security procedures to protect against identity theft and the theft of information of our customers, distributors, consumers, and employees, our security and testing measures may not prevent security breaches and breaches of privacy may occur, which would harm our business. Typically, we rely on encryption and authentication technology licensed from third parties to enhance transmission security of confidential information in relation to financial and other sensitive information that we have on file. Advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology used by us to protect customer data. Any compromise of our security could harm our reputation or financial condition and therefore, our business. In addition, a party who is able to circumvent our security measures or exploit inadequacies in our security measures, could, among other effects, misappropriate proprietary information, cause interruptions in our operations or expose customers and other entities with which we interact to computer viruses or other disruptions. Actual or perceived vulnerabilities may lead to claims against us. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our reputation.
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If the methodologies of internet search engines are modified, traffic to our websites and corresponding consumer origination volumes could decline.
We depend in part on various internet search engines, including Google® and others to direct traffic to our websites. Our ability to maintain the number of visitors directed to our websites by search engines through which we distribute our content is not entirely within our control. Our competitors’ search engine optimization (“SEO”) efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies, which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our consumer growth or in ways that make it harder for our customers to access or use our websites, or if our competitors’ SEO efforts are more successful than ours, our consumer engagement and number of consumers could decline. Any reduction in the number of consumers directed to our websites could negatively affect our ability to earn revenue. If traffic on our websites declines, we may need to employ more costly resources to replace lost traffic, and such increased expense could adversely affect our business, results of operations and financial condition.
Our intellectual property may be infringed and we may be unable to secure or maintain all the intellectual property required to sell all of our offerings.
We currently rely on trademark and other intellectual property rights to establish and protect the brand names and logos we own or license on some of the products we distribute. Third parties have in the past infringed, and may in the future infringe, on these trademarks and our other intellectual property rights. Our ability to maintain and further build brand recognition is dependent on the continued use of these trademarks, service marks and other proprietary intellectual property, including the names and logos we own or license. Despite our attempts to ensure these intellectual property rights are protected, third parties may take actions that could materially and adversely affect our rights or the value of this intellectual property. Any litigation concerning our intellectual property rights or the intellectual property rights of our suppliers, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources. Expenses related to protecting our intellectual property rights or the intellectual property rights of our suppliers, the loss or compromise of any of these rights or the loss of revenues as a result of infringement could have a material adverse effect on our business, results of operations and financial condition, and may prevent the brands we own or license, or are owned or licensed by our suppliers, from growing or maintaining market share. There can be no assurance that any trademarks or common marks that we own or license, or are owned or licensed by our suppliers, will not be challenged in the future, invalidated or circumvented or that the rights granted thereunder or under licensing agreements will provide us or our suppliers competitive advantages. We are dependent on the validity, integrity and intellectual property of our suppliers and their efforts to appropriately register, maintain and enforce intellectual property in all jurisdictions in which their products are sold.
We devote a portion of our resources to the registration and protection of our trademarks and to anti-counterfeiting efforts. Despite these efforts, we regularly discover products that infringe on our proprietary rights or that otherwise seek to mimic or leverage our intellectual property or the intellectual property of our suppliers. Counterfeiting and other infringing activities typically increase as brand recognition increases. Counterfeiting and other infringement of our intellectual property could divert away sales, and association of our brands with inferior counterfeit reproductions or third party labels could adversely affect the integrity and reputation of our brands.
We are subject to the risks of exchange rate fluctuations.
Currency movements and suppliers’ price increases relating to currency exchange rates are significant factors affecting our cost of sales. Some of our products are purchased from suppliers located in foreign countries and we make payments for our products in numerous currencies. Thus, we bear certain foreign exchange rate risk for certain of our inventory purchases. In addition, we recently expanded our footprint in Canada, and as part of our strategy, we may undertake further international expansion. As a result, in the future, we may be more sensitive to the risks of exchange rate fluctuations, which may have a material adverse effect on our business, results of operations and financial condition.
Our failure to comply with certain environmental, health and safety regulations could materially and adversely affect our business.
The storage, distribution and transportation of some of the products that we sell are subject to a variety of national, provincial and local environmental regulations. We are also subject to operational, health and safety laws and regulations. Our failure to comply with these laws and regulations could cause a disruption in our business, an inability to maintain our warehousing resources, additional and potentially significant remedial costs and damages, fines, sanctions or other legal consequences that could have a material adverse effect on our business, results of operations and financial condition. In addition, changes in environmental, employee health and safety or other laws, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations or give rise to material liabilities, which could have a material adverse effect on our business, financial condition and results of operations.
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Risks Relating to Our Current Controlled Environment Agriculture Business
There is no assurance that we will be able to convert our backlog related to our controlled environment agriculture operations into revenue or make a profit.
While we continue our controlled environment agriculture business, we may be unable to convert the full contract value of our backlog in a timely manner, or at all. We inconsistently convert our backlog into revenue on a quarter-to-quarter basis. The performance of our obligations under a sales contract, and the timing of our revenue recognition, is dependent upon our customers’ ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can use our services and take possession of the equipment we provide. Our sales contracts currently are not time specific as to when our customers are required to take delivery of our services and equipment. More recently, we determined that some of our new construction facility projects are becoming larger and more complex and, as a result, delays were more likely due to licensing and permitting, lack of, or delay in, funding, staged facility construction, and/or the shifting priorities of certain customers with multiple facility projects in progress at one time. Even if we obtain more customers, or increase the average size of our projects, there is no guarantee that we will be able to generate a profit. Because we are a small company with limited capital, limited products and services, and limited marketing activities, we may not be able to generate sufficient revenue to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.
Our operating results may fluctuate significantly based on customer acceptance of our services and products, industry uncertainty, project financing concerns, and regulatory requirements. As a result, period-to-period comparisons of our results of operations are unlikely to provide a good indication of our future performance.
Management expects that, under typical operating conditions, we will experience substantial variations in our revenues and operating results from quarter to quarter. This variance may change with fundamental changes in our operations.
In our controlled environment agriculture operations, we have been experiencing a decline in revenues, which has also affected our operating results. Our revenue recognition in our controlled environment agriculture operations is dependent upon shipment of the equipment portions of our sales contracts, which, in many cases, may be delayed while our customers complete permitting, prepare their facilities for equipment installation or obtain project financing. Uncertainty in the controlled environment agriculture industry, project financing concerns, and the licensing and qualification of our prospective customers, which are out of our control, make it difficult for us to predict when we will recognize revenue. If customers are unable to obtain licensing, permitting or financing, our sales and revenue will decline, resulting in a reduction in our operating income or possible increase in losses.
If we do not successfully have additional products and services, or if those products and services are not successfully commercialized, we could lose revenue opportunities.
Our future success depends, in part, on our ability to expand our product and service offerings in our current operational sector or otherwise expand or change our operations. The processes of identifying and commercializing products are complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological or other trends, then our business could be harmed. We have already and may have to continue to commit significant resources to commercializing products before knowing whether our investments will result in products the market will accept. We may be unable to differentiate our products from those of our competitors, and our products may not be accepted by the market. There can be no assurance that we will successfully identify additional product opportunities, develop and bring products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or non-competitive. Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do and a reduction in revenue and earnings.
Our future success depends on our ability to grow and expand our customer base. Our failure to achieve such growth or expansion could materially harm our business.
Our success depends on us achieving greater and broader acceptance of our products and services in our current and proposed business operations. This will require us to expand our industrial customer base and win larger contracts. There can be no assurance that customers will purchase our services or products or that we will continue to expand our customer base. If we are unable to effectively market or expand our product and service offerings, we will be unable to grow and expand our business or implement our business strategy. This could materially impair our ability to increase sales and revenue, and materially and adversely affect our margins, which could harm our business and cause our stock price to decline.
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Our suppliers in our controlled environment agriculture operations could fail to fulfil our orders for parts used to assemble our products, which would disrupt our business, increase our costs, harm our reputation, and potentially cause us to lose our market.
We depend on third party suppliers around the world, including those in The People’s Republic of China ("PRC"), for materials used in our controlled environment agriculture operations, to assemble our products. Any of these suppliers could fail to produce products to our specifications or in a workmanlike manner and may not deliver the material or products on a timely basis. Our suppliers may also have to obtain inventories of the necessary parts and tools for production. Any change in our suppliers’ approach to resolving production issues could disrupt our ability to fulfil orders and could also disrupt our business due to delays in finding new suppliers, providing specifications and testing initial production.
Equipment failures or poor performance may negatively impact our business.
We rely on third party manufacturers for equipment used in controlled environment agriculture operations which we sell or lease. From time to time, such equipment may not perform to specifications or to our customers’ satisfaction. Such equipment deficiencies may lead to down time impacting our revenue. Further, frequent downtime at customers’ sites due to equipment failures may result in such customers generating less revenue and increasing credit default risk. In addition, these failures may also result in additional time spent by our personnel, decreasing profit margins on certain ancillary services.
The failure of equipment supplied by third parties may also result in breach of contract and warranty claims from our customers. Whether or not we will be able to pass the responsibility for equipment failures that are not of our making will depend on many factors. We, however, will take all action necessary to identify the correct responsible party and pass through any responsibility in respect of an equipment or other failure. We may not be successful in such action and may ultimately be responsible for damages.
Changes in U.S. and international trade policies, including tariffs and other trade restrictions, could adversely affect our business, results of operations and supply chain.
The United States has recently implemented significant changes to its trade policies, including new and increased tariffs and other trade restrictions affecting imports from numerous countries, and additional changes remain under consideration. In February 2026, the United States Supreme Court held that the International Emergency Economic Powers Act of 1977 did not authorize certain tariffs previously imposed by the Trump Administration pursuant to that statute. Following that decision, the Trump Administration imposed a temporary 10% import surcharge pursuant to Section 122 of the Trade Act of 1974, which expired in July 2026. The United States has continued to impose, pursue and consider tariffs and other trade measures under other statutory authorities. In July 2026, the U.S. Trade Representative took final action following certain Section 301 investigations, imposing additional tariffs generally ranging from 10% to 12.5% on imports from numerous U.S. trading partners, subject to certain exemptions and adjustments. Additional trade investigations and negotiations remain ongoing, including with respect to China.
There remains substantial uncertainty regarding the scope, duration and ultimate effect of existing and potential tariffs and other trade restrictions and whether the United States or its trading partners will impose additional tariffs, retaliatory measures or other trade barriers. Changes in trade policy could increase the cost of imported products and components, disrupt supply chains, affect pricing and demand and contribute to volatility in global economic and financial conditions.
We source certain products and components used in our product offerings from the PRC and other foreign suppliers. Although such products and components currently represent a limited portion of our overall business, tariffs and other trade restrictions applicable to these products have increased, and could continue to increase, our costs and could disrupt the availability of certain products or components. We are evaluating alternative suppliers for certain affected products and components; however, alternative suppliers may not be available on commercially reasonable terms or may require additional time and expense to identify and qualify. To the extent we are unable to mitigate increased costs or supply disruptions resulting from tariffs or other trade restrictions, including through alternative sourcing or pricing adjustments, such developments could adversely affect the affected portions of our business and our profit margins. In addition, to the extent we increase prices to offset higher costs, our products could become less competitive or customer demand could decline. A significant escalation in global trade tensions could also have broader adverse effects on economic conditions, financial markets and customer demand, which could adversely affect our business, financial condition and results of operations.
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Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.
We may be unable to obtain intellectual property rights to effectively protect our branding, products, and other intangible assets. Our ability to compete effectively may be affected by the nature and breadth of our intellectual property rights. While we intend to defend against any threats to our intellectual property rights, there can be no assurance that any such actions will adequately protect our interests. If we are unable to secure intellectual property rights to effectively protect our branding, products, and other intangible assets, our revenue and earnings, financial condition, or results of operations could be adversely affected.
We also rely on non-disclosure and non-competition agreements to protect portions of our intellectual property portfolio. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that third parties will not otherwise gain access to our trade secrets or proprietary knowledge, or that third parties will not independently develop competitive products with similar intellectual property.
We may become subject to additional regulation of controlled environment agriculture facilities.
Our engineering and design services and solutions are focused on controlled environment agriculture facilities that are able to grow a wide variety of crops, such as leafy greens (kale, Swiss chard, mustard, cress), microgreens (leafy greens harvested at the first true leaf stage), ethnic vegetables and small fruits (such as strawberries, blackberries and raspberries), bell peppers, cucumbers, and tomatoes. Some of these crops and their growing methodologies are subject to regulation by the United States Food and Drug Administration, environmental agencies, public utility agencies and other federal, state or foreign agencies. Changes to any regulations and laws that complicate the design and engineering of a subject controlled environment agriculture facility, such as wastewater treatment and electricity-related mandates, make it possible that potential related zoning and enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities.
The controlled environment agriculture industry is highly competitive, and we have less capital and resources than many of our competitors, which may give them an advantage in developing and marketing services and products similar to ours or make our services and products obsolete.
There are many competitors in the controlled environment agriculture industry. These companies generally offer products and services similar or the same as those offered by us. There can be no guarantees that in the future other companies will not enter this arena by developing products that are in direct competition with us or even superior in quality or price. The barriers to entry into the controlled environment agriculture industry are not insignificant. Over time we anticipate growth and intensity in our competition. Some of our current and future competition may have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales and marketing resources. One or more of these qualities may allow them to respond more quickly than us to market opportunities. They may be able to devote greater resources to the marketing, promotion and sale of their products and/or services. Competitors may also adopt more aggressive pricing policies and make more attractive offers to clients, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.
We will be required to have top quality talent to compete in the marketplace.
We believe our success will depend in part on our ability to have skilled managerial, product development, sales and marketing, and finance personnel. Our ability to attract and retain personnel with the requisite credentials, experience and skills will depend on several factors including, but not limited to, our ability to offer competitive wages, benefits and professional growth opportunities. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings.
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We are dependent upon certain key sales, managerial and executive personnel for our future success. If we lose any of our key personnel, our ability to implement our business strategy could be significantly harmed.
We depend on the industry knowledge, technical and financial skill, and network of business contacts of certain key employees. Our future success will depend on the continued service of these key employees or our ability to engage others who are similarly situated in the industry. While we may have employment agreements with certain of these key employees, they are free to terminate their employment with us at any time, although they may be subject to certain restrictive covenants on their post-termination activities. We do not carry key-man life insurance on the lives of our key employees. The departure of any one of our key employees could have a material adverse effect on our ability to achieve our business objective and maintain the specialized services that we offer our customers.
We have a limited number of employees that may not be sufficient to service our contracts.
As a result of various factors affecting the controlled environment agriculture industry in which we operate, we have made employee reductions from time to time in the last several years. We believe we are operating as leanly as needed to be able to service our contract obligations. The mix of our current employees and their number may not be sufficient for our current needs and if we increase our business we will need additional employees, which may not be available. If we are not able to service our contract obligations, our business will suffer and we may be liable for contract damages.
System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to customers, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation and adversely affect our stock price.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack or otherwise exploit any security vulnerabilities of the products that we may sell in the future, especially our SentryIQ® sensors, controls and automation platform. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers may impede our engineering, sales, manufacturing, distribution or other critical functions.
Portions of our IT infrastructure may also experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource intensive. Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales, lower profits, or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.
We may not be able to successfully identify, consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.
Part of our business strategy includes evaluating and pursuing synergistic and other acquisitions. We have recently completed the acquisition of Fat Panda. Material acquisitions and other strategic transactions, such as the acquisition of Fat Panda involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; (vi) the disruption of a significant reorganization of the company; and (vii) the loss or reduction of control over certain of our assets.
The pursuit of any acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us. We will incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions.
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We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.
In the ordinary course of business, we have and in the future may become the subject of various claims, lawsuits and governmental proceedings seeking damages or other remedies concerning our commercial operations, the products we distribute, our employees and other matters, including potential claims by individuals alleging injury or other harm caused by the products we distribute. Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of the businesses. The products we distribute may contain lithium ion or similar type batteries that can explode or release hazardous substances. In addition, defects in the products we distribute could result in death, personal injury, property damage, pollution, release of hazardous substances or damage to equipment and facilities. Actual or claimed defects in the products we distribute may give rise to claims against us for losses and expose us to claims for damages.
We maintain insurance to cover certain of our potential losses, and we are subject to various self-retentions, deductibles and caps under our insurance. We face the following risks with respect to our insurance coverage:
●we may not be able to continue to obtain insurance on commercially reasonable terms;
●we may incur losses from interruption of our business that exceed our insurance coverage;
●we may be faced with types of liabilities that will not be covered adequately or at all by our insurance;
●our insurance carriers may not be able to meet their obligations under the policies; or
●the dollar amount of any liabilities may exceed our policy limits.
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on us. Finally, even in cases where we maintain insurance coverage, our insurers may raise various objections and exceptions to coverage that could make uncertain the timing and amount of any possible insurance recovery.
Risks Related to Our Common Stock
Our common stock may be delisted if we fail to comply with Nasdaq’s continued listing standards.
On May 7, 2026, we received written notice from Nasdaq notifying us that we were not in compliance with Nasdaq Listing Rule 5620(a) for continued listing of shares of our common stock, due to our failure to hold an annual meeting within 12 months of our fiscal year end. As a result, we submitted a plan to Nasdaq to regain compliance and held our 2026 Special Meeting in Lieu of Annual Meetings of Stockholders on July 22, 2026. On August 5, 2026, we received written notice from Nasdaq that we had regained compliance with Listing Rule 5620(a) and that matter is closed.
If our common stock ultimately were to be delisted from Nasdaq for any reason, it could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to its employees.
Nasdaq may review our Board composition and our capital structure under its change of control, voting rights and business combination rules, and an adverse determination could result in the delisting of our common stock.
Nasdaq Listing Rule 5635(b) requires stockholder approval before an issuance of securities that results in a change of control of a listed company. Nasdaq Listing Rule 5640 and related Nasdaq interpretive guidance limit an investor’s board representation rights to a level proportionate to its ownership of securities entitled to vote in the election of directors. Nasdaq Listing Rule 5110(a) requires a listed company that experiences a change of control in combination with a change in its business to satisfy Nasdaq’s initial listing requirements. Nasdaq applies these rules through the exercise of broad discretionary authority, and its application of them to companies that have adopted digital asset treasury strategies has become more restrictive since 2025.
In August 2025 we issued common stock and warrants in a private placement and used the proceeds to acquire BNB. We did not seek stockholder approval in connection with that issuance, and Nasdaq’s receipt of our listing of additional shares notifications does not constitute a determination that the transaction complied with its rules. Under the Cooperation Agreement, YZILabs has the right to designate three of our six directors, and its ownership consists principally of warrants, which do not carry the right to vote in the election of directors. Our Board may in the future determine to dispose of or discontinue one or more of our legacy operating businesses.
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Nasdaq could determine that stockholder approval was required for the private placement or is required for the exercise of outstanding warrants, that YZILabs’ designation rights exceed the representation proportionate to its voting ownership, which stockholder approval would not remedy, or that we experienced a change of control in combination with a change in our business, in which case we would be required to satisfy Nasdaq’s initial listing requirements and submit an initial listing application, and Nasdaq could suspend trading in our common stock before any hearing. Remedying certain of these determinations may require a reduction in YZILabs’ Board representation, which the Cooperation Agreement does not give us the right to compel. Any such determination would have the consequences described in the preceding risk factor.
Our securities prices may be volatile and may decrease substantially.
The public trading prices of our securities fluctuate, in some cases substantially, and we expect that they will continue to do so. The price of our securities in the market on any particular day depends on many factors including, but not limited to, the following:
●our ability to maintain the listing of our securities on Nasdaq, and our ability to satisfy current continued listing standards;
●price and volume fluctuations in the overall stock market from time to time;
●investor demand for our shares and warrants;
●variations in our operating results and market conditions specific to our business;
●the emergence of new competitors or new technologies;
●operating and market price performance of other companies that investors deem comparable;
●changes in our Board or management;
●sales or purchases of our securities by insiders, including sales of our common stock issued to employees, directors and consultants under our equity incentive plans which were registered under the Securities Act under our S-8 registration statement;
●commencement of, or involvement in, litigation;
●actual or anticipated changes in our earnings, and fluctuations in our quarterly operating results;
●general economic conditions and trends; and
●departures of any of our key employees.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our securities prices, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
In addition, if the market for equity stocks of companies in our industry, or the stock market in general, experiences a loss of investor confidence, the market price of our securities could decline for reasons unrelated to our business, financial condition, or results of operations. If any of the foregoing occurs, it could cause the price of our securities to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to our Board and management.
Our Board is authorized to reclassify any unissued shares of our preferred stock into one or more classes, which could convey special rights and privileges to its owners.
Our articles of incorporation permit our Board to reclassify any authorized but unissued shares of preferred stock into one or more classes. Our Board will generally have broad discretion over the size and timing of any such classification, subject to a finding that the classification and issuance of preferred stock is in our best interests. In the event our Board opts to classify a portion of our unissued shares of preferred stock into a class of preferred stock, those preferred shares would have a preference over our common stock with respect to dividends and liquidation. The class voting rights of any preferred shares we may issue could make it more difficult for us to take some actions that may, in the future, be proposed by the Board and/or the holders of our common stock, such as a merger, exchange of securities, liquidation, or alteration of the rights of a class of our securities, if these actions were perceived by the holders of preferred shares as not in their best interests. These effects, among others, could have an adverse effect on your investment in our common stock.
Registration rights and Rule 144 sales contain risks for shareholders.
From time to time, we issue our securities on an unregistered basis, which may be eligible for resale under SEC Rule 144 promulgated under the Securities Act or may require us to register with the SEC the securities for resale. In the event there are securities outstanding that can be sold under Rule 144 or under a registration statement for resale, there may be market pressure on our stock to absorb the securities in respect of the then market value of the company.
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We have a substantial number of options and public warrants outstanding, which if exercised for shares of common stock, may put pressure on the market price of a share.
We have sold to public investors a substantial number of warrants to purchase common stock that may be exercised from time to time over the next several years. In addition, we have a substantial number of options and public warrants outstanding held by investment bankers who provided us with underwriting and placement services that were issued warrants and employees that were issued options. To the extent that these are exercised for shares, there may be pressure on our stock price while the market absorbs them. The potential of exercise may also have the same effect. Investors should expect that the options and warrants will be exercised when the stock price is substantially above the exercise price.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund our business. We do not intend to pay any dividends to holders of our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion, any legal or contractual limitations on our ability to pay dividends under our loan agreements or otherwise. As a result, if our Board does not declare and pay dividends, the capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock, and you may have to sell some or all of your common stock to generate cash flow from your investment.
The market price of our securities may be adversely affected by the sale of shares by our management or large stockholders.
Sales of our shares of common stock by our officers or senior managers through 10b5-1 plans or otherwise or by large stockholders could adversely and unpredictably affect the price of our common stock. Additionally, the price of our shares of common stock could be affected even by the potential for sales by these persons. We cannot predict the effect that any future sales of our common stock, or the potential for those sales, will have on our share price. Furthermore, due to relatively low trading volume of our stock, should one or more large stockholders seek to sell a significant portion of their stock in a short period of time, the price of our stock may decline.
Investors may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Our articles of incorporation authorize us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for the consideration and on the terms and conditions established by our Board in its sole discretion. We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing stockholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right or ability to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.
The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock, when compared to the rights of the common stockholders, could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.
Risks Related to Our Business and Operations
We do not currently have a permanent Chief Executive Officer, and our principal executive officer, principal financial officer, and principal accounting officer functions are performed by a single officer.
Our former Chief Executive Officer concluded his service during the quarter, and our Board appointed our Chief Financial Officer to serve additionally as Interim Principal Executive Officer. This concentration of responsibility compounds the components of our previously disclosed material weakness relating to inadequate segregation of duties and an inadequate supervisory review structure, and the demands of both roles may limit the attention available to either.
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Our Board is currently conducting a search for a permanent Chief Executive Officer. Under the terms of the Cooperation Agreement, the Board is required to appoint a permanent Chief Executive Officer and an additional independent director by specified deadlines. The Board may not complete either appointment by the applicable deadlines, which would permit YZILabs to terminate its standstill obligations under the Cooperation Agreement. The search process and the transition to a permanent Chief Executive Officer may also divert management and Board attention from our operations.
Our stockholders did not approve our 2025 Equity Incentive Plan and 2026 Equity Incentive Plan, which limits our ability to attract, retain and motivate personnel and could result in compensation expense materially greater than we would otherwise have recognized.
At our 2026 Special Meeting in Lieu of Annual Meetings of Stockholders (the "Special Meeting") held on July 22, 2026, proposals to approve our 2025 Equity Incentive Plan and our 2026 Equity Incentive Plan did not receive the vote required for approval. As a result, we cannot issue awards under either plan.
Approval of each plan required the affirmative vote of a majority of shares represented and entitled to vote at the Special Meeting. Under our bylaws in effect at the time of the meeting, broker non-votes were treated as votes cast and therefore had the effect of votes against approval. The 2025 Equity Incentive Plan would not have received the vote required for approval even if broker non-votes had not been counted as present and entitled to vote while the 2026 Equity Incentive Plan would have. We can give no assurance that either plan would be approved if resubmitted for a subsequent vote.
Equity compensation is a principal component of the compensation we offer to our executive officers, directors and employees, and our ability to grant equity awards is limited to the shares remaining available under our existing plans, including our 2026 Inducement Plan, which may be used only for awards to newly hired employees in accordance with Nasdaq Listing Rule 5635(c)(4). We are conducting a search for a new Chief Executive Officer, and our ability to offer a competitive compensation package to that candidate and to other prospective executives may be constrained by the limited equity available for grant. Our shares available for grant may also be insufficient to retain and motivate our existing personnel, particularly following a period of significant decline in the market price of our common stock, which has reduced the realizable value of outstanding awards. If we are unable to offer competitive compensation, we may lose key personnel or be required to increase cash compensation, which would increase our operating expenses and use cash that would otherwise be available for our business.
Certain awards were granted subject to stockholder approval of the 2025 Equity Incentive Plan. Because stockholder approval is a condition to the establishment of a grant date under applicable accounting guidance, no grant date has been established for those awards and no compensation expense has been recognized with respect to them. If stockholder approval is subsequently obtained, a grant date will be established at that time and the awards will be measured based on the fair value of our common stock on that date, which may differ materially from the value on the date the awards were made and could result in compensation expense materially greater than we would otherwise have recognized. If approval is not obtained, those awards will not become effective, and the affected recipients may seek alternative compensation or terminate their service with us, as applicable.
Stockholder activism has disrupted our business and may recur.
Beginning in November 2025, YZILabs, one of our stockholders, conducted a stockholder activism campaign against the Company, including filing preliminary consent solicitation materials seeking to expand the size of our Board and to elect seven YZILabs nominees (the "Consent Solicitation"). Responding to the Consent Solicitation required substantial attention from our Board and management, diverted resources from our operations and strategic plans, caused us to incur significant advisory costs, and created perceived uncertainty as to our future direction, strategy and leadership.
On June 23, 2026, we entered into a Cooperation Agreement with YZILabs resolving the Consent Solicitation, under which YZILabs has certain Board designation rights and is subject to standstill and voting commitments. Those commitments are subject to termination or release in specified circumstances and in any event expire at the end of the agreement's term, after which YZILabs would again be free to seek to influence or control the Company. We may face renewed activism from YZILabs or from other stockholders in the future.
A change in the composition of a majority of our Board, whether resulting from the exercise of designation rights under the Cooperation Agreement, future stockholder activism, or may impact our business strategy and operations and may result in a default, acceleration or other consequence under certain of our debt instruments, equity plans, employment and other agreements, which could negatively affect our business and trading price of our common stock,
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Our Stockholder Rights Agreement could delay or prevent a change of control, which could limit the market price of our common stock.
On December 26, 2025, in connection with defending against the Consent Solicitation in the best interest of all shareholders, the Board adopted a stockholder rights agreement (the “Stockholder Rights Agreement”), which is currently scheduled to expire on December 26, 2026. While in force or if otherwise extended, the Stockholder Rights Agreement may have certain anti-takeover effects. Specifically, the rights issued pursuant to the Stockholder Rights Agreement will cause substantial dilution to a person or group that acquires beneficial ownership of more than a specified percentage of our outstanding common stock without the prior approval of our Board.
The Stockholder Rights Agreement contains an exception for holders whose beneficial ownership equaled or exceeded the threshold immediately prior to the public announcement of the Stockholder Rights Agreement, so long as they do not thereafter increase their beneficial ownership beyond the limits specified in the Stockholder Rights Agreement. YZILabs, our largest stockholder, is subject to that exception. As a result, the Stockholder Rights Agreement does not cause dilution to YZILabs in respect of its existing position, including shares issuable upon exercise of the warrants it holds. YZILabs is separately prohibited from acquiring additional voting securities under the Cooperation Agreement described above, subject to an exception permitting exercise of warrants it already holds, and those restrictions continue for the term of that agreement, which extends beyond the scheduled expiration of the Stockholder Rights Agreement.
The Stockholder Rights Agreement is not intended to interfere with any merger or other business combination approved by the Board, but the Stockholder Rights Agreement may deter certain parties from pursuing strategic transactions involving us, including potential acquisitions, and may make it more difficult for stockholders to change our management or Board. Following expiration of the Stockholder Rights Agreement, we would no longer have these protections unless our Board adopts a new rights plan, and we can give no assurance that we would do so or that any new plan would be adopted on comparable terms.
We are party to the AMA which contains terms that are materially adverse to our stockholders, and we may be unable to reform or terminate the AMA without incurring substantial costs despite pending litigation against the Asset Manager.
We are party to the AMA with the Asset Manager, pursuant to which the Asset Manager provides asset management and related services with respect to our digital assets in exchange for a management fee based on the fair value of the assets within our DAT Strategy, calculated at a flat rate of 1.4%. The AMA has a term of 20 years from its original execution date and contains a liquidated damages provision that, upon a termination by us for any reason, would accelerate and render payable fees representing nearly 20 years of future management fees. We believe these terms are not consistent with market practice for comparable asset management arrangements and are materially adverse to the interests of our stockholders.
Our Board sought to renegotiate the AMA to align its terms with market standards, including by proposing reductions to the management fee rate, a substantially shortened term and a commensurate reduction in liquidated damages. The Asset Manager did not agree to any of these proposed amendments and did not engage constructively or in good faith with our renegotiation efforts. Due to the restrictive terms of the AMA as currently in effect, our Board does not have the ability to unilaterally amend the AMA and cannot terminate the AMA without incurring a substantial break fee.
On May 22, 2026, we commenced litigation against the Asset Manager in the United States District Court for the District of Delaware, seeking a declaratory judgment that the AMA is void from inception as unconscionable and that all fees paid to the Asset Manager since inception be returned to us. Alternatively, we are seeking a declaration that the liquidated damages provision in the AMA constitutes an unenforceable penalty under applicable law. We cannot predict the outcome of this litigation or the timeframe in which it will be resolved. Litigation is inherently uncertain, costly and time-consuming, and an adverse outcome could leave us bound by the AMA’s existing terms for the remainder of its 20-year term, obligate us to continue paying fees that we believe are above market, and expose us to the liquidated damages provision in the event of any future termination. Even if we prevail in whole or in part, the litigation process may divert significant management attention and resources from our business operations.
We have not paid management fees invoiced under the AMA since April 10, 2026, while continuing to accrue those fees. Our non-payment may constitute a breach of, or an event of default under, the AMA, and may give the Asset Manager the right to terminate the AMA or to pursue other remedies against us. If the Asset Manager terminates the AMA or we are otherwise found to be in breach, we may become obligated to pay the accrued unpaid fees together with amounts under the liquidated damages provision described above, which would have a material adverse effect on our financial condition. We can give no assurance that we will prevail in our litigation against the Asset Manager or that a court will find the AMA or its liquidated damages provision unenforceable.
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For so long as the AMA remains in effect on its current terms, we will continue to incur management fees that we believe are excessive relative to market standards, which may adversely affect our financial condition and the value of our digital assets. Our inability to reform or terminate the AMA on acceptable terms could have a material adverse effect on our business, financial condition, results of operations and the market price of our common stock.
Our borrowings are secured by pledged BNB, and a decline in the price of BNB could require us to post additional collateral on short notice or permit our lender to liquidate our pledged BNB.
At July 31, 2026, we had $15.0 million of borrowings outstanding under our master loan agreement with BitGo, secured by pledged BNB with a fair value of $25.9 million. If the value of our pledged collateral falls below 150.0% of the loan balance, BitGo may require us to immediately post additional collateral. If it falls below 120.0% of the amount loaned, BitGo may liquidate the collateral. Because BNB trades continuously, a margin call may arise outside of business hours, and the cure period may not afford us sufficient time to raise capital or transfer assets.
Our borrowings are fixed term loans maturing October 30, 2026 and January 21, 2027. We have no contractual right to repay them early and therefore cannot reduce our exposure or release the pledged collateral before maturity. The facility is uncommitted, and BitGo has no obligation to extend additional credit or to renew the loans at maturity.
Because BNB serves as both our principal treasury asset and our collateral, a decline in its price would reduce the value of our collateral and our other holdings at the same time. Satisfying a margin call could require us to pledge additional BNB or to sell digital assets at depressed prices, and a liquidation by BitGo would occur at times and prices we do not control.
The master loan agreement also requires that our net equity, as defined, be at least $25.0 million as of the end of each calendar month and that our ratio of total assets to net equity not exceed 200%. If either requirement is not satisfied, or if BitGo determines in its sole discretion that the assets loaned to us are at risk of being treated as a security, BitGo may require immediate repayment of all outstanding borrowings. Because share repurchases reduce our net equity, this requirement also limits the amount of our common stock we are able to repurchase.
The Company has identified a material weakness in its internal control over financial reporting.
We have identified a material weakness in our internal control over financial reporting. Specifically, we lack a sufficient complement of personnel with accounting expertise and an adequate supervisory review structure commensurate with our financial reporting requirements, we have inadequate segregation of duties due to our limited number of accounting personnel, and we have insufficient controls to verify the accuracy and completeness of spreadsheets on which we place significant reliance for financial reporting, including with respect to revenue, taxes, stock-based compensation, earnings per share computation and other areas. This material weakness has not been remediated as of July 31, 2026.
This material weakness could result in errors or misstatements in our financial statements that are not detected in a timely manner. It contributed to an error in our calculation of weighted-average shares outstanding and earnings per share, and we filed amendments to our Quarterly Reports on Form 10-Q for the quarterly periods ended October 31, 2025 and January 31, 2026 to restate our previously issued financial statements.
We appointed a Chief Financial Officer effective March 9, 2026 and continue to work to remediate the material weakness by enhancing our control environment. On July 22, 2026, our Chief Executive Officer concluded his service and our Board appointed our Chief Financial Officer to serve additionally as Interim Principal Executive Officer. As a result, the principal executive officer, principal financial officer and principal accounting officer functions are currently performed by a single officer, which may adversely affect our supervisory review structure and segregation of duties while that arrangement continues. We cannot assure you that our remediation measures will be sufficient to address the material weakness or prevent future control deficiencies, particularly given our limited financial resources and the constraints associated with expanding our accounting staff and improving our financial systems.
We have also identified deficiencies in our controls over the preparation and review of non-financial disclosure in our periodic reports, including our exhibit indices, our description of securities and the cover pages of our periodic reports. As a result of these deficiencies, our disclosure controls and procedures were not effective as of July 31, 2026.
The existence of the material weakness and control deficiencies could adversely affect our ability to accurately report our financial condition and results of operations and to comply with our reporting obligations. It may also impact investor confidence, potentially leading to a decline in our stock price and increased scrutiny from regulatory authorities.
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We are a holding company and depend upon our subsidiaries for our cash flow.
We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our tangible assets. Consequently, our cash flow and our ability to meet our obligations or to make other distributions in the future will depend upon the cash flow of our subsidiaries and our subsidiaries’ payment of funds to us in the form of distributions, dividends, tax sharing payments or otherwise.
The ability of our subsidiaries to make any payments to us will depend on their earnings and cash flow, the terms of their current and future indebtedness, tax considerations and legal and contractual restrictions on their ability to make distributions.
Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of or distributions from any of our subsidiaries upon the bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’s creditors, including trade creditors and holders of debt that the subsidiary issued.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information related to our repurchases of common stock during the three months ended July 31, 2026:
Total Number of Shares Purchased(A) | Average Price Paid per Share(B) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||
May 1, 2026 to May 31, 2026 | 699,996 | $ | 2.92 | 699,996 | $ | 230,599 | |||||||||||||||||
June 1, 2026 to June 30, 2026 | 734,116 | 2.39 | 734,116 | 228,860 | |||||||||||||||||||
July 1, 2026 to July 31, 2026 | — | — | — | 228,860 | |||||||||||||||||||
Total for the Quarter Ended July 31, 2026 | 1,434,112 | 2.65 | 1,434,112 | ||||||||||||||||||||
A.On September 22, 2025, our Board of Directors announced it had authorized a stock repurchase program providing for the repurchase of up to $250.0 million of our outstanding common stock (the “Repurchase Plan”), with no expiration from the date of authorization. The Repurchase Plan will continue until otherwise modified or terminated by our Board of Directors at any time in its sole discretion. Repurchases under the Repurchase Plan may be made from time to time through open market transactions, privately-negotiated transactions, accelerated share repurchases, or otherwise in accordance with applicable federal securities laws, including under Rule 10b-18, subject to market conditions. Repurchases will be funded through a combination of cash on hand, future cash flow from operations, and borrowings.
B.Average price paid per share includes broker commissions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the quarter ended July 31, 2026, no director or officer of the Company adopted terminated
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Exhibit Number | Description of Exhibit | |||||||
3.1 | ||||||||
3.2 | ||||||||
3.3 | ||||||||
10.1 | ||||||||
10.2+ | ||||||||
10.3*+ | ||||||||
10.4 | ||||||||
10.5+ | ||||||||
10.6* | ||||||||
10.7*+ | ||||||||
10.8*+ | ||||||||
10.9* | ||||||||
31.1* | ||||||||
31.2* | ||||||||
32.1** | ||||||||
32.2** | ||||||||
101.INS* | Inline XBRL Instance Document | |||||||
101.SCH* | Inline XBRL Taxonomy Schema | |||||||
101.CAL* | Inline XBRL Taxonomy Calculation Linkbase | |||||||
101.DEF* | Inline XBRL Taxonomy Definition Linkbase | |||||||
101.LAB* | Inline XBRL Taxonomy Label Linkbase | |||||||
101.PRE* | Inline XBRL Taxonomy Presentation Linkbase | |||||||
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
+ Indicates a management contract or compensatory plan.
*Filed herewith.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CEA INDUSTRIES INC. | ||||||||
(the "Registrant") | ||||||||
Dated: September 11, 2026 | By: | /s/ William B. Miller | ||||||
William B. Miller | ||||||||
Interim Principal Executive Officer and Chief Financial Officer | ||||||||
(Interim Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) | ||||||||
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