RYM 10-K & 10-Q changes, risk factors and insider trading
RYTHM, Inc. · Nasdaq · Agricultural Services · CIK 1800637 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The 2018 Farm Bill, which federally legalized hemp and hemp products, was amended in a way that would severely restrict or prohibit the Company’s hemp-derived THC products.”
New heading “States are passing their own laws regulating, restricting, or prohibiting hemp-derived THC products, creating a difficult regulatory patchwork within which to operate.”
New heading “Hemp-derived THC products are not permitted under the Federal Food, Drug, and Cosmetic Act.”
New heading “The FDA could issue new regulations that prohibit or strictly limit the sale of hemp-derived THC products.”
New heading “Other federal agencies may take enforcement actions against companies selling hemp-derived THC products.”
New heading “Hemp-derived THC products are federally illegal if they exceed 0.3% delta-9-THC on a dry weight basis.”
New heading “Third parties with whom we do business may perceive themselves as being exposed to reputational, and even legal, risk because of their relationship with us due to our hemp- and limited cannabis-related licensing activities and may, as a result, refuse to do business with us.”
New heading “We face competition from the illicit market as well as larger competitors and licensed medical and adult-use cannabis dispensaries.”
New heading “Inconsistent public opinion and perception of the cannabis and hemp industries may hinder market growth and state regulation, which would adversely impact our growth plans and current operations and result in an adverse effect on our business, financial condition, and results of operations.”
New heading “Hemp-derived THC products may be shown to have negative health and/or safety impacts upon consumers.”
New heading “We face risks due to industry immaturity or limited comparable, competitive, or established industry best practices.”
New heading “The cannabis and hemp industries could face strong opposition from other industries.”
New heading “Our business depends in part on our customers obtaining and/or maintaining appropriate licensing.”
New heading “We participate in an evolving and volatile industry.”
New heading “Banking regulations could limit access to banking services.”
New heading “We have licensed the intellectual property for certain of our brands for use by state-licensed cannabis operators. While we do not engage in any cannabis-(or “marijuana-”) related activity under the Controlled Substances Act, changes in state regulations of cannabis, changes in U.S. federal cannabis enforcement policy, or a failure of any licensee to comply with the terms of its license agreement or applicable state and local laws and regulations could impair our Licensing Revenue we generate from any licensee and could also impair the value of our brands.”
New heading “Our intellectual property is subject to repurchase rights, which, if exercised, could materially adversely affect our business.”
New heading “Because we do not control licensees’ actions and we depend on licensees for a substantial portion of our earnings from operations, their conduct could harm our business.”
Removed heading “Our success depends in part upon our ability to protect our core technology and intellectual property.”
Removed heading “We may need to enter into intellectual property license agreements in the future, and if we are unable to obtain these licenses, our business could be harmed.”
Removed heading “The 2018 Farm Bill, which federally legalized hemp and hemp products, could be amended to severely restrict or prohibit the Company’s hemp-derived THC products.”
Removed heading “States are passing their own laws regulating, restricting or prohibiting hemp-derived products, creating a difficult regulatory patchwork within which to operate.”
Removed heading “Hemp-derived THC products are not permitted under the FDCA.”
Removed heading “The FDA could issue new regulations that prohibit or strictly limit the sale of hemp-derived products.”
Removed heading “Other federal agencies may take enforcement actions against companies selling hemp-derived products.”
Removed heading “Hemp-derived products are federally illegal if they exceed 0.3% delta-9-THC on a dry weight basis.”
Removed heading “Third parties with whom we do business may perceive themselves as being exposed to reputational risk because of their relationship with us due to our cannabis and hemp-related business activities and may as a result, refuse to do business with us.”
Removed heading “We face competition from the illicit market as well as larger competitors and licensed medical and adult use cannabis dispensaries.”
Removed heading “Inconsistent public opinion and perception of the cannabis and hemp industries may hinder market growth and state regulation, which would adversely impact our growth plans and current operations and result in an adverse effect on our business, financial condition and results of operations.”
Removed heading “Hemp-derived products may be shown to have negative health and/or safety impacts upon consumers”
Removed heading “We face risks due to industry immaturity or limited comparable, competitive or established industry best practices.”
Removed heading “The cannabis and hemp industries could face strong opposition from other industries”
Removed heading “Our business depends in part on client licensing”
Removed heading “Banking regulations could limit access to banking services”
Removed heading “We participate in an evolving industry”
Removed heading “We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely requirements applicable to public companies, which may adversely affect investor confidence in us, and, as a result, the market price of our Common Stock.”
Largest changes
“The Company currently sells certain of its products in Canada and may conduct sales in other international markets in the future. Doing so would subject the Company to the statutes, regulations, and international treaties of the countries where it operates or engages in trade. Failure to adhere to existing or evolving laws in any jurisdiction could materially impact the Company’s business. There is also a risk that authorities in these jurisdictions may determine that the Company was or is not in compliance with their laws. …”see in full comparison
“The Company currently sells its products in Canada and may conduct sales in other international markets in the future. Doing so would subject the Company to the laws, regulations, and international treaties of the countries where it operates or engages in trade. Failure to adhere to existing or evolving regulations in any jurisdiction could materially impact the Company’s business. There is also a risk that authorities in these jurisdictions may determine that the Company was or is not in compliance with local laws. …”see in full comparison
“We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely requirements applicable to public companies, which may adversely affect investor confidence in us, and, as a result, the market price of our Common Stock.”see in full comparison
“We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. …”see in full comparison
“Furthermore, we cannot provide assurance that our internal controls and compliance systems will protect us from acts committed by our employees, agents or business partners, including Green Thumb, in violation of U.S. federal or state or local laws. Any improper acts or allegations could damage our reputation and subject us to civil or criminal investigations and related shareholder lawsuits, could lead to substantial civic and criminal monetary and non-monetary penalties and could cause us to incur significant legal and investigatory fees.”see in full comparison
“Furthermore, we cannot provide assurance that our internal controls and compliance systems will protect us from acts committed by our employees, agents, or contracted third parties in violation of U.S. federal or state or local laws. Any misconduct or even allegations could damage our reputation and subject us to civil or criminal investigations and shareholder lawsuits, could lead to substantial civil and criminal monetary and non-monetary penalties or damages, and could cause us to incur significant legal and investigatory fees.”see in full comparison
Full comparison: every changed paragraph (142)
The 2018 Farm Bill, which federally legalized hemp and hemp products, was amended in a way that would severely restrict or prohibit the Company’s hemp-derived THC products.
The 2018 Farm Bill, which is the legal basis for the Company’s entry into the hemp-derived THC product market, legally defined hemp as Cannabis Sativa L. containing less than 0.3% delta-9-THC on a dry weight basis, effectively legalizing hemp in the United States. The 2026 Appropriations Act includes a provision (section 781) to amend the definition of hemp in the 2018 Farm Bill to effectively prohibit currently commercialized hemp-derived THC products, including the Company’s products, although the change does not become effective until November 12, 2026. Efforts are underway to repeal, replace, or delay this amendment, but whether any change will occur is uncertain. This creates significant uncertainty for our business of selling hemp-derived THC products. It is unclear, for example, if states that have expressly allowed the commercialization of such products will continue to do so in spite of the changes to federal law. If the 365-day grace period expires without a legislative change, it will have a material adverse effect on the Company, including our business, financial condition, and results of operations. In that event, the market price of the Company’s common stock could decline.
States are passing their own laws regulating, restricting, or prohibiting hemp-derived THC products, creating a difficult regulatory patchwork within which to operate.
State and local authorities have been active over the last few years, implementing their own laws regulating the cultivation, manufacturing, testing, marketing, and sale of both intoxicating and non-intoxicating hemp products. Some states ban these products altogether. Other state laws permit hemp-derived THC products but impose new regulatory frameworks containing licensing and labeling requirements, age gates, amount and potency restrictions, allowable types of products, and restrictions on where the products may be sold. The varied state regulatory framework for hemp products poses risks to manufacturing, marketing, selling, and shipping hemp-derived THC products around the country, whether wholesale or direct to consumers via online or brick-and-mortar retail locations. Additionally, hemp legislation is pending at the state level around the country, creating additional risk to the sale and transport of products already produced under existing laws. Unforeseen regulatory obstacles or compliance costs related to state laws may hinder the Company’s ability to successfully compete in some markets for such products. Further, states in which the Company currently sells its hemp-derived THC products could decide in the future to ban these products altogether. If these regulatory changes occur, the revenue streams we expect to receive from our businesses and assets would be at risk and, as a result, such changes could have a material adverse effect on our business, financial condition, and results of operations.
Hemp-derived THC products are not permitted under the Federal Food, Drug, and Cosmetic Act.
The Food and Drug Administration (“FDA”) has taken the position that ingestible products over which it has jurisdiction, including foods, beverages, and dietary supplements, that contain cannabinoids such as THC, including hemp-derived THC, are not permitted under the Federal Food, Drug, and Cosmetic Act (“FDCA”). The FDA has not evaluated THC as a food ingredient, and therefore does not consider it to be GRAS (Generally Recognized as Safe) for use in foods, including beverages. The FDA has also found that because THC is in certain drugs approved by the FDA, it is precluded from use in foods/beverages or dietary supplements. The FDA has articulated its intention to focus enforcement on products claiming to prevent, diagnose, mitigate, treat, or cure diseases, and/or manufacturers who target products toward children. The FDA has issued warnings about products that resemble candy or other items appealing to children, emphasizing that such products could pose a risk of unintentional ingestion and potential harm due to the presence of cannabinoids. Thus far, such enforcement has been limited to sending warning letters to a relatively small number of companies. The FDA may decide in the future to increase enforcement activities, regardless of whether a company makes health claims related to its products or markets to children, which could impact the Company’s offering of hemp-derived THC beverages and materially impact operations and revenue.
The FDA could issue new regulations that prohibit or strictly limit the sale of hemp-derived THC products.
The FDA has previously declined to issue regulations for the manufacture and sale of hemp-derived THC products. For example, in 2023, the FDA denied three citizen petitions asking the FDA to conduct rulemaking to allow the marketing of CBD, another hemp-derived cannabinoid, as dietary supplements. In conjunction with these denials, the FDA has publicly stated that a new regulatory pathway should be created by Congress to regulate CBD and other cannabinoid products. The 2026 Appropriations Act directs the FDA to create and maintain lists of allowable and prohibited cannabinoids and promulgate other regulations further defining what items will qualify as a container for purposes of measuring cannabinoid content. The FDA could also decide to change or increase its enforcement of hemp products based on this new directive. New FDA regulations could materially and negatively impact the Company’s operations and revenue. New FDA regulations could also require the Company to make financial investments in additional compliance mechanisms which could impact our profitability and the market price for our Common Stock.
Other federal agencies may take enforcement actions against companies selling hemp-derived THC products.
The Federal Trade Commission (“FTC”) and FDA frequently collaborate on enforcement where their jurisdictions overlap, particularly in regulating the advertising, labeling, and promotion of food, cosmetics, medical devices, and OTC (over-the-counter) drugs. In the CBD market, the FTC has joined the FDA in issuing warning letters to companies that lacked competent and reliable scientific evidence supporting their advertisements, thereby violating the FTC Act, 15 U.S.C. § 41 et seq. The FTC has also independently issued warning letters to CBD companies for making exaggerated or misleading claims without sufficient scientific backing. While FTC enforcement actions related to CBD were historically limited to warnings, in December 2020, the agency initiated its first formal enforcement action against six CBD companies for allegedly making unsupported health claims, leading to settlement agreements that required those companies to cease such claims and pay monetary judgments. In 2023 and 2024, the FTC sent cease and desist letters to companies marketing hemp-derived THC products that it determined appealed to children. Although the Company does not intend to make any unsubstantiated claims regarding its products, the FTC may disagree with our assessment of our claims. The regulatory landscape and potential for future FTC enforcement actions could pose an ongoing risk to the Company’s offering of hemp-derived THC products, especially if the Company’s products are targeted by the FTC, or the FTC and FDA together, in the future for any reason.
Hemp-derived THC products are federally illegal if they exceed 0.3% delta-9-THC on a dry weight basis.
Hemp-derived THC products which exceed a delta-9-THC concentration of 0.3% on a dry weight basis are federally illegal under the Controlled Substances Act (the “CSA”).
Any failure by the Company or our partners to keep the delta-9-THC in our hemp-derived THC products below 0.3% on a dry weight basis, either in the manufacturing process or in the final product, could subject us to action by regulatory authorities and/or to lawsuits by consumers. Certain hemp-derived THC products may, over time, gradually increase their delta-9-THC or total THC concentration, and this may ultimately cause such products to exceed the applicable concentration level, making such products illegal in certain jurisdictions. In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the delta-9-THC levels reflected in consumers’ blood tests are the result of hemp-derived THC products or marijuana products. This may result in regulatory actions or lawsuits. If any of these situations occur, we may be subject to regulatory action or lawsuits that could have a material adverse effect on the Company.
The Company currently sells certain of its products in Canada and may conduct sales in other international markets in the future. Doing so would subject the Company to the statutes, regulations, and international treaties of the countries where it operates or engages in trade. Failure to adhere to existing or evolving laws in any jurisdiction could materially impact the Company’s business. There is also a risk that authorities in these jurisdictions may determine that the Company was or is not in compliance with their laws. If its past or present activities are found to violate such laws, the Company could face enforcement actions, including civil or criminal penalties, fines, damages, operational restrictions or restructuring, asset seizures, and the denial of regulatory approvals.
Third parties with whom we do business may perceive themselves as being exposed to reputational, and even legal, risk because of their relationship with us due to our hemp- and limited cannabis-related licensing activities and may, as a result, refuse to do business with us.
The third parties with whom we do business may perceive that they are exposed to reputational, or possibly even legal, risk because of our hemp- or limited cannabis-related business activities. Any third-party service provider or customer could suspend or withdraw its business if it perceives that the potential risks exceed the potential benefits of doing business with us. Specifically, while we have banking relationships and believe that the services we rely on can be procured from other institutions, we may, in the future, have difficulty maintaining existing or securing new bank accounts or clearing services. Our failure to establish or maintain business relationships could have a material adverse effect on our business, financial condition, and results of operations.
We face competition from the illicit market as well as larger competitors and licensed medical and adult-use cannabis dispensaries.
The U.S. cannabis and hemp industries are, and are expected to continue to be, competitive. A number of other companies engage in, and may in the future engage in, cannabis or hemp-related businesses, operate businesses in competition with us, and purchase businesses and assets or make investments that we will also seek to purchase or make. We face and expect to continue to face competition from state-licensed medical and adult-use dispensaries as well as the illicit market. Additionally, if the Attorney General reschedules cannabis to Schedule III, competition from state-licensed cannabis companies could intensify as the industry becomes more normalized.
Large chain stores, manufacturers, retailers, and beverage and other consumer products companies that also recognize the potential for financial success through acquisitions and investment in the hemp-derived THC industry could strategically acquire competitors or invest in creating their own brands. In doing so, these larger competitors could produce and sell competing products at a lower price and establish a larger brand presence than we have. We may lack the personnel, products, marketing, and distribution capabilities, and/or financial resources to compete effectively against such larger competitors.
We also face competition from the illicit market and illegal dispensaries and cultivation operations that are unlicensed, not regulated and that are selling cannabis or hemp-derived products. Any inability or unwillingness of law enforcement authorities to enforce existing laws prohibiting the unlicensed production and sale of cannabis or hemp-derived products could result in increased competition for us. Additionally, illicit products may be unsafe, and negative press caused by such products could impact the reputation of our products with consumers who may not distinguish between responsible suppliers like the Company and illicit operators. Any or all these events could have a material adverse effect on our business, financial condition, and results of operations.
Inconsistent public opinion and perception of the cannabis and hemp industries may hinder market growth and state regulation, which would adversely impact our growth plans and current operations and result in an adverse effect on our business, financial condition, and results of operations.
Public opinion and support for cannabis and hemp-derived THC products has traditionally been inconsistent and varies from state to state. While public opinion and support has historically been increasing in the U.S. for legalizing cannabis and for continued access to hemp-derived THC products, opposition to legalization remains, and the support could diminish. Inconsistent public opinion and perception of cannabis and hemp hinder growth of the hemp industry, which could have a material adverse effect on our business plans, financial condition, and results of operations.
Consumer perception of our products may be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention, and other publicity regarding the consumption of cannabis and hemp-derived THC products. There can be no assurance that future scientific research and findings, regulatory proceedings, litigation, media attention, or other research findings or publicity will be favorable to the cannabis or hemp markets or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention, or other publicity that is perceived as less favorable than, or questions earlier research reports, findings, or publicity, could have a material adverse effect on the demand for our products. Our dependence upon consumer perceptions means that such adverse reports, whether or not accurate or with merit, could ultimately have a material adverse effect on our business, results of operations, financial condition, and cash flows. Further, adverse publicity reports or other media attention regarding the safety, efficacy, and quality of hemp-derived THC products in general, or our products specifically, or associating the consumption of cannabis or hemp-derived THC products with illness or other negative effects or events, could have a material adverse effect. A failure or alleged failure of quality control processes and procedures could result in negative consumer perception of our products or legal claims against us. Adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.
Hemp-derived THC products may be shown to have negative health and/or safety impacts upon consumers.
The health and safety impacts of hemp-derived THC products have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that certain CBD products may have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. If the FDA, scientific research and/or clinical studies ultimately demonstrate negative health and/or safety impacts of cannabis or hemp-derived THC products on consumers, our business and the trading price of our Common Stock could be materially adversely affected.
We face risks due to industry immaturity or limited comparable, competitive, or established industry best practices.
Because the hemp-derived THC industry is new, there are relatively few operators in the industry whose business models we can follow or build upon. Similarly, there is no or limited information about comparable companies available for potential investors to review in making a decision about whether to invest in us.
The cannabis and hemp industries could face strong opposition from other industries.
We believe that established businesses in other industries may perceive strong economic interests in opposing the development of the cannabis and hemp industries. Cannabis and hemp may be seen by companies in other industries as an attractive alternative to their products, such as alcohol, and as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging cannabis and hemp industries as economic threats are well established, with vast economic and federal and state lobbying resources. It is reported that companies within these industries may have played a role in the recent federal legislation to reverse the 2018 Farm Bill’s legalization of certain hemp products, and it is possible these industries play similar roles in anti-cannabis efforts. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis and hemp industries could have a detrimental impact on some of our customers and, in turn, on our operations.
Our business depends in part on our customers obtaining and/or maintaining appropriate licensing.
Our business is partly dependent on certain of our customers obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for our customers to operate their businesses will be obtained, retained, or renewed. If a licensing body were to determine that a customer of ours had violated applicable rules and regulations, there is a risk the license granted to that customer could be revoked, which could adversely affect our revenue streams from such clients. There can be no assurance that our existing customers will be able to retain their licenses going forward, or that the Company would be able to acquire new customers to sell its products in those markets.
Our business is subject to a number of risks and hazards generally, including adverse environmental conditions, accidents, labor disputes, and changes in the regulatory environment. Such occurrences could result in damage to assets, personal injury or death, environmental damage, delays in operations, monetary losses, and possible legal liability.
Although we intend to continue to maintain insurance to protect against certain risks in such amounts as we consider to be reasonable, our insurance will not cover all the potential risks associated with our operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums, particularly given changes to federal law under the 2026 Appropriations Act. Insurance coverage may cease to be available or may not be adequate to cover any resulting liability. Moreover, insurance against certain hazards encountered in our operations may not be generally available on acceptable terms. We might also become subject to liability for pollution or other hazards which we may not be insured against or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect upon our financial performance and results of operations.
We participate in an evolving and volatile industry.
The hemp industry is still new, and many aspects of the industry’s development and evolution cannot be accurately predicted. While we have attempted to identify many risks specific to the hemp industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this report, which could materially and adversely affect our business and financial performance. We expect that the hemp and cannabis markets and our business will continue to evolve in ways that are difficult to predict. Our long-term success may depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes in the hemp and cannabis industries, our operations could be adversely affected.
Banking regulations could limit access to banking services.
Since the use of cannabis is illegal under federal law, and hemp-derived THC may become illegal under the 2026 Appropriations Act, there may be a compelling argument that banks cannot lawfully accept or deposit funds from businesses involved with cannabis, or, after November 12, 2026, hemp-derived THC. Consequently, businesses involved in the cannabis industry often have, and the hemp industry may have, trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for some of our customers or licensees to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Although the proposal of the Secure and Fair Enforcement Regulation Banking Act, also referred to as the SAFER Banking Act, would allow banks to work with cannabis businesses and prevent federal banking regulators from intervening or punishing those banks, the legislation still requires the approval of the U.S. House and Senate. There can be no assurance that the SAFER Banking Act or any similar legislation will become law in the U.S.
We have a relatively shortlimited
operating history, which makesmay make it difficult to evaluate our business and future prospects. WeAlthough we were formed in June 2016, we
have since discontinued our cultivation and extraction operations and have beenrecently inentered existencenew since June 2016 and
muchlines of ourbusiness, revenueincluding growththe occurreddevelopment
and duringcommercialization 2021of hemp-derived THC products and 2022,the with a decreaselicensing of revenuesconsumer notedpackaged ingoods 2023brands. andThese 2024. In addition, we have entered
into a new line ofnewer business followinglines the acquisition of Señorita, which has have
a limited operating historyhistory, which increases the uncertainty associated with assessing our performance and havefuture discontinued
our Cultivation business.results. We have encountered,
and will continue to encounter, risks and difficulties frequently experienced by growing
companies in rapidly changing industries, including
those related to:
AtAs of December 31, 2024,2025, we
had approximately $31.2$32.2 million of cash
and cash equivalents. Our operating plan may change because of factors currently unknown to us,
and we may need to seek additional funds
sooner than planned. Even if we are able to substantially increase revenue and reduce operational
expenditures, we may need to raise additional
capital, either through borrowings, private offerings, public offerings, or some type of
business combination, such as a merger or buyout,
and there can be no assurance that we will be successful in such pursuits. Accordingly,
if we are unable to generate adequate cash from
operations, and if we are unable to find sources of funding, it may be necessary for us
to sell one or more lines of business or all or
a portion of our assets, enter into a business combination, or reduce or eliminate operations.
These possibilities, to the extent available,
may be on terms that result in significant dilution to our shareholders or that result in
our investors losing all of their investment
in our company.
We face exposure to the risk that employees, independent contractors, or consultants may engage in fraudulent or other illegal activities. Misconduct by these parties could be intentional, reckless and/or negligent conduct. There may be disclosure of unauthorized activities that violate government regulations, manufacturing standards, health care laws, abuse laws, and other financial reporting laws. Further, it may not always be possible for us to identify and deter misconduct by our employees and other third parties, and the precautions taken by us to detect and prevent these activities may not always be effective. As a result, we could face potential penalties and litigation.
Furthermore, we cannot provide assurance that our internal controls and compliance systems will protect us from acts committed by our employees, agents, or contracted third parties in violation of U.S. federal or state or local laws. Any misconduct or even allegations could damage our reputation and subject us to civil or criminal investigations and shareholder lawsuits, could lead to substantial civil and criminal monetary and non-monetary penalties or damages, and could cause us to incur significant legal and investigatory fees.
Since our inception, we have
strategically acquired
several businesses, and planwe tomay continue to make strategic acquisitions, some of which may be material. These acquisitions
may involve
a number of financial, accounting, managerial, operational, legal, compliance, and other risks and challenges, including the following,
following, any of which could adversely affect our results of operations:
We may record goodwill and
othergoodwill, intangible assets or other assets on our consolidated balance sheet in connection with our acquisitions. If we are not
able to realize the value
of these assets, we may be required to incur charges relating to the impairment of these assets, which
could materially impact our results
of operations.
We currently have, and may
in the future enter into, additional strategic alliances with third parties that we believe will complement or augment our existing business.
In particular, we currently relyhave onshared services agreements with Green Thumb for significant legal, accounting and operational supportsupport,
including throughsales aand sharedmarketing servicessupport. agreement.
Our ability to complete strategic alliances is dependent upon, and may be limited by, the availability
of suitable candidates and capital.
In addition, strategic alliances could present unforeseen integration obstacles or costs, may not
enhance our business and may involve
risks that could adversely affect us, including significant amounts of management time that may
be diverted from operations in order to
pursue and complete such transactions or maintain such strategic alliances. Future strategic
alliances could result in the incurrence
of additional debt, costs and contingent liabilities, and there can be no assurance that future
strategic alliances will achieve, or that
our existing strategic alliances will continue to achieve, the expected benefits to our business
or that we will be able to consummate
future strategic alliances on satisfactory terms, if at all. Termination of any strategic alliances,
including our shared services agreement
with Green Thumb, could significantly disrupt our business. Any of the foregoing could have a
material adverse effect on our business,
financial condition and results of operations.
In order to position our
business business
to take advantage of particular future growth opportunities and/or consolidate our more capable businesses, we have in the past
and may
in the future pursue a strategy of focusing on one or more specialized facets of our products and services. These actions may
require require
that we abandon or divest certain assets or businesses that no longer fit within our evolving strategic direction, as we did
with the
sale of our cultivation business and exit of our extraction business. Abandoning or divesting certain assets or businesses may
entail engaging in discussions, evaluating
opportunities and entering into agreements, potentially resulting in transactions involving
significant risks and uncertainties that could
adversely affect our business, results of operations and financial condition. We may not
be able to find potential buyers on favorable
terms, we may experience disruption to our business and/or we may divert management attention
from other business concerns, lose key employees
and possibly retain certain liabilities related to these potential transactions.
From November 2024 through August 2025, we issued multiple Notes of which $80.0 million in principal is outstanding as of December 31, 2025. The Notes, which rank on parity, are senior secured obligations. The Notes impose certain customary affirmative and negative covenants upon us, including relating to ranking and reservation of shares.
On November 5, 2024, we issued the Note to the Investor, a subsidiary
of Green Thumb for up to $20.0 million in original principal amount, of which $10.0 million has been loaned by the Investor to date. The
Note is a secured obligation and ranks senior to all of our current indebtedness. The Note will mature on November 5, 2025 and accrues
interest at a rate of 10% per annum.
The Note imposes certain
customary affirmative and negative covenants upon us, as well as covenants that restrict us and our subsidiaries from incurring any additional
indebtedness or suffering any liens, subject to specified exceptions, and restrict the declaration of any dividends or other distributions,
subject to specified exceptions.
If wean areevent of default under
the Notes occurs and is not inwaived, compliancethe withholder certaincan elect to accelerate all or a portion of thesethe covenants,then-outstanding inprincipal additionamount of the
applicable Notes, plus accrued and unpaid interest, including default interest, which accrues at a rate per annum equal to other14% actions
the Investor may require,from the
date amountsof outstandinga underdefault theor Noteevent mayof become immediately due and payable.default. This immediate payment may negatively
impact our financial condition. In addition, any failure
to make scheduled payments of interest and principal on our outstanding indebtedness
would likely harm our ability to incur additional
indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient
to pay interest and principal on our debt in
the future. If that should occur, our capital raising or debt restructuring measures may
be unsuccessful or inadequate to meet our scheduled
debt service obligations, which could cause us to default on our obligations and further
impair our liquidity.
Our ability to make scheduled payments on our debt and other financial
obligations depends
on our financial and operating performance. Our financial and operating performance will continue to be subject to
prevailing economic
conditions and to financial, business, and other factors, some of which are beyond our control. Failure within any
applicable grace or
cure periods to make such payments, or comply with any covenant, would create a default under the Notes. Our cash
flow and existing capital
resources may be insufficient to repay our debt at maturity, in which case we would have to extend such maturity
date, or otherwise repay,
refinance, and/or restructure the obligations under the Note,Notes, including with proceeds from the sale of assets,
and additional equity or
debt capital. If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance,
or restructure prior to
maturity, or any other default existed under the Note,Notes, the Investorholder could accelerate the indebtedness under the Note,
Notes, foreclose against
its collateral, or seek other remedies, which would jeopardize our ability to continue our current operations.operations
and raise substantial doubt about the Company’s ability to continue as a going concern.
Our business is dependent
on a number of key
inputs and their related costs, including raw materials, parts and supplies. Any significant interruption or negative
change in the availability
or economics of the supply chain for key inputs could materially impact our business, financial condition,
results of operations or prospects.
Some of these inputs may only be available from a single supplier or a limited group of suppliers,
or be sourced abroad. If a sole limited
source supplier was to go out of business, we might be unable to find a replacement for such source in
a timely manner, or at all. If
a solelimited source supplier were to be acquired by a competitor, that competitor may elect not to sell to us
in the future. Manufacturing
delays or unexpected transportation delays, particularly from materials we source abroad, can also cause
us to incur significantly increased
costs. Any of these fluctuations may increase our cost of products and have an adverse effect on our
profit margins, results of operations
and financial condition. Any inability to secure required supplies and services, or to do so on
appropriate terms, could have a materially
adverse impact on our business, prospects, revenue, results of operations and financial condition.
The products sold by our
Señoritahemp-derived beverage business are co-manufactured by third parties. We do not typically have any direct control over these third-party
co-manufacturers. co-manufacturers.
These third-party co-manufacturers could experience quality control issues, equipment problems, data loss, and other
events relating to
the products they produce that could impact the quality of those products. Should the third-party co-manufacturers
we rely upon not deliver
at standards we expect and desire, acceptance of our products could suffer, which would have an adverse effect
on our business and financial
performance. Further, we cannot be assured of entering into agreements with such third-party co-manufacturers
on economically favorable
terms.
Manufacturers, distributors
and retailers of products are sometimes subject to the recall or return of their products for a variety of reasons, including product
defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate
or inaccurate labeling disclosure. If any of our products or products sold at our retail stores are recalled due to an alleged product
defect or for any other reason, we could
be required to incur the unexpected expense of the recall and any legal proceedings that might
arise in connection with the recall. We
may lose a significant amount of sales and may not be able to replace those sales at an acceptable
margin, if at all. In addition, a
product recall may require significant management attention. There can be no assurance that any quality,
potency or contamination problems
will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally,
if any of our brands were
subject to recall, our image and the image of that brand could be harmed. A recall for any of the foregoing
reasons could lead to decreased
demand for our products and could have a material adverse effect on the results of our operations and
financial condition. Additionally,
product recalls may lead to increased scrutiny of our operations by the FDA, or other regulatory agencies,
requiring further management
attention and potential legal fees and other expenses.
The growth and success of our business
are depends
onsignificantly affected by the continued contributions of personnel employed by Green Thumb, as well as our ability to attract and
retain qualified personnel.
Our growth and success are
dependentsignificantly uponaffected by the continued contributions made by our Chairman of the Board and Interim Chief Executive Officer, Benjamin
Kovler, by our Chief Financial Officer, Brad Asher and
by other individuals who are employees of Green Thumb and who provide services
to us under a shared services agreement. We rely on Mr.
Kovler’s expertise in business operations and the cannabis and hemp industries
when we are developing or acquiring new products
and services.services and on Mr. Asher’s financial and reporting expertise. If Mr. Kovler
or Mr. Asher cannot serve us or isare no longer willing to do so, or if Green Thumb no longer provides personnel support to
us under the
shared services agreement,agreements, we may not be able to find alternatives in a timely manner or at all. This may have a material
adverse effect
on our business. In addition, our growth and success will depend to a significant extent on our ability to identify, attract,
hire, train
and retain qualified professional, creative, technical and managerial personnel. Competition for experience and qualified
talent can
be intense. We may not be successful in identifying, attracting, hiring, training and retaining such personnel in the future.
If we are
unable to hire, assimilate and retain qualified personnel in the future, such inability could adversely affect our operations.
We rely on third parties, including our
largest shareholder, to provide numerous capabilities that we depend upon on to operate, and a disruption of these systems could adversely
affect our business.
We are dependent on
vendors and third-party providers, including the services of the employees
of Green Thumb, our largest shareholder, under shared
services agreements. A serious disruption to any of these could significantly limit
our ability to serve our customers. The failure
of one or more such providers to provide the expected services, provide them on a timely
basis or provide them at the prices we
expect, or otherwise meet our performance standards and expectations (including with respect to
data security, compliance and data
privacy and protection laws) may adversely affect our business. Further, if we found it necessary to
replace any such service
provider, disruptions arising from the transition of functions to an alternative provider, or the costs of developing
our own
functions if we were unable to find an alternate provider, may have a material adverse effect on our results of operations or
financial condition. Any disruption could cause adversely impact our results of operations and the trading price of our Common Stock.common
stock.
ProtectingOur success depends in part upon our ability
to protect our intellectual property and protecting and defending against intellectual
property claims may have a material adverse effect
on our business.business
Our ability to compete depends,
in part, upon the successful protection of our intellectual property relating to our Señorita product line and our extraction products.
We seek to protect our proprietary and intellectual property rights through patent applications, common law copyright and trademark laws,
nondisclosure agreements, and non-disclosure provisions within our licensing and distribution arrangements with reputable companies in
our target markets. Enforcement of our intellectual property rights would be costly, and there can be no assurance that we will have the
resources to undertake all necessary action to protect our intellectual property rights or that we will be successful. Any infringement
of our material intellectual property rights could require us to redirect resources to actions necessary to protect same and could distract
management from our underlying business operations. An infringement of our material intellectual property rights and resulting actions
could adversely affect our operations.
It is possible that, for
any of our patents that may issue in the future, our competitors may design their products around our patented technologies. Further,
we cannot assure shareholders that other parties will not challenge any patents granted to us, or that courts or regulatory agencies will
hold our patents to be valid, enforceable, and/or infringed. We cannot guarantee shareholders that we will be successful in defending
challenges made against our patents and patent applications. Any successful third-party challenge or challenges to our patents could result
in the unenforceability or invalidity of such patents, or such patents being interpreted narrowly and/or in a manner adverse to our interests.
Our ability to establish or maintain a technological or competitive advantage over our competitors and/or market entrants may be diminished
because of these uncertainties. For these and other reasons, our intellectual property may not provide us with any competitive advantage.
Management's Discussion & Analysis (MD&A)
Removed heading “Reverse Stock Splits”
Removed heading “Recent Developments”
Removed heading “February 2025 Changes in Directors”
Removed heading “Public Offering”
Removed heading “Debt Modification; Warrant Amendments”
Removed heading “Change in Accounting Firm”
Removed heading “Equity Line of Credit Facility”
Removed heading “Sale of Cultivation Business”
Removed heading “Señorita Acquisition”
Removed heading “Private Placement”
Removed heading “Convertible Note”
Removed heading “2024 Board and Management Changes”
Removed heading “Lines of Business”
Removed heading “Hemp-Derived Beverages”
Removed heading “Extraction Solutions”
Removed heading “Discontinued Operations”
Removed heading “Cultivation Solutions”
Removed heading “Note Amendment, Consolidation and Conversion”
Removed heading “Issuance of Junior Note”
Removed heading “Mack Molding Modification Agreement”
Removed heading “Convertible Note Amendment”
Removed heading “Nasdaq Compliance”
Removed heading “Use of Estimates”
Removed heading “Financial Overview”
Removed heading “Discontinued Operations”
Removed heading “Revenue Recognition”
Removed heading “Business Combinations”
Removed heading “Accounting for Stock-Based Compensation”
Removed heading “Research and Development”
Removed heading “Loss on extinguishment of notes payable”
Removed heading “CP Acquisitions Junior Secured Note”
Removed heading “Consolidated CP Acquisitions Note”
Removed heading “GIC Acquisition Note”
Removed heading “CP Promissory Note”
Largest changes
“The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. …”see in full comparison
“On January 25, 2024, following stockholder approval at an annual meeting of stockholders on January 8, 2024, we and CP consolidated the outstanding principal and interest due under the junior secured promissory note (the “Junior Secured Note”) to CP and a promissory note with an original principal amount of $35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original Lender”) into a convertible note (the “Convertible Note”) and amended and restated the Convertible Note (as amended and restated, the “Restated Note”), with an outstanding principal amount of …”see in full comparison
“The May 2025 Notes and August 2025 Notes (together referred to as “the Notes”) impose certain customary affirmative and negative covenants upon the Company, including covenants relating to ranking and reservation of shares. If an event of default under one or more of the Notes occurs and is not waived, the holder can elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus accrued and unpaid interest, including default interest, which accrues at a rate per annum equal to 14% from the date of a default or event of default. …”see in full comparison
“We follow the provisions of ASC 740, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. …”see in full comparison
“We recognize the excess of the purchase price over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter of the year, or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. …”see in full comparison
“As disclosed in the Current Report on Form 8-K filed on April 17, 2023, the audit committee of our Board (the “Audit Committee”) concluded that, as a result of inadvertent errors in the accounting for warrants previously issued by us, it was appropriate to restate our previously issued unaudited consolidated interim financial statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in our Quarterly Reports on Form 10-Q for such periods in amended quarterly reports for the affected periods. …”see in full comparison
Full comparison: every changed paragraph (153)
Unless otherwise stated
or the context otherwise
requires, references in this report to “AgrifyRYTHM”, the “Company,” “we,” “us,”
“our,”
or similar references mean AgrifyRYTHM, CorporationInc. and its subsidiaries on a consolidated basis.
AgrifyRYTHM is a developer of
branded innovative solutions for the cannabis
and hemp industries. The Company’s portfolio of consumer-packaged goods brands includes
RYTHM, incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita. Our Señorita brand
offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages thatand mirrorare sold at top retailers, online and through direct-to-retail
partnerships. The Señorita brand mirrors well-known cocktails like a margarita – in threefour flavors – classic Lime Jalapeño
Margarita, Mango Margarita, Paloma and Paloma.
Ranch Water. Known for its clean, fresh taste and commitment to high-quality, natural ingredients,
Señorita offers a low-sugar, low-calorie alternative
to alcoholic beverages and is available in fifteen U.S. states and Canada
including at top retailers includingsuch as Total Wine, ABC Fine Wine & Spirits, and Binny’sBinny’s. The RYTHM branded beverage comes in ninetwo
U.S.fruit-driven statesflavors with effect-based ingredients. Other hemp-derived products including incredibles and Canada,Beboe withedible plansproducts are primarily
sold online and through direct-to-retail partnerships. In addition to the sale of hemp-derived products (“Non-licensing Revenue”),
the Company licenses its brands to be manufactured and distributed in exchange for expansiona andlicensing futurefee availability(“Licensing in premier on-premises destinations.Revenue”).
In addition to beverages,
AgrifyRYTHM has also historically
been a leading provider of innovative cultivation and extraction solutions for the cannabis industry. OurPrior to the exit of the extraction
business on March 30, 2025, the Company’s comprehensive extraction product line,line (“the Extraction Business”), which includes
included hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers
empowered cannabis producers to maximize the quantity
and quality of extract required for premium concentrates. Additionally, prior to its sale on December
31, 2024, ourthe Company’s proprietary
micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce
high quality products
for the cannabis industry.industry (“the Cultivation Business”). As the discontinuation of the Extraction Business and the sale of
the Cultivation Business represented strategic shifts that had a major effect on our operations and financial results, they have been
presented in discontinued operations separate from continuing operations for the years ended December 31, 2025 and 2024 in the Company’s
consolidated statements of operations and applicable footnotes in accordance with ASC 205, Presentation of Financial Statements.
Please refer to Item 1 and the notes to the consolidated financial statements for details on recent developments and significant transactions
during the period.
Agrify was incorporated
in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or “Agrinamics”). On September 16, 2019,
Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.
Reverse Stock Splits
On July 5, 2023, we effected a 1-for-20 reverse stock split of our
common stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods
presented unless otherwise indicated.
On October 8, 2024, we effected a 1-for-15 reverse stock split of our
common stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock splits for all periods
presented unless otherwise indicated.
No fractional shares of common stock were issued as a result of these
reverse stock splits. Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and
no stockholders received cash in lieu of fractional shares. The reverse stock splits had no impact on the number of shares of common stock
that we are authorized to issue pursuant to our articles of incorporation or on the par value per share of the common stock. Proportional
adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of our outstanding stock options and
warrants, the exercise price or conversion price (as applicable) of our outstanding stock options and warrants, and the number of shares
reserved for issuance under our equity incentive plan. All share and per share information included in this Annual Report on Form 10-K
has been retroactively adjusted to reflect the impact of these reverse stock splits.
Recent Developments
February 2025 Changes in Directors
On February 5, 2025 the
Company announced that Peter Shapiro and Sanjay Tolia were appointed to our Board of Directors (the “Board”) effective January
31, 2025. The Company also announced Richard Drexler’s departure from the Board effective as of January 31, 2025.
Public Offering
On February 27, 2024, we
entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed to issue and sell
an aggregate of 184,000 shares of Common Stock, and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants (“Pre-Funded
Warrants”) to purchase 264,245 shares of Common Stock. The public offering price for each share of Common Stock was $5.70, and the
offering price for each Pre-Funded Warrant was $5.69, which equals the public offering price per share of the Common Stock, less the $0.001
per share exercise price of each Pre-Funded Warrant. The Offering was made pursuant to a registration statement on Form S-1 that we filed
with the SEC on January 26, 2024 and was declared effective on February 14, 2024. Raymond Chang, our former Chairman and Chief Executive
Officer, participated in the offering on the same terms as other investors. The net proceeds from the public offering were approximately
$2.2 million, after deducting placement agent fees and commissions and expenses. The public offering closed on February 28, 2024.
Debt Modification; Warrant Amendments
On May 21, 2024, we and CP
entered into an amendment to the Convertible Note (the “Consolidated Note Amendment”), pursuant to which CP could elect, in
lieu of shares of Common Stock issuable upon conversion of the Convertible Note, to instead receive Pre-Funded Warrants. The conversion
price applicable to the Pre-Funded Warrants remained unchanged at $21.90. Immediately following the execution of the Consolidated Note
Amendment, CP elected to convert $11.5 million of outstanding principal into a Pre-Funded Warrant exercisable at issuance for up to 525,114
shares of Common Stock having a fair value of approximately $2.9 million (the “CP Warrant Conversion”).
On May 21, 2024, we and GIC
Acquisition, LLC (“GIC”), the holder of an unsecured promissory note (the “GIC Note”), amended and restated the
GIC Note (the “Restated GIC Note”) to increase the aggregate principal amount to approximately $2.29 million, extend the maturity
date to December 31, 2025, and provide that the Restated Junior Note may be converted into Common Stock of the Company or, at GIC’s
election, Pre-Funded Warrants, in each case at a conversion price of $4.65. Immediately following the execution of the Restated GIC Note,
GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded Warrant exercisable at issuance
for up to 492,204 shares of Common Stock having a fair value of approximately $2.7 million (the “GIC Warrant Conversion”,
and, collectively with the CP Warrant Conversion, the “Related Party Warrant Conversions”).
On June 30, 2024, we executed
an amendment to the Pre-Funded Warrants, pursuant to which we revised certain provisions of the Pre-Funded Warrants to (i) remove the
adjustment to the exercise price of the Pre-Funded Warrants when there is a bona fide equity financing with the primary purpose of raising
capital (the “Adjustment Provisions”) and (ii) increase the threshold for a change of control from 50% to greater than 50%.
On August 12, 2024, our stockholders approved a proposal to amend the Pre-Funded Warrants to add the Adjustment Provisions at a future
date. Pursuant to that approval, on August 28, 2024, we entered into amendments to the Pre-Funded Warrants to insert the Adjustment Provisions.
As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic Ventures, LLC (“Ionic”)
at an effective purchase price of approximately $2.109 per share of Common Stock, the number of shares of Common Stock underlying the
Pre-Funded Warrant held by CP was adjusted to 5,452,288 and the number of shares of Common Stock underlying the Pre-Funded Warrant held
by GIC was adjusted to 1,085,122. On August 30, 2024, CP partially exercised its Pre-Funded Warrant and entities affiliated with Mr. Chang
and Ms. Chan received an aggregate of 383,127 shares of Common Stock upon the exercise. On September 27, 2024, we further amended the
Pre-Funded Warrants to remove the Adjustment Provisions from each warrant and (ii) preventing the holders from any additional exercise
of either of the Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.
Change in Accounting Firm
On June 20, 2024 after an
evaluation process, the Audit Committee of our Board (the “Audit Committee”) dismissed Marcum LLP as our independent registered
public accounting firm and appointed MATSUURA (“Matsuura”) as our independent registered public accounting firm for the fiscal
year ending December 31, 2024, in each case effective as of June 25, 2024. On June 30, 2024, the audit practice of Matsuura was combined
in a transaction pursuant to which Matsuura merged its operations with GuzmanGray, a professional corporation (“GuzmanGray”).
On July 19, 2024, Matsuura resigned as our auditors and the Audit Committee appointed GuzmanGray as our independent registered public
accounting firm effective as of the Effective Date.
Equity Line of Credit Facility
On August 28, 2024, we entered
into the Purchase Agreement and a registration rights agreement with Ionic pursuant to which Ionic committed to purchase up to an aggregate
of $15.0 million of our Common Stock, subject to certain limitations, from time to time and at our sole discretion over the 36-month term
of the Purchase Agreement.
From and after the date the
registration statement relating to the resale of the shares sold to Ionic was declared effective, November 5, 2024, we may from time to
time on any business day, by written notice delivered by us to Ionic, direct Ionic to purchase between $250,000 and $750,000 of shares
of Common Stock on such business day, at a purchase price per share that will be equal to 93% (or 80% if the Common Stock is not then
trading on the Nasdaq Capital Market) of the lowest daily VWAP over a specified measurement period beginning after the delivery of the
purchase notice, as described further in the Purchase Agreement (each, a “Regular Purchase”). The Purchase Agreement also
permitted us to deliver an exemption purchase notice for $400,000 on the date of signing, with the shares so purchased to be delivered
following the Commencement Date, and we delivered an exemption purchase notice for $400,000 for the purchase by Ionic of 189,645 shares
of Common Stock. On November 5, 2024, we issued 189,645 shares of Common Stock to Ionic. We will control the timing and amount of any
sales of Common Stock to Ionic pursuant to the Purchase Agreement. Ionic has no right to require us to sell any shares of Common Stock
to Ionic, but Ionic is obligated to make purchases as we direct, subject to certain conditions.
Sale of Cultivation Business
On December 31, 2024, we entered into and closed an Asset Purchase
Agreement (the “Cultivation Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond
Chang, our former Chairman and Chief Executive Officer. Under the Cultivation Purchase Agreement, CP acquired assets from us relating
to our VFUs, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify InsightsTM software
solutions (collectively the “Cultivation Business”). The aggregate consideration received by us for the sale of the Cultivation
Business consisted of the assumption by CP of (i) all of our obligations pursuant to secured indebtedness then due CP with an aggregate
amount of principal and accrued interest of approximately $7 million, and (ii) certain other liabilities relating to the Cultivation Business.
Señorita Acquisition
On December 12, 2024, we completed the acquisition of substantially
all of the assets of Double or Nothing, LLC (“Double or Nothing”) in connection with its Señorita brand of beverages
hemp-derived containing cannabinoids. Under the Purchase Agreement, we acquired the Señorita brand of beverages and related assets
from Double or Nothing relating to the portions of its business operating in compliance with Canadian law and under the Agricultural Improvement
Act of 2018 (the “2018 Farm Bill”) and applicable state laws.
Private Placement
On November 20, 2024, we raised gross proceeds of approximately $25.9
million in a private placement following the closing of certain securities purchase agreements with institutional investors and other
accredited investors. In connection with the private placement, we issued (i) 203,988 shares Common Stock and (ii) pre-funded warrants
to purchase up to an aggregate of 949,515 shares of Common Stock at a purchase price per share of Common Stock of $22.30 and a purchase
price per pre-funded warrant of $22.2999.
Convertible Note
On November 5, 2024, we
issued a Secured Convertible Note (the “Note”) to RSLGH, LLC (the “Investor”), a subsidiary of Green Thumb Industries
Inc. (“Green Thumb”). The Note is a secured obligation and ranks senior to all of our indebtedness except for certain indebtedness
set forth in the Note. The Note will mature on November 5, 2025 (the “Maturity Date”) and contains a 10.0% annualized interest
rate, with interest to be paid on the first calendar day of each September and March while the Note is outstanding, in cash, beginning
January 1, 2025. The principal amount of the Note will be payable on the Maturity Date.
2024 Board and Management Changes
Also on November 5, 2024,
immediately following the issuance of the Note, Raymond Chang, our prior CEO and Chairman, resigned as a member of the Board and any subsidiaries
and as President and Chief Executive Officer of the Company, and I-Tseng Jenny Chan resigned as a member of the Board. Benjamin Kovler,
Armon Vakili and Richard Drexler replaced Raymond Chang and I-Tseng Jenny Chan on the Board and Benjamin Kovler assumed the position of
Interim CEO.
Effective May 17, 2024, Leonard Sokolow resigned as a member of the
Board and its committees. Effective December 3, 2024, Brian Towns resigned from his roles as the Company’s Executive Vice President
and General Manager of Extraction Division to pursue other opportunities. On December 31, 2024, in connection with the Cultivation Purchase
Agreement, David Kessler ceased serving as the Company’s Chief Science Officer, Executive Vice President and General Manager of
Cultivation.
Lines of Business
Hemp-Derived Beverages
The Company acquired the Señorita
brand of hemp-derived beverages in November 2024. Señorita was designed and formulated by world-class winemakers Charles Bieler
and Joel Gott. Recognizing a growing generational demand for adult beverage alternatives, Bieler and Gott gave the classic margarita a
modern twist—replacing alcohol with hemp-derived to create a delightful, hangover-free beverage alternative. Through the use of
all-natural, premium ingredients like organic Mexican agave, fresh lime juice and sweet, tangy mango, Señorita quickly gained acclaim,
taking home the top spot in The High Times Cannabis Cup just one year after inception. Gott and Bieler continue to collaborate on the
brand with Mr. Kovler and the Agrify team.
Señorita currently
offers three award-winning flavors – classic Lime Jalapeño Margarita, Paloma, and Mango Margarita. A fourth flavor, low-calorie
Ranch Water, is expected to debut in 2025. Señorita’s hemp-derived beverages are currently available at top retailers including
Total Wine, ABC Fine Wine & Spirits, and Binny’s in nine U.S. states and Canada. Products are also available for direct-to-consumer
purchase where permissible under state law at senoritadrinks.com.
Extraction Solutions
Our extraction equipment and
business solutions can be used within indoor processing facilities by fully licensed cannabis and hemp cultivators and processors or in
some cases, by individual processors for individual use in compliance with applicable law. We sell our proprietary extraction solutions
to independent, licensed cultivators and processing labs.
In light of our increased
focus on hemp-derived beverages following the Señorita acquisition, the Board is exploring a variety of alternatives for the extraction
business while focusing on optimizing shareholder value creation.
We strategically acquired
four of the top brands in the extraction space in late 2021 and early 2022 in Precision Extraction, PurePressure, Lab Society, and Cascade
Sciences. These iconic brands encompass everything from hydrocarbon, alcohol, and solventless extraction to distillation and post-processing.
Combined, these four acquisitions provide what we believed to be one of the most comprehensive extraction solutions from a single provider.
Our extraction brands provide equipment and solutions for extraction, post-processing, and testing for the cannabis and hemp industries.
The extraction, post-processing and testing services are complementary and highly attractive areas of the supply chain.
Discontinued Operations
Cultivation Solutions
Prior to its sale on December
31, 2024, we sold proprietary cultivation solutions to independent licensed cultivators. The two primary products we sold were the VFUs
and Agrify Insights™ software.
The proprietary VFU technology
offered a modular, compartmentalized micro-climate growing system for indoor vertical farming. The VFU system was designed for craft farmers,
single-state operators, and multi-state operators who were looking to consistently produce higher-quality crops at scale. The VFUs were
designed to line up horizontally in rows, and could be stacked vertically up to three units tall.
The VFUs were designed to
work in conjunction with the Agrify Insights™ software. Each VFU sold included a license for Agrify Insights™ and a monthly
Software-as-a-Service (“SaaS”) subscription fee was charged per VFU. The VFU could not operate successfully without Agrify
Insights™, and we typically charged between $1,500 to $2,400 per VFU sold annually. Agrify Insights™ license agreements were
generally for a multi-year term, with an annual auto-renewal.
TTK Solution
The Company’s TTK
Solution was the industry’s first-of-its-kind program in which the Company engaged with qualified cannabis operators in the
early phases of their business plans and provides critical support, typically over a 10-year period, which includes: access to
capital for construction costs, the design and build-out of their cultivation and extraction facilities, state-of-the-art
cultivation and extraction equipment, subscription to the Company’s Agrify Insights™, process design, training,
implementation, proven grow recipes, product formulations, data analytics, and consumer branding. While we have not entered into any
new TTK Solutions since January 1, 2024 and will not in the future, we have previously deployed this program with certain key former
customers. The data-driven TTK Solution for cultivation solutions enabled our customers to get to market faster by providing them
with seamlessly integrated hardware and software offerings as well as access to capital and a wide range of associated services from
experts including consulting, training, design, engineering, and construction.
Note Amendment, Consolidation and Conversion
On January 25, 2024, following
stockholder approval at an annual meeting of stockholders on January 8, 2024, we and CP consolidated the outstanding principal and interest
due under the junior secured promissory note (the “Junior Secured Note”) to CP and a promissory note with an original principal
amount of $35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original Lender”) into
a convertible note (the “Convertible Note”) and amended and restated the Convertible Note (as amended and restated, the “Restated
Note”), with an outstanding principal amount of approximately $18.3 million at the time of issuance of the Restated Note. The Restated
Note amended the terms of the Convertible Note by, among other things, (i) reducing the conversion price to $1.46 per share of our “Common
Stock”), (ii) increasing the beneficial ownership limitation to 49.99% with respect to any individual or group, provided that CP
could assign its right to receive shares upon conversion to Raymond Chang, our former Chairman and Chief Executive Officer and/or I-Tseng
Jenny Chan, a former member of the Board, or their affiliates, in which case the 49.99% beneficial ownership limitation would have applied
to each of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10%
per annum, (v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months,
or in lieu of cash interest payments, we could issue shares of our Common Stock as payments-in-kind at a conversion price equal to the
higher of (i) $1.46 or (ii) a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment.
Immediately following the execution of the Restated Note, CP immediately elected to convert approximately $3.9 million of outstanding
principal into an aggregate of 178,108 shares of Common Stock, and assigned its rights to receive such shares to entities affiliated with
Mr. Chang and Ms. Chan. Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note. In
connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the Restated Note.
Issuance of Junior Note
On August 14, 2024, we issued
the 2024 CP Note to CP. Pursuant to the 2024 CP Note, CP would lend up to $1,500,000 to the Company. The 2024 CP Note bore interest at
a rate of 10% per annum, would mature in full on July 1, 2025, and could be prepaid without any fee or penalty. The 2024 CP Note was secured
by our assets and ranked junior to existing secured indebtedness. The 2024 CP Note could have been converted into Common Stock of the
Company or, at CP’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case at a conversion price
of $3.9495. In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the
2024 CP Note.
Mack Molding Modification Agreement
On October 27, 2023, and effective
as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding
Company (“Mack”) with respect to a dispute with Mack under an existing supply agreement. On February 29, 2024, we met our
contractual obligations under the terms of the Modification Agreement. In settlement of the dispute, we made cash payments of $500,000
and $250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of Common Stock.
On August 30, 2024, we entered
into an amendment to the Modification Agreement with Mack, which modified the payment terms and VFU purchase requirements under the Modification
Agreement. Pursuant to the amendment, we agreed to make payments of $1.0 million prior to October 31, 2024 and an additional $1.0 million
prior to December 31, 2024. We also agreed to purchase at least 25 VFUs prior to October 31, 2024 and a further 25 VFUs between November
1, 2024 and December 31, 2024. As a precursor to the sale of the Cultivation Business on December 31, 2024, this agreement was settled
on December 16, 2024 and the corresponding warrants issued to Mack were terminated.
Convertible Note Amendment
On October 18, 2024, we entered
into an amendment with CP to the 2024 CP Note, pursuant to which the maximum principal sum of the 2024 CP Note was increased from $1,500,000
to $3,000,000. The conversion price applicable to the 2024 CP Note remained unchanged with an exercise price of $0.001 per share, in each
case at a conversion price of $3.9495 (as may be adjusted per the 2024 CP Note). In connection with the sale of the Cultivation Business
on December 31, 2024, CP assumed all of our obligations under the 2024 CP Note.
Nasdaq Compliance
On January 19, 2023, we received a deficiency letter from the Listing
Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the
previous 30 consecutive business days, the bid price for our Common Stock had closed below $1.00 per share, which is the minimum closing
price required to maintain a continued listing on The Nasdaq Capital Market under the Minimum Bid Requirement. In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with
the Minimum Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive
trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period
pursuant to Nasdaq Listing Rule 5810(c)(3)(G). On July 19, 2023, we received a notice from Nasdaq confirming our compliance with the minimum
bid price rule.
As disclosed in the Current Report on Form 8-K filed on April 17, 2023,
the audit committee of our Board (the “Audit Committee”) concluded that, as a result of inadvertent errors in the accounting
for warrants previously issued by us, it was appropriate to restate our previously issued unaudited consolidated interim financial statements
as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in our Quarterly Reports on Form
10-Q for such periods in amended quarterly reports for the affected periods. As a result of such restatements, we were unable to timely
file the Forms 10-K and 10-Q with respect to such periods without unreasonable effort or expense. On April 18, 2023, we received a notice
from Nasdaq that we were noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form
10-K with the SEC by the required due date.
What changed in the latest 10-Q
Risk Factors
As of the date of this Quarterly Report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of the Form 10-K. The risks described in this Quarterly Report and in the Form 10-K, among others, could materially and adversely affect our business, reputation, financial condition, results of operations, and stock price.
Full comparison: every changed paragraph (1)
As of the date of this Quarterly Report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of the Form 10-K. The risks described in this Quarterly Report and in the Form 10-K, among others, could materially and adversely affect our business, reputation, financial condition, results of operations, and stock price.
Management's Discussion & Analysis (MD&A)
Largest changes
“Interest expense, net was $3.5 million for the six months ended June 30, 2026, compared to interest expense, net of $290 thousand for the six months ended June 30, 2025. The change is attributable mainly to the increase of $80.0 million new borrowings in May and August 2025 under the Convertible Notes (as that term is defined under “Indebtedness” below). Included in interest expense, net for the six months ended June 30, 2026 is $3.6 million of interest expense incurred with a related party and $0.5 million of interest income.”see in full comparison
“The Company filed with the SEC a proxy statement with respect to a special meeting of stockholders to be held August 10, 2026 for a vote on the proposed issuance to RSLGH of Common Stock underlying certain convertible promissory notes, pre-funded warrants and pursuant to shared services agreements, in accordance with Nasdaq Listing Rule 5635. …”see in full comparison
“Revenue increased by $33.7 million for the six months ended June 30, 2026, as compared to the same period in 2025. The comparative increase in revenue was primarily driven by the commencement of Licensing Revenue arrangements in May and August 2025 and subsequent amendment to a fixed annual structure, as well as the $6.5 million increase in Non-Licensing Revenue. Of the revenue recognized for the six months ended June 30, 2026, $27.7 million was attributable to related parties, as compared to $265 thousand for the six months ended June 30, 2025.”see in full comparison
Gross profit totaledsee in full comparison$10.4$18.5 million, or78% of total revenue during the three months ended March 31, 2026, compared to a gross profit of $90 thousand, or 17%80.5% of total revenue during the three months endedMarch31,June 30, 2026, compared to a gross profit of $682 thousand, or 33.4% of total revenue during the three months ended June 30, 2025. The comparative$10.3$17.9 million increase in gross profitwasis primarilydrivenduebyto the commencement of second Licensing Revenue arrangement in August2025.2025, as well as increased Non-licensing Revenue during the period.
“SG&A expense increased by $19.8 million, or 175%, for the six months ended June 30, 2026, compared to the same period in 2025. The comparative change is primarily attributable to marketing and consulting costs to support the growth of the hemp-derived THC products sales in addition to the reclassification of SG&A expense from the Cultivation and Extraction business from continuing operations to discontinued operations in the 2025 comparative period.”see in full comparison
“The change in fair value of warrant liabilities resulted in a loss of $127 thousand for the six months ended June 30, 2026, compared to a gain of $292 thousand for the six months ended June 30, 2025. The loss of $419 thousand was primarily attributable to the periodic remeasurement of the Company’s warrant liabilities to fair value, reflecting changes in valuation inputs, including the Company’s stock price and other market-based assumptions.”see in full comparison
Full comparison: every changed paragraph (42)
RYTHM, Inc. delivers well-being to consumers through its portfolio
of hemp-derived THC products and iconic licensed brands. The Company’s portfolio of consumer-packaged goods brands includes RYTHM,
incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita. Our Señorita brand offers consumers
hemp-derived tetrahydrocannabinol (“THC”) beverages and are sold at top retailers, online and through direct-to-retail partnerships.
The Señorita brand mirrors well-known cocktails like a margarita – in four flavors – classic Lime Jalapeño Margarita,
Mango Margarita, Paloma and Ranch Water. Known for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita
offers a low-sugar, low-calorie alternative to alcoholic beverages and is available in seventeeneighteen U.S. states and Canada including at top
retailers such as Total Wine, ABC Fine Wine & Spirits, and Binny’s. The RYTHM branded beverage comes in two fruit-driven flavors
with effect-based ingredients. Both Señorita and RYTHM hemp-derived beverages are available at Chicago’s iconic United Center,
based on a partnership announced in January 2026, establishing RYTHM as the venue’s official THC sponsor. Other hemp-derived products
including incredibles and Beboe edible products are primarily sold online and through direct-to-retail partnerships. In addition to the
sale of hemp-derived products (“Non-licensing Revenue”), we license our brands to be manufactured and distributed in exchange
for a licensing fee (“Licensing Revenue”).
RYTHMThe hasCompany alsowas historically been a leading provider of innovative cultivation
and extraction solutions for the cannabis industry. Prior to the exit of the extraction business on March 30, 2025, the Company’s
comprehensive extraction product line (“the Extraction Business”), which included hydrocarbon, alcohol, solventless, post-processing,
and lab equipment, empowered cannabis producers to maximize the quantity and quality of extract required for premium concentrates. Additionally,
prior to its sale on December 31, 2024, the Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”)
enabled cultivators to produce high quality products for the cannabis industry (the “Cultivation Business”). As the discontinuation
of the Extraction Business and the sale of the Cultivation Business represented strategic shifts that had a major effect on our operations
and financial results, they have been presented in discontinued operations separate from continuing operations for the three and six months ended
March 31,June 30, 2026 and 2025 in our condensed consolidated statements of operations and as of MarchJune 31,30, 2026 and December 31, 2025 in our condensed
consolidated balance sheets and applicable footnotes in accordance with Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements. Please refer
to Item 1 and the notes to the unaudited condensed consolidated financial statements for details on recent developments and significant
transactions during the period.
We have a history of recurring
net losses and have incurred losses to date, except for the three and six months ended MarchJune 31,30, 2026, during which we recognized net income primarily
as a result of a non-cash income tax benefit. Our unaudited condensed consolidated financial statements have been prepared assuming that
we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to continue in operation. Refer to information provided
under the heading “Liquidity and Capital Resources” below for further details.
Comparison of the Three and Six Months Ended March
31,June 30, 2026 and 2025
The following table summarizes
our results of continuing operations for the three and six months ended MarchJune 31,30, 2026 and 2025:
The following table provides
a breakdown of our revenue from continuing operations for the three and six months ended MarchJune 31,30, 2026 and 2025:
Revenue increased by $12.7
$21 million for the three months ended MarchJune 31,30, 2026, as compared to the same period in 2025. The comparative increase in revenue was primarily
driven by the commencement of Licensing Revenue arrangements in May and August 2025 and subsequent amendment to a fixed annual structure, as well as the $2.8$3.7 million increase in Non-Licensing Revenue.
Of the revenue recognized for the three months ended MarchJune 31,30, 2026, $10.0$17.7 million was attributable to related parties, as compared to
$80 $264 thousand for the three months ended MarchJune 31,30, 2025.
Revenue increased by $33.7 million for the six months ended June 30, 2026, as compared to the same period in 2025. The comparative increase in revenue was primarily driven by the commencement of Licensing Revenue arrangements in May and August 2025 and subsequent amendment to a fixed annual structure, as well as the $6.5 million increase in Non-Licensing Revenue. Of the revenue recognized for the six months ended June 30, 2026, $27.7 million was attributable to related parties, as compared to $265 thousand for the six months ended June 30, 2025.
Cost of goods sold represents costs associated with the hemp-derived
THC product sales (Non-licensing Revenue).Revenue.
The following table presents our cost of goods sold from continuing
operations for the three and six months ended MarchJune 31,30, 2026 and 2025, all of which relates to non-licensingNon-Licensing revenueRevenue:
Cost of goods sold increased by $2.4$3.1 million for the three months ended
March 31,June 30, 2026 compared to the same period in 2025. The comparative increase in cost of goods sold iswas driven by the increased sales of
hemp-derived THCNon-licensing products.Revenue.
Cost of goods sold increased by $5.6 million for the six months ended June 30, 2026 compared to the same period in 2025. The increase was primarily driven by increased Non-licensing Revenue during the period, which resulted in higher product costs, freight, fulfillment, and related distribution costs.
Gross profit totaled $10.4$18.5 million, or 78% of total revenue during
the three months ended March 31, 2026, compared to a gross profit of $90 thousand, or 17%80.5% of total revenue during the three months ended
March 31,June 30, 2026, compared to a gross profit of $682 thousand, or 33.4% of total revenue during the three months ended June 30, 2025. The comparative $10.3$17.9 million increase in gross profit wasis primarily drivendue byto the commencement of second Licensing Revenue arrangement in
August 2025.2025, as well as increased Non-licensing Revenue during the period.
Gross profit totaled $28.9 million, or 79.7% of total revenue during the six months ended June 30, 2026, compared to a gross profit of $772 thousand, or 29.9% of total revenue during the six months ended June 30, 2025. The comparative $28.2 million increase in gross profit was primarily driven by the commencement of second Licensing Revenue arrangement in August 2025, as well as increased Non-licensing Revenue during the period.
SG&A expense increased
by $10.6$9.1 million, or 281%,122%, for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The comparative change iswas primarily
attributable due to marketinghigher marketing, brand, trade, and consultingpromotional costsspend to support the growth of thein hemp-derived THC productsproduct salessales. The increase was also driven by higher consulting, outsourced services, and shared service costs, in addition to the presentation
reclassification of SG&A expense from the Cultivation Business and Extraction Businessbusiness forfrom continuing operations to discontinued operations in the three months ended March 31, 2025 ascomparative part of discontinued
operations.period.
SG&A expense increased by $19.8 million, or 175%, for the six months ended June 30, 2026, compared to the same period in 2025. The comparative change is primarily attributable to marketing and consulting costs to support the growth of the hemp-derived THC products sales in addition to the reclassification of SG&A expense from the Cultivation and Extraction business from continuing operations to discontinued operations in the 2025 comparative period.
Interest expense, net was $1.7 million for the three months ended March
31,June 30, 2026, compared to interest income, netexpense, of $1$291 thousand for the three months ended MarchJune 31,30, 2025. The change is attributable mainly
to the increase of $80.0 million new borrowings in May and August 2025 under the Convertible Notes (as that term is defined under “—Indebtedness”
below). Included in interest expense, net for the three months ended MarchJune 31,30, 2026 is $1.8 million of interest expense incurred with
a related party and $0.3 million of interest income.
Interest expense, net was $3.5 million for the six months ended June 30, 2026, compared to interest expense, net of $290 thousand for the six months ended June 30, 2025. The change is attributable mainly to the increase of $80.0 million new borrowings in May and August 2025 under the Convertible Notes (as that term is defined under “Indebtedness” below). Included in interest expense, net for the six months ended June 30, 2026 is $3.6 million of interest expense incurred with a related party and $0.5 million of interest income.
The change in fair value of warrant liabilities resulted in a loss of $232 thousand for the three months ended June 30, 2026, compared to a loss of $115 thousand for the three months ended June 30, 2025. The loss was primarily due to the periodic remeasurement of the warrant liabilities to fair value, reflecting changes in valuation inputs, including the Company’s stock price and other market-based assumptions.
The change in fair value of warrant liabilities resulted in a loss of $127 thousand for the six months ended June 30, 2026, compared to a gain of $292 thousand for the six months ended June 30, 2025. The loss of $419 thousand was primarily attributable to the periodic remeasurement of the Company’s warrant liabilities to fair value, reflecting changes in valuation inputs, including the Company’s stock price and other market-based assumptions.
The fair value gain on warrant liabilities decreased by $302 thousand,
or 74%, for the three months ended March 31, 2026, compared to the same period in 2025. The decrease reflects a smaller reduction in the
fair value of warrant liabilities during the current period compared to the prior year period.
Other income, net was nil$2 thousand for the three months ended MarchJune 31,30, 2026,
compared to $19loss of $1 thousand for the same period in 2025.
Other income, net was $2 thousand for the six months ended June 30, 2026, compared to $18 thousand for the same period in 2025.
Income tax benefit was $25.6$1.2 million and $26.8 million for the three and six months ended MarchJune 31,30, 2026, compared to nil for the three
and six months ended MarchJune 31,30, 2025. The increase was attributable to a $25.6 million non-cash income tax benefit resulting from the release of
the Company’s valuation allowance against its deferred tax assets. The valuation allowance was released following the execution
of an amendment to the Company’s license agreement with GTI Core on March 31, 2026, which transitioned licensing fees to a fixed
annual structure and reduced uncertainty in projected future taxable income. During the three months ended June 30, 2026, the Company released an additional $1.2 million, primarily reflecting deferred tax assets generated during the period, bringing the aggregate valuation allowance released to $26.8 million as of June 30, 2026. Based on this change and sustained projected profitability,
management concluded that sufficient positive evidence exists to support the realizability of its deferred tax assets.
“EBITDA” and “Adjusted
EBITDA” are non-GAAP measures and do not have standardized definitions under GAAP. The following information provides reconciliations
of the supplemental non-GAAP financial measures, presented herein to the most directly comparable financial measures calculated and presented
in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance
with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with
GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including
and excluding the adjusted items and believes that the supplemental non-GAAP financial measures presented provide additional perspective
and insights when analyzing the core operating performance of the business. These supplemental non-GAAP financial measures should not
be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial
measures presented. EBITDA is calculated as Income (loss) from continuing operations before: net interest (expense) income, provision
for income taxes, and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before stock-based compensation andcompensation, change
in fair value of warrant liabilities.liabilities and exceptional items.
As of MarchJune 31,30, 2026, our
principal sources of liquidity are cash and cash equivalents totaling $33.3$41.9 million. Our current working capital needs are to support
revenue growth and manage inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily
include working capital requirements. There are many factors that may negatively impact our available sources of funds in the future,
including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities. The amount
of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic
conditions.
We have a history of recurring net losses and negative cash flow in
operating activities. However, for the threesix months ended MarchJune 31,30, 2026, the Company generated positive cash flow from operating activities
and reported net income which was mainly impacted by a non-cash income tax benefit. We believe our $33.3$41.9 million of cash and cash equivalents,
anticipated contractual Licensing Revenue and ability to address our Convertible Notes will be sufficient to meet our cash requirements
through at least the 12-month period following the date that these condensed consolidated financial statements were issued.
Convertible Notes maturities
of $80.0 million exist through February 2027, with $72.0 million held by a subsidiary of Green Thumb, a related party. If the holders
of these notes elect to be paid in cash upon maturity could raise substantial doubt about the our ability to continue as a going concern.
However, while these contractual maturities require management attention, management believes it is probable that the obligations will
be addressed through extension or conversion consistent with historical practice. As such, our financial statements have been prepared
on a going concern basis.
On May 22, 2025, we issued
secured convertible notes with an aggregate original principal amount of $30.0 million (collectively the “May 2025 Notes”)
to RSLGH and to certain other third-party accredited investors. The May 2025 Notes are secured obligations and rank senior to all of our
indebtedness except for the August 2025 Notes, which ranksrank on parity with the May 2025 Notes. The May 2025 Notes will mature on November
22, 2026 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March
while the May 2025 Notes are outstanding, in pre-funded warrants, beginning September 1, 2025. The principal amount of the May 2025 Notes
will be payable on the maturity date. The May 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded
warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%,
in each case subject to applicable Nasdaq listing rules. If a holder elects to convert the May 2025 Notes into Common Stock, the conversion
price per share will be $23.53, equal to the most recent closing price of the Common Stock on the Nasdaq Capital Market at the time the
May 2025 Notes were issued, subject to customary adjustments for certain corporate events. If a holder elects to convert the May 2025
Notes into pre-funded warrants, and for interest payments payable in the form of pre-funded warrants, the conversion price per pre-funded
warrant will be equal to the $23.53 conversion price less than the $0.001 exercise price of the warrant. The conversion of the May 2025 Notes
into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder
approval under Nasdaq listing rules.
On August 25, 2025, we issued secured convertible notes with an aggregate original principal amount of $50.0 million (collectively the “August 2025 Notes” and, together with the May 2025 Notes, the “Convertible Notes”) to RSLGH and to certain other third-party accredited investors. The August 2025 Notes are secured obligations and rank senior to all of our indebtedness except for the May 2025 Notes, which rank on parity with the August 2025 Notes. The August 2025 Notes will mature on February 25, 2027 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March, while the August 2025 Notes are outstanding beginning March 1, 2026. The principal amount of the August 2025 Notes will be payable on the maturity date. The August 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%, in each case subject to applicable Nasdaq listing rules. If a holder elects to convert the August 2025 Notes into Common Stock, the conversion price per share will be $29.475, equal to the Minimum Price as such term is defined under Nasdaq Listing Rule 5635 at the time the August 2025 Notes were issued, subject to customary adjustments for certain corporate events. If a holder elects to convert the August 2025 Notes into pre-funded warrants, and for interest payments elected to be paid in the form of pre-funded warrants, the conversion price per pre-funded warrant will be equal to the $29.475 conversion price less than the $0.001 exercise price of the warrant. The conversion of the August 2025 Notes into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder approval under Nasdaq listing rules.
The Company filed with the SEC a proxy statement with respect to a special meeting of stockholders to be held August 10, 2026 for a vote on the proposed issuance to RSLGH of Common Stock underlying certain convertible promissory notes, pre-funded warrants and pursuant to shared services agreements, in accordance with Nasdaq Listing Rule 5635. If approved, the proposal would permit the conversion of the Convertible Notes, and full exercise of pre-funded warrants, irrespective of any ownership limitations contained in those instruments, including the 49.99% beneficial ownership limitations, to the extent those limitations are removed from the Convertible Notes and the pre-funded warrants pursuant to a future amendment.
The May 2025 Notes and August 2025 Notes (together referred to as “the
Convertible Notes”) impose certain customary affirmative and negative covenants upon us, including covenants relating to ranking
and reservation of shares. If an event of default under one or more of the Convertible Notes occurs and is not waived, the holder can
elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, plus accrued and unpaid interest,
including default interest, which accrues at a rate per annum equal to 14% from the date of a default or event of default. We were in
compliance with these covenants as of MarchJune 31,30, 2026.
The following table presents
the major components of net cash flows from and used in operating, investing, and financing activities for the threesix months ended March
31,June 30, 2026 and 2025:
The following discussion
explains the major components contributing to the net cash flows from operating, investing, and financing activities for the threesix months
ended MarchJune 31,30, 2026 and 2025, as summarized in the table above. Each section below provides details on the key drivers of the cash inflows
and outflows for the respective periods.
For the threesix months ended
March 31,June 30, 2026, our operating cash flows included a net income of $19.9$21.1 million, which included $3.4$6.9 million related to depreciation and
amortization, $25.6$26.8 million non-cash deferred income tax benefit, $750$1.5 thousandmillion non-cash interest expenses, $570and thousand$1.1 million of stock-based
compensation expense, and $105 thousand gain related to the change in fair value of warrant liabilities.expense. Net cash was also increased by changes
in operating assets and liabilities of $1.9$5.6 million.
For the threesix months ended MarchJune 31,30, 2025, our operating cash flows
included a net loss of $1.6$9.0 million, which included $336$735 thousand related to depreciation and amortization, $589$1.1 thousandmillion of stock-based
compensation expense, $407$292 thousand gain related to the change in fair value of warrant liabilities, and $3.6$3.5 million gain on disposal
of the Extraction Business.business. Net cash was also decreased by changes in operating assets and liabilities of $2.3$4.6 million.
For the threesix months ended
March 31,June 202630, and 2025,2026, there were no cash flows from investing activities.
For the six months ended June 30, 2025, net cash used in investing activities was $5.1 million, which primarily resulted from the related party acquisition of MC Brands, LLC and its wholly-owned subsidiary Core Growth LLC (together referred to as “MC Brands”).
For the threesix months ended
March 31,June 30, 2026, there were no cash flows from financing activities.
For the threesix months ended MarchJune 31,30, 2025, net cash provided by financing
activities was due$30.0 tomillion, immaterialwhich repaymentsresulted offrom notesproceeds payable.from the May 2025 Notes.
For more information on
recently issued accounting pronouncementspronouncements, are included withinsee Note 1 - —Overview, Basis of Presentation and Significant Accounting Policies,
included elsewhere in the notes to the unaudited condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly
Report.
For more information on
new recently issued accounting pronouncementspronouncements, not yet adopted are included withinsee Note 1 - —Overview, Basis of Presentation and Significant Accounting
Policies, included elsewhere in the notes to the unaudited condensed consolidated financial statements covered under Part I, Item 1 inof this
Quarterly Report.
RYM insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 3 filings (3 insiders, 3 trade dates, 12,250 shares, about $321.4K). Net open-market shares: -12,250 (purchases minus sales); net value about -$321.4K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-06-17 | Vakili Armon |
Open-market sale | 440 | $27.17 | $12.0K |
| 2026-06-17 | Vakili Armon |
Open-market sale | 1,705 | $26.45 | $45.1K |
| 2026-06-17 | Vakili Armon |
Open-market sale | 105 | $25.00 | $2.6K |
| 2026-06-16 | Tolia Sanjay |
Grant/award | 6,500 | — | — |
| 2026-06-16 | Holtzman Max |
Open-market sale | 932 | $27.39 | $25.5K |
| 2026-06-16 | Holtzman Max |
Open-market sale | 912 | $26.34 | $24.0K |
| 2026-06-16 | Holtzman Max |
Grant/award | 5,000 | — | — |
| 2026-06-16 | Holtzman Max |
Open-market sale | 3,156 | $25.49 | $80.4K |
| 2026-06-16 | Shapiro Peter S. |
Grant/award | 5,000 | — | — |
| 2026-06-16 | Mahoney Timothy |
Grant/award | 5,000 | — | — |
| 2026-06-16 | Varier Krishnan |
Grant/award | 5,000 | — | — |
| 2026-06-16 | Vakili Armon |
Grant/award | 5,000 | — | — |
| 2026-06-11 | Mahoney Timothy |
Open-market sale | 384 | $25.95 | $10.0K |
| 2026-06-11 | Mahoney Timothy |
Open-market sale | 400 | $24.88 | $10.0K |
| 2026-06-11 | Mahoney Timothy |
Open-market sale | 30 | $28.00 | $840 |
| 2026-06-11 | Mahoney Timothy |
Open-market sale | 189 | $27.35 | $5.2K |
| 2026-06-11 | Mahoney Timothy |
Open-market sale | 3,997 | $26.47 | $105.8K |
Well-known investors holding RYM (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 8,416 | $214.4K | 0.0% | New position |