LEEEF 10-K & 10-Q changes, risk factors and insider trading

During fiscal 2024 and 2025, we executed a strategic transition away from consumer packaged goods (“CPG”) sales through retail, shifting our sales focus to leveraging our core strength in concentrate manufacturing to support and power the leading cannabis brands operating in California. CPG sales have becomewere immaterial in fiscal 2025 and the three months ended March 31, 2026 as the Company concentrated its efforts on the bulk sales concentrates market. Following our acquisition of Standard Holdings, Inc. and the HIMALAYA brand on April 27, 2026, CPG has again become a material component of our revenue, contributing $1,042,767 of net revenue for the six months ended June 30, 2026, and we report CPG as a separate reportable segment beginning in the second quarter of 2026. Management believes that thisthe strategiccombination focus onof higher-margin wholesale concentrate manufacturing,manufacturing and a growing branded combinedCPG portfolio, together with disciplined operating expense management, positions the Company for improving operating performance.

During the threesix months ended MarchJune 31,30, 2026, the Company generated net revenue of $9,377,002,$16,651,910, compared to $9,398,261$18,089,917 for the threesix months ended MarchJune 31,30, 2025, whichreflecting isa essentially flatdecrease year over year. Gross profit increased significantly to $4,624,650$7,035,013 (gross margin of 49%42%) for the the threesix months ended MarchJune 31,30, 2026, compared to $2,073,290$3,563,311 (gross margin of 22%20%) for the threesix months ended MarchJune 31,30, 2025. The Company recorded recordedan operating incomeloss of $1,283,667$704,690 for the threesix months ended MarchJune 31,30, 2026, compared to an operating loss of $1,907,545$4,280,704 for the three six months ended MarchJune 31,30, 2025, reflecting both the margin expansion of $3,576,014 and a $639,852$104,312 reductionchange in total operating expenses.

Net loss and comprehensive loss attributable to the Company was $426,253$1,761,001 for the threesix months ended MarchJune 31,30, 2026, compared to net incomeloss and and comprehensive incomeloss of $265,776$2,667,423 for the threesix months ended MarchJune 31,30, 2025. The swing to areduced net loss position for the quarterperiod was primarily driven by the improvements in operating results described above and a $612,859 decrease in interest expense, offset by a $390,405$2,913,709 expensereduction in the gain recorded for the change in fair value of derivative liabilities (comparedand toan aincrease $3,538,440 gain in the prior year period) and a higher provision for income taxes of $974,580 (compared to $721,113 in the prior year period), offset by the improvements in operating results described above.$349,626.

The following table provides a reconciliation of the Company’s net loss to Adjusted EBITDA (non-GAAP) for the three and six months ended March 31,June 30, 2026 and 2025:

Adjusted EBITDA, a non-GAAP financial measure, was $2,396,440$(631,346) and $1,709,929, respectively, for the three and six months ended MarchJune 31,30, 2026, compared to $(732,4091,311,458) and $(2,092,305), respectively, for the three and six months ended MarchJune 31,30, 2025. The favorable change in Adjusted EBITDA for the three and six months ended June 30, 2026 compared to the same periods in 2025 of $3,128,849$680,112 and $3,802,234, respectively, is primarily driven by improved gross profit of $2,551,360 $920,343 and reduced$3,471,702, respectively, operatingdespite expensesa decline of $639,852$1,416,748 withand our$1,438,007, revenuerespectively, remainingin consistent,revenue, reflecting the Company’s ongoing focus on margin expansion expansion and disciplined cost management in its core wholesale concentrate manufacturing business.

During the threesix months ended MarchJune 31,30, 2026 and year ended December 31, 2025, the Company raised cash through issuance of preferred and common shares of the Company’s stock totaling gross proceeds of approximately $4.5$9.0 million and $1.4 million, respectively, in addition to the cash raised through both related party and third-party notes payable. The proceeds from these financing activities were used to fund the ongoing operations of the Company.Company as well as the expansion of the Company’s cultivation activities.

Three months ended MarchJune 31,30, 2026 and 2025

Revenue for the three months ended MarchJune 31,30, 2026 was $9,377,002,$7,274,908, a decrease of $21,259,$1,416,748, or 0.2%,16.3%, as compared to $9,398,261$8,691,656 for the three months months ended MarchJune 31,30, 2025. Revenue was consistentdeclined year over year, reflecting the maturing of the Company’s strategic pivot to bulk concentrate manufacturing and ongoing pricing pressure within the California wholesale cannabis market.

Cost of sales for the three months ended MarchJune 31,30, 2026 was $4,752,352,$4,864,545, a decrease of $2,572,619,$2,337,090, or 35.1%,32.5%, as compared to $7,324,971$7,201,635 for the the three months ended MarchJune 31,30, 2025. Gross profit for the three months ended MarchJune 31,30, 2026 was $4,624,650,$2,410,364, representing a gross margin of of 49%,33%, compared with a gross profit of $2,073,290,$1,490,021, representing a gross margin of 22%,17%, for the three months ended MarchJune 31,30, 2025. The significant significant increase in gross profit and gross margin reflects the Company’s integration of Salisbury Canyon Ranch as the Company’s primary biomass supply source during the quarter, combined with disciplined procurement of third-party inputs.

Total operating expenses for the three months ended MarchJune 31,30, 2026 were $3,340,983,$4,398,720, aan decreaseincrease of $639,852,$535,540, or 16.1%,13.9%, compared to total operating expenses of $3,980,835$3,863,180 for the three months ended MarchJune 31,30, 2025. The decreaseincrease in total operating expenses was attributable to the factors described below.

OfficeWages and general expensessalaries for the three months ended MarchJune 31,30, 2026 and 2025 were $601,591$2,155,828 and $797,417,$1,943,497, respectively, aan decreaseincrease of $195,826,$212,331, or 24.6%.10.9%. The decreaseincrease is primarilylargely attributable to loweran freightincrease andin overheadstock costsbased as the Company continues its disciplined approach to managing operating costs.compensation.

Interest expense for the three months ended MarchJune 31,30, 2026 and 2025 was $316,834$242,195 and $592,501,$579,387, respectively, a decrease of $275,667,$337,192, or 46.5%.58.2%. The decrease was primarily driven by the conversion of convertible debentures during 2025, resulting in a lower outstanding debt balance during the current period.

Change in fair value of derivative liability for the three months ended MarchJune 31,30, 2026 was ana expensegain of $390,405,$1,581,817, compared to a gain of $3,538,440$566,681 for the three months ended MarchJune 31,30, 2025. The change is primarily due to fluctuations in the Company’s share price and remeasurement of the Black-Scholes and Monte Carlo inputs used to value the derivative liabilities arising from warrants and certain convertible instruments with non-fixed conversion features denominated in a currency other than the Company’s functional currency.

Net Income (Loss) and Comprehensive Income (Loss) Attributable to Shareholders

Net loss and comprehensive loss for the three months ended MarchJune 31,30, 2026 was $426,253,$1,334,748, as compared to net incomeloss and comprehensive incomeloss of of $265,776$2,933,199 for the three months ended MarchJune 31,30, 2025, ana unfavorablefavorable change of $692,029.$1,598,451. The change to a net loss position was primarily due to the $3,928,845$1,015,136 unfavorablefavorable swing in the change in fair value of derivative liabilities,liabilities partially offset byand the $3,191,212$384,802 favorable change in operating results.

CashSix Flowsmonths forended theJune Three Months Ended March 31,30, 2026 and 2025

Cash providedused byin operating activities for the threesix months ended MarchJune 31,30, 2026 was $395,001,$3,670,082, as compared to cash used in operating activities of $1,836,212$2,033,388 for the threesix months ended MarchJune 31,30, 2025, aan favorableunfavorable change of $2,231,213.$1,636,694. The favorableunfavorable change in cash providedused byin operating operating activities was primarily driven by the improvement in operating results, partially offset by timing of working capital items including an increase in inventories and a decrease increases in accounts receivablepayable and prepaidaccrued expenses.expenses, partially offset by an improvement in operating results.

Cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was $494,839,$1,438,751, as compared to cash used in investing activities of $162,075$384,258 for the threesix months ended MarchJune 31,30, 2025, an unfavorable change of $332,764.$1,054,493. The change reflects increased capital expenditures to support ongoing operations and planned facility improvements.improvements, offset by proceeds from the sale of cryptocurrency.

Cash provided by financing activities for the threesix months ended MarchJune 31, 30, 2026 was $3,665,088,$7,869,073, as compared to cash provided by financing activities of $181,903$573,901 for the threesix months ended MarchJune 31,30, 2025, a favorable change of $3,483,185.$7,295,172. The favorable change was primarily due to $4,500,000 approximately $9 million of gross proceeds from the issuance of preferred and common shares in March and May 2026, partially offset by net repayments on notes payable, repayment of related party contingent consideration, and related party notes payable.

The Company’s focus on the wholesale concentrate market has led to an increase in quarterly revenue and margins through 2025 and into Q1 2026. RevenueWhile wasmargins consistentremained improved in Q2 2026, revenue declined from $9.4$8.7 million in Q1Q2 2025 to $9.4$7.3 million in Q1Q2 2026. The fluctuation in quarterly net income (loss) is primarily attributable to non-cash items, particularly changes in the fair value of derivative liabilities and losses on extinguishment of debt. The net incomeloss of $0.3$2.9 million in Q1Q2 2025 was driven primarily by thesmaller non-cash gain on the changemargins in fairQ2 value2025 of derivative$1.4 million versus $2.4 million in Q2 2026, offset by operating expenses liabilities.of Excluding$3.9 thismillion non-cashand item,income Q1tax 2026 operational performance reflected the continued benefitexpense of in-house$0.6 biomassmillion supply fromin SalisburyQ2 Canyon Ranch, with gross margins and operating cash flow remaining consistent with the strong H2 2025 trajectory.2025.

Key management personnel are persons responsible for planning, directing, and controlling activities of an entity, and include executive and non-executive persons. During the threesix months ended MarchJune 31,30, 2026 and 2025, the Company recognized approximately $440,000$1,350,000 and $470,000, $912,000, respectively, in compensation and stock-based compensation provided to key management.

Historically, the Company’s primary source of liquidity has been its operations, capital contributions made by equity investors, and debt issuances. The Company is currently meeting its operational obligations as they become due from its current working capital and from operations. However, the Company has sustained losses since inception and may require additional capital in the future. Such uncertainties related to events and conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address these conditions include the equity financings described in Note 19 and Note 24, which raised aggregate gross proceeds of approximately $14.2 million through July 2026, the continued benefit of vertically integrated biomass supply from Salisbury Canyon Ranch on the Company’s gross margins, and continued discipline over operating costs.

As of MarchJune 31,30, 2026, the Company had a net working capital surplus of $5,888,291$8,675,729 and a cash balance of $5,755,972.$4,950,962. This is a significant improvement from December 31, 2025, when the Company had a working capital deficit and cash of $2,190,722. The increase in working capital and cash during the threesix months ended MarchJune 31,30, 2026 primarily reflects theapproximately $4,500,000$9 million in equity raise completedraised in March and May 2026.

As of MarchJune 31,30, 2026, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, or any obligations that trigger financing, liquidity, market, or credit risk to the Company.