SHF Holdings, Inc.

Note 1 -Organization and Business Operations

Business Description

SHF Holdings, Inc., the “Company” or “SHF” is based in Golden, Colorado and specializes in providing financial solutions designed to facilitate compliant banking and lending service on behalf of the financial institutions and cannabis related businesses “CRB” involved in the marijuana industry.

The Company facilitates a range of financial services through its financial institutions, customers using a proprietary technology platform for deposits and ongoing deposit activity compliance with banking regulations and regulators. These include access to business checking and savings accounts, cash management, commercial lending, courier services, remote deposit services, ACH payments, lending and wire payments. These services enable CRB’s to manage their finances effectively. The Company generates fee income, investment income, loan interest income by offering compliance services and lending to certain financial institutions serving the cannabis industry.

Note 2 -Basis of Presentation and Summary of Significant Accounting Policies

Significant Accounting Policies

The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and results of operations included in the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2024, filed with the SEC.

Refer to Note 2 to the Company’s financial statements contained in its Annual Report on Form 10-K and Form 10-K/A for a description of the Company’s significant accounting policies. The Company has included disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or (iii) the Company views as critical as of the date of these financial statements.

Basis of Presentation

The accompanying notes to the Company’s condensed unaudited interim financial statements have been prepared in accordance with the requirements of Accounting Standard Codification “ASC” ASC 270, Interim Reporting and Article 8 of Regulation S-X. To that extent, footnote disclosure which would substantially duplicate the disclosures contained in the Company’s latest audited financial statements has been omitted.

In the opinion of management, these condensed unaudited interim consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein. The results of the interim periods are not necessarily indicative of the results expected for the year ended December 31, 2025.

Consolidation

The condensed unaudited condensed consolidated financial statements include the accounts of SHF Holdings, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for credit losses, allowance for deferred taxes, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, balances due from financial institutions, and investments with original maturities of three months or less.

Series B Proceeds Receivable (Note 20)

In connection with the issuance of Series B Convertible Preferred Stock on September 30, 2025, the Company raised gross proceeds of $6.3 million, which were fully collected by October 8, 2025. All proceeds were legally binding and collectible as of the unaudited condensed consolidated balance sheets as of September 30, 2025. In accordance with ASC 855-10 and SAB Topic 1.B.1, Pursuant to the Series B Convertible Preferred Stock Purchase Agreement (the “SPA”), the use of proceeds from this offering are only restricted from application toward the resolution or settlement of any existing or potential legal contingencies. The Company recorded in current assets in the accompanying unaudited condensed balance sheet, the amount due from these investors.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

Revenue from investment income consists primarily of fees earned on deposit accounts such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist

Revenue from account fee income is recognized when the Company fulfills its service obligations, and include fees charged for financial services such as account maintenance, transaction processing, and other related services.

Revenue from interest on loans is recognized over the loan period as earned. Partner Colorado Credit Union (“PCCU”) utilizes a fixed percentage fee structure, under which the Company receives a share of interest income from CRB-related loans.

Revenue from investment income is generated based on interest earned on daily deposit balances maintained with financial institutions***.***In addition, revenue is recognized from the Company’s Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program.

Stock Compensation

The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock compensation cost is measured based on the fair value at the grant date of the stock-based award.

Compensation cost for service-based awards is recognized on a straight-line basis over the requisite service period. For performance-based awards, compensation cost is recognized only when it becomes probable that the performance condition will be achieved. The amount of compensation cost recognized reflects the Company’s best estimate of the number of awards expected to vest and is adjusted prospectively for changes in those estimates. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or the Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk-free interest rate, future dividend yields, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results.

The expected volatility is based upon the Company’s historical stock price. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking the average of contractual term and vesting period of the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future.

Fair Value Measurements

The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:

Level 1 — Quoted prices for identical assets or liabilities in active markets.

Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.

Segment Reporting

The Company operates asone reportable segment under Accounting Standards Codification “ASC” 280, Segment Reporting. The chief operating decision maker, the Company’s Chief Executive Officer, regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performance.

Concentration of Risk

Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America and with our largest customer PCCU, see Note 9..

Substantially all client deposits are maintained at PCCU, and all transmissions of funds to or from these deposit accounts are handled directly by PCCU.

Recently Issued Accounting Standards

Accounting Standards Adopted Standards Income Taxes

In December 2023, the Financial Accounting Standards Board “FASB” issued Accounting Standards Update “ASU” ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their annual rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This ASU is effective for the year after December 15, 2024. Early adoption would be permitted. The Company has prospectively adopted this standard as of January 1, 2025, and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements. Since the Concept Statements are not considered authoritative and do not establish GAAP, the ASU eliminates references to these statements from the codification. The amendments are effective for public entities for the years beginning after December 15, 2024, and for all other entities for the year beginning after December 15, 2025, with early adoption permitted. The Company has prospectively adopted this standard as of January 1, 2025, and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01 - Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This standard clarifies whether profits interests and similar awards fall within the scope of stock-based compensation guidance as defined in ASC Topic 718, introducing examples to demonstrate this. The ASU includes scenarios where profits interest awards are classified as equity instruments or liability awards and situations where they fall outside ASC Topic 718, being accounted for under ASC Topic 710. The ASU is effective for years beginning after December 15, 2024, but early adoption is permitted. The Company has prospectively adopted this standard as of January 1, 2025, and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.

Standards Pending to be Adopted

In November 2024, ASU 2024-03, Disaggregation of Income Statement Expenses, was issued and requires business entities to disaggregate certain income statement expense captions in the footnotes of the financial statements. Specifically, entities must provide disclosures that separately present expenses related to purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion (including depreciation, depletion, and amortization for oil and gas producing activities). While this ASU does not change the presentation of expense captions on the face of the unaudited condensed consolidated statements of operations, it requires detailed disclosures in the notes to the financial statements. The amendments are effective for the year beginning after December 15, 2026, and for interim periods within years beginning after December 15, 2027, with early adoption permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU.

In November 2024, ASU 2024-04 — Debt — Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instrument. The amendments in this ASU are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06. If an entity early adopts in an interim reporting period, it must adopt as of the beginning of the annual reporting period that includes that interim reporting period. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU.

In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). FASB issued this update to clarify the effective date of Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendment in this update applies to all public business entities but only potentially affects non-calendar year-end entities. The amendment in this update amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of update is permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU.

In July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements and disclosures.

The Company will continue to monitor the development of these standards and intends to adopt them in accordance with their respective effective dates. Additional disclosures will be provided in future filings as the Company finalizes its assessment of these standards’ impacts.

Note 3 -Deferred Consideration

On November 11, 2022, the Company entered into the first Amendment to the Merger Agreement with Rockview Digital Solutions, Inc. (“Abaca”) and other parties. The Merger Agreement included a $30 million payment through a mix of cash and stock, including $9 million in cash over three annual installments and 105,000 Class A Common Stock (“Common Stock”), alongside deferred stock considerations based on a 10-day volume weighted average price (“VWAP”) formula.

A Second Amendment to the Merger Agreement, dated October 26, 2023, introduced deferred stock consideration of 291,791 shares of Common Stock at a recalculated value of $40.00 per share. No changes were made to the cash payments. Additionally,250,000 stock warrants at $40.00 per share were issued, and a third-anniversary consideration payment of $1.5 million due October 5, 2025 was introduced, payable in cash or Common Stock with a floor value of $40.00 per share, at the Company’s discretion. The Company issued 37,517 unregistered shares of Common Stock in lieu of cash, computed using the floor value on October 3, 2025. On October 21, 2025, the Company filed Form S-1 to register the 37,517 shares of Common Stock issued on October 3, 2025 and the 250,000 common shares underlying the Abaca warrants to purchase Class A Common Stock with an exercise price of $40.00 per share.

The second annual payment of $3 million that was due on October 5, 2024 is being held by the registry of the Denver County District Court in accordance with a court-approved motion described further in Note 19 Commitments and Contingencies.

The adjustments and changes to deferred consideration have been valued and recorded according to ASC 815 in the Company’s unaudited condensed consolidated financial statements.

The change in the amount of deferred consideration from January 1, 2024, to September 30, 2025.

The fair value of the third anniversary payment consideration is determined using the Monte Carlo Simulation. model.

The following table provides quantitative information regarding Level 3 fair value measurements inputs for the third anniversary payment consideration as of their measurement dates:

On October 3, 2025, the Company issued 37,517 shares of Class A Common Stock to settle the liability with third anniversary payment consideration.

Note 4 -Goodwill and Finite-lived Intangible Assets

Goodwill

The Company recorded a full impairment of its goodwill and Finite-lived intangible assets, derived predominately from the Abaca Merger, as of December 31, 2024. As a result, no impairment charges have been recognized for the three and nine months ended September 30, 2025 and September 30, 2024, respectively.

Finite-lived intangible assets

The Company reviews its finite-lived intangible assets for impairment at least annually on December 31 unless any events or circumstances indicate it is more likely than not that the fair value of the finite-lived intangible assets is less than its carrying value.

As of September 30, 2024, the Company did not perform an interim impairment assessment of its assets, as no triggering events were identified. Accordingly, no additional impairment charges were recognized during the reporting period. During the year ended December 31, 2024, amortization expense and impairment of finite-lived intangible assets were $0.6 million and $3.1 million, respectively,

In accordance with the Company’s established policy, an annual impairment review of finite-lived intangible assets was conducted on December 31, 2024. The recoverability test compared the sum of estimated undiscounted future cash flows of the asset group to its carrying amount. As the undiscounted cash flows were determined to be lower than the carrying amount, the Company performed a fair value assessment using a Discounted Cash Flow analysis. The results indicated that the fair value of the asset group was below its carrying amount, leading to full impairment charges of $0.05 million for market-related intangible assets, $0.05 million for customer relationships, and $2.99 million for developed technologies.

As a result, no amortization or impairment charges have been recognized for the three and nine months ended September 30, 2025.

Note 5 -Loans Receivable

The following table summarizes the commercial real estate loans receivable balances:

Note 6 -Investment in Preferred Securities

On September 30, 2025, the Company issued 1,875 shares of Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock in exchange for preferred shares of Aditxt, Inc. (“ADTX”), is a publicly traded company. These ADTX ’s preferred securities had an estimated fair value and carrying value of $1.5 million at the date of issuance. There was no cash exchanged in this transaction. The investment represents less than 20% of voting interests in ADTX is and the Company does not have the ability to exercise significant influence or control over the publicly traded company. Accordingly, the investment is accounted for under ASC 321, Investments – Equity Securities. Given that the publicly traded company’s preferred shares are not actively traded and lack a readily determinable fair value, the Company has elected to measure the investment at cost, less impairment, adjusted for observable price changes in orderly transactions for identical or similar securities of the publicly traded company as permitted by ASC 321-10-35-2. No impairments or observable price adjustments were recognized during the three-month period ended September 30, 2025. As of September 30, 2025, the Company classified the investment as long term. The investment will continue to be measured under ASC 321 until such time as the sale is completed, and the Company will recognize any resulting gains or losses inOther Income (Expense) in the unaudited condensed consolidated statement of operations.

Note 7 -Indemnification Liability

Pursuant to the Amended PCCU CAA, see Note 9 Related Party, effective December 31, 2024, the Company no longer indemnifies credit losses on CRB loans made on behalf of PCCU, accordingly the indemnity liability was reduced to $0 as of December 31, 2024.

Prior to the Amended PCCA CAA, PCCU funded loans through a third-party vendor. SHF earned the associated interest and paid PCCU a loan hosting fee at an annual rate of 0.35% of the outstanding loan principal funded and serviced by PCCU, and 0.25% of the outstanding loan principal serviced by SHF. SHF had agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflected SHF management’s estimate of probable credit losses inherent under the agreement as of the balance sheet date.

The provision for loan losses (benefit) consists of the following activity for the three months ended September 30, 2025 and September 30, 2024:

The provision for loan losses (benefit) consists of the following activity for the nine months ended September 30, 2025 and September 30, 2024:

Note 8 -Revenue

The Company disaggregated revenue by type for the three and nine months ended September 30, 2025 and September 30, 2024 is as follows:

Account fee income is generated from businesses maintaining accounts with the Company’s financial institution partners and includes deposit account fees, account activity fees, and onboarding income. These fees are recognized periodically in accordance with the fee schedule established with financial institution partners. The Company also earns income from outsourced support services provided to financial institutions offering banking solutions to the cannabis industry, with revenue recognized based on usage as specified in the agreements.

Loan interest income includes interest earned on both direct loans and loans under the PCCU CAA, which the Company had agreed to indemnify PCCU against loan losses until December 31, 2024. Under the Amended PCCU CAA, the Company’s interest income on all loans with PCCU are calculated using a loan yield allocation formula that incorporates the Constant Maturity US Treasury Rate from the Federal Reserve’s website, along with a proprietary risk rating formula to determine the fee split between the Company and PCCU.

Investment income is derived from interest earned on the daily deposit balances of cannabis businesses held with the Company’s financial institution partners and is recognized monthly based on the average net daily deposit balance.

Note 9 -Related Party Transactions

For purposes of these consolidated financial statements and related disclosures, the Company applies the definition of “related party” as set forth in Rule 1-02(u) of Regulation S-X and ASC 850, Related Party Disclosures. Related parties include (i) affiliates of the Company; (ii) entities for which investments would be accounted for under the equity method; (iii) trusts for the benefit of employees that are managed by or under the trusteeship of management; (iv) principal owners of the Company; (v) members of management; (vi) members of their immediate families; and (vii) any other party that can control, is controlled by, or can significantly influence the management or operating policies of the Company such that one of the transacting parties might be prevented from fully pursuing its own separate interests.

PCCU is considered a related party as of September 30, 2025 and December 31, 2024, because it held approximately 37.1% and 38.8%, respectively, of the Company’s Class A Common Stock as of the date, however, PCCU no longer has contractual rights to appoint members to the Board of Directors. PCCU further served as the counterparty to the Senior Secured Promissory Note which has been canceled. PCCU holds the majority of the Company’s cash deposits. Accordingly, PCCU has the ability to significantly influence the Company’s management and operating policies.

On September 30, 2025, PCCU agreed to cancel the Senior Secured Promissory Note, see Note 10*,*with an outstanding principal balance of approximately $10.75 million, in exchange for 13,436 shares of the Company’s Series B Convertible Preferred Stock and Series B Warrant to purchase 865,200 Class A Common Shares with an exercise price of $7.7644 per share. Under the terms of the SPA, PCCU may not exercise its conversion rights or exercise its warrant if such conversion or exercise would result in PCCU beneficially owning more than 4.99 % of the Company’s Class A Common Stock. Holders of the Series B Convertible Preferred Stock have no voting rights and no rights to appoint directors.

The Company continues to maintain a significant commercial relationship with PCCU under the Commercial Alliance Agreement (“CAA”), see below.

Major Customer Concentration with PCCU

The Company derives substantially all of its revenue from services provided to PCCU under the Commercial Alliance Agreement (the “PCCU CAA”) dated March 29, 2023, as amended and restated on December 31, 2024 (the “Amended PCCU CAA.”) For the three months ended September 30, 2025 and September 30, 2024, revenues generated under the PCCU CAA represented approximately 88.0 % and 82.8 %, respectively, of total revenues. For the nine months ended the same dates, PCCU represented 85.4 % and 82.4 %, respectively, of total revenues. As of September 30, 2025, amounts due from PCCU totaled $0.7 million, representing 93.5% of total accounts receivable. The loss of, or a material change, to this relationship may have a material adverse impact on the Company’s results of operations and financial conditions. Management monitors this concentration risk on an ongoing basis.

The PCCU CAA

On March 29, 2023, the Company and PCCU entered into the PCCU CAA, which was subsequently amended and restated on December 31, 2024. This agreement sets forth the terms and conditions of lending and account-related services, governing the relationship between the Company and PCCU. The PCCU CAA outlined the application, underwriting, loan approval, and foreclosure processes for loans issued by PCCU to CRBs (as defined below), as well as the loan servicing and monitoring responsibilities of both parties.

The PCCU CAA includes procedures to be followed in the event of a loan default to ensure that neither the Company nor PCCU takes title to, or possession of, any cannabis-related assets, including real property that may have served as collateral for loans funded by PCCU under the agreement. A default by either the Company or PCCU occurs in the event of bankruptcy, insolvency, or an inability to pay debts in the ordinary course of business. If a default occurs, no services will be provided under the agreement.

Under the PCCU CAA, PCCU had the right to receive monthly fees for managing loans. For SHF-serviced loans (CRB loans provided by PCCU but primarily handled by SHF), a yearly fee of 0.25% of the remaining loan balance was applied. For loans both financed and serviced by PCCU, a yearly fee of 0.35% on the outstanding balance was charged. These fees were calculated based on the average daily balance of each loan for the preceding month.

Additionally, until December 31, 2024, the Company was obligated under the PCCU CAA to indemnify PCCU from certain default-related loan losses, as fully defined in the agreement.

Furthermore, the PCCU CAA outlined certain fees to be paid to the Company for specified account-related services, including cannabis-related income such as loan origination fees, interest income on CRB-related loans, participation fees, servicing fees, investment income, account activity fees, processing fees, and other revenue. These monthly fees were set at $26.08-$28.69 per account in 2024.

Regarding CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) was shared at a ratio of 25% to PCCU and 75% to the Company. Additionally, PCCU maintained its CRB-related deposits to total assets ratio at 60%, unless otherwise dictated by regulatory, regulator, or policy requirements. The initial term of the PCCU CAA was two years, with a one-year automatic renewal, unless either party provided a one hundred twenty-day written notice prior to the end of the term.

The Amended PCCU CAA

The Amended PCCU CAA extends the term through December 31, 2028, with automatic renewals every two years unless terminated with 12 months’ notice.

The key changes under the Amended PCCU CAA compared to the CAA include:

The following represents balances due from and owed with PCCU that are on the condensed consolidated balance sheets are as follows, see (Note 10):

As of September 30, 2025 and December 31, 2024, the Company held $0.9 million and $2.3 million, respectively, of cash and cash equivalents, of which $0.8 million and $2.2 million, respectively, was held at PCCU.

The Company evaluates its relationships with shareholders, affiliates, and key management personnel at each reporting date to identify and disclose any transactions or arrangements that meet the definition of a related party under ASC 850 or SEC Regulation S-X.

Note 10-Senior Secured Promissory Note and Debt Cancellation Agreement

The outstanding amounts under the Senior Secured Promissory Note are as follows:

The Company and PCCU entered into a Senior Secured Promissory Note and Security Agreement (together, the “PCCU Note”) on March 29, 2023, under which PCCU agreed to lend $14.5 million to the Company. On September 30, 2025, the Company entered into a Debt Cancellation Agreement with PCCU. Under the terms of the Debt Cancellation Agreement, the outstanding balance of $10.75 million due under the Loan Agreements was deemed fully repaid and satisfied. In exchange, PCCU received:

The transaction was accounted for under ASC 470-50, Debt – Modifications and Extinguishments. The fair value of the Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock issued was estimated at $800 per unit, which represented the cash price paid by unaffiliated third-party investors on the same day for identical instruments in accordance with ASC 505, Equity Issuances for Non-Cash Consideration. Because the total fair value of the equity instruments issued equaled the carrying amount of the debt extinguished, the Company did not recognize a gain (loss) on extinguishment of debt. As a result of the Debt Cancellation Agreement, there was no outstanding balance on the Senior Secured Promissory Note as of September 30, 2025.

Note 11-Convertible Debt

On August 27 and September 9, 2025, the Company issued unsecured Convertible Promissory Notes (the “Notes”) in the aggregate principal amount of $0.7 million an original issue discount (“OID”) of 20%. The Notes were issued at a purchase price of $0.6 million and did not bear stated interest; the OID represented the investors’ yield and was recognized as interest expense under ASC 835-30.

On September 30, 2025, the Notes were exchanged for Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock at a price of $800 per unit (stated value of $1,000). Because the fair value of the equity instruments issued is less than the carrying amount of the Notes, the Company recognized a gain of $0.03 million extinguishment of debt under ASC 470-50.

Accordingly, the total financing cost consisted of (i) the 20% OID recognized as interest expense and (ii) the incremental value delivered upon exchange recognized as a loss on extinguishment in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2025.

Note 12 -Leases

The Company has a non-cancellable operating lease for its corporate office space in Golden, Colorado which qualifies for capitalization under ASC 842 Leases. As of September 30, 2025, the Golden, Colorado lease has a remaining term of approximately three-and-three-quarter years and includes an option to extend for up to ten additional years; however, the extension option is not recognized as part of the right-of-use asset as it is not reasonably certain to be exercised. As of September 30, 2025, and December 31, 2024, the net right-of-use asset “ROU” recorded under the operating lease was $0.6 million and $0.7 million, respectively, and the corresponding lease liability was $0.8 million $0.9 million, respectively.

During the quarter ended September 30, 2025, the property owner of the Golden, Colorado facility became subject to a court-appointed receivership. The Company continues to occupy the premises and make rental payments in accordance with the existing lease terms. However, the receivership introduces uncertainty regarding the future ownership, management, or disposition of the property, which could result in a modification, reassignment, or early termination of the lease.

As of September 30, 2025, management has not identified any impairment indicators related to the ROU asset, and no changes to the lease term or measurement have been recorded. The Company will continue to monitor the status of the receivership and evaluate whether the event results in a lease modification, remeasurement, or impairment in future periods in accordance with ASC 842-10-35.

The Company did not renew the lease for its Little Rock, Arkansas location.

The Company analyzes contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available. Lease cost for the three and nine months ended September 30, 2025, and September 30, 2024, included in unaudited condensed consolidated statements of operations, is as follows:

The following represents the activity for the Company’s operating lease:

Future minimum lease payments as of September 30, 2025 is as follows:

Note 13 -Earnings Per Share

Basic net income (loss) per common share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income per share is computed by dividing the net income (attributable to common stockholders) by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted income per share calculation, the Company uses the “if-converted method” method for the Series B Convertible Preferred Stock and the “treasury stock method” method for warrants and options. If the Company has a net loss, dilutive securities have been excluded from the computation of diluted net loss per share.

The schedule of earning per shares, basic and diluted is as follows:

The following is a schedule of the weighted average shares outstanding - basic and diluted, for the three and nine months September 30, 2025 and December 31, 2024.

Certain share-based equity awards and warrants were excluded from the computation of dilutive earnings per share because inclusion of these awards would have had an anti-dilutive effect. The following table reflects the awards that were excluded.

Earnings per share was calculated using the two-class method to allocate net income between Class A Common and Series B Convertible Preferred Stock based on their respective participation rights. For the three months ended September 30, 2025, net income of$0.2 million was allocated between 2,907,219 weighted average Class A Common stock and 341 weighted average Series B Convertible Preferred Stock, resulting in basic earnings per Class A Common Stock of $0.06 per share and basic earning per Series Convertible Preferred Stock of $0.06 per share. No preferred dividends were declared or paid in the period

Note 14 -Forward Purchase Agreement

During the three months ended March 31, 2025, the Company reclassified the forward purchase receivable balance to additional paid-in capital after determining the arrangement met the conditions for equity classification under ASC 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity, and ASC 480, Distinguishing Liabilities from Equity.

As previously disclosed, on June 16, 2022, the Company and Midtown East Management NL, LLC (“Midtown”) entered into a Forward Purchase Agreement (“FPA”), which Midtown subsequently assigned in part to Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC Series 1 (“Vellar”).

On September 28, 2025, the Company was required to either (a) make a cash payment or (b) issue Class A Common Stock sufficient to satisfy the FPA derivative liability of $7.3M. However, in September 2025, each of the holders of the FPA agreed to Exchange and Cancellation agreements. Under the Exchange and Cancellation agreements each of the holders agreed to irrevocable cancel, waive and terminate all of its rights under the FPA extinguishing the Company’s FPA derivative liability. In return, the holders received Series B Preferred Stock and Series B Warrants. On September 30, 2025, the Company issued the following securities in full satisfaction of its FPA derivative liability:

The Series B Warrants to purchase Class A Common Stock have an exercise price of $7.7644 per share and include customary anti-dilution and adjustment provisions. The Company accounted for the issuance of the Series B Convertible Preferred Stock and Series B Warrants as equity instruments under U.S. GAAP.

The exchange of the FPA obligation for the Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock was accounted for as an extinguishment of a liability under ASC 405-20, Liabilities – Extinguishments of Liabilities. The equity instruments issued were measured at their fair value of $800 per unit, consistent with the cash price paid by unaffiliated third-party investors for identical securities on the same date, in accordance with ASC 820-10-35-37.

The carrying amount of the FPA liability exceeded the aggregate fair value of the equity instruments issued, resulting in recognition of a gain on extinguishment of $3.3 million which is included in Other Income (Expense) in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2025.

Under the terms of the Series B Convertible Preferred Stock Purchase Agreement, each holder’s conversion rights are subject to a 4.99% beneficial-ownership limitation, such that no holder may convert its Series B shares or exercise related warrants to the extent that doing so would cause its ownership of the Company’s Class A Common Stock to exceed 4.99%. This limitation may be increased to 9.99 % upon 61 days’ written notice but may not be waived entirely. Accordingly, none of Verdun, Midtown, or Vellar can obtain control or significant influence over the Company through the conversion features of these instruments.

Note 15 -Warrants

Public and Private Placement Warrants

As of September 30, 2025, and December 31, 2024, the Company had 287,500 public warrants and 13,205 private placement warrants to purchase Common Stock are outstanding, respectively, each with an adjusted exercise price of $230 per share.

The public and private placement warrants may only be exercised for a whole number of Common Stock.

The public and private placement warrants are exercisable and expire on September 28, 2027, or earlier upon redemption or liquidation.

No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.

Redemption of warrants will become effective when the price per share of Common Stock equals or exceeds $360.00, per share. Once the warrants become redeemable, the Company may redeem the warrants:

If and when the warrant becomes redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for the issuance of Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

The private placement warrants are identical to the public warrants, except that the private placement warrants and the Common Stock issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable, subject to certain limited exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.

PIPE Warrants

As of September 30, 2025 and December 31, 2024, there were 51,125 outstanding PIPE warrants to purchase Class A Common Stock.

The PIPE warrants have an adjusted exercise price of $100.00 per share of Common Stock to be paid in cash except if the shares underlying the warrants are not covered by an effective registration statement after the nine-month anniversary of the closing date, in which case cashless exercise is permitted. The PIPE Warrants are also subject to adjustment for other customary adjustments for stock dividends, stock splits and similar corporate actions. The PIPE Warrants are exercisable for a period of five years following the Closing, or September 28, 2027. After the exercise of a PIPE Warrant, the Company may be required to pay certain penalties if it fails to deliver the Class A Common Stock within a specified period of time.

Abaca Warrants

As of September 30, 2025, and December 31, 2024, the Company had 250,000 Abaca Warrants outstanding, each exercisable to purchase one share of the Company’s Common Stock at an exercise price of $40.00 per share, payable in cash. The Abaca Warrants become exercisable one year after the effective date of the registration statement covering the underlying shares and expire five (5) years after that date.

The Company may, at its sole discretion, settle exercises of the Abaca Warrants in either (i) shares of Common Stock or (ii) cash equal to the intrinsic value of the Warrants (the difference between the fair market value of the Common Stock on the date of exercise and the $40.00 exercise price, multiplied by the number of Warrants exercised).

On November 10, 2025, the registration statement on Form S-1 covering the shares issuable upon exercise of the Abaca Warrants became effective, thereby satisfying the Company’s commitment to register such shares for resale. Following effectiveness, the underlying shares will be freely tradable upon exercise of the Warrants, subject to applicable securities laws.

If the registration statement were not to become effective within one year of the original issuance date, the Warrants would have become exercisable on a cashless basis pursuant to their terms; however, management expects this contingency will not apply.

Series B Warrants

In connection with the issuance of the Company’s Series B Convertible Preferred Stock on September 30, 2025, the Company also issued Series B Warrants to purchase 1,999,544 shares of Class A Common Stock at an exercise price of $7.7644 per share, subject to customary adjustments. The Series B Warrants become exercisable on the applicable date defined as six months and one day after the effective date of our preliminary S-1 registration statement filed on October 21, 2025 and expire three years after they become exercisable. The warrants include a 4.99 % beneficial-ownership limitation (increasable to 9.99 % with 61 days’ notice) and a cashless-exercise provision if a registration statement covering the underlying shares is not effective at the time of exercise.

The Series B Warrants include down-round and anti-dilution adjustment provisions whereby the exercise price is subject to reduction if the Company issues or sells common stock (or common-stock equivalents) at a price below the then-current exercise price. Specifically, the warrant exercise price and/or the number of shares issuable are subject to automatic resets at 60, 90, and 180 days following the applicable date and upon the occurrence of certain other events, including stock splits, combinations, dividends, or subsequent dilutive issuances, as defined in the warrant agreement. The automatic resets occur prior to the warrant becoming exercisable by the holders. These provisions are customary and were evaluated under ASC 815-40 and ASC 480. Management concluded that, despite the reset features, the warrants are indexed solely to the Company’s own stock and therefore qualify for equity classification.

The Company determined the relative fair values of the Series B Convertible Preferred Stock and the accompanying Series B Warrants using a Monte Carlo simulation model, which produced estimated standalone fair values of approximately $589 per Series B share and $211 per Series B Warrant to purchase Class A Common Stock. The Series B Convertible Preferred Stock and Series B Warrants were each determined to meet the conditions for equity classification under ASC 815-40 and ASC 480. The fair value of the instruments will not be subsequently remeasured as they are classified in equity.

Note 16 -Financial Instruments

The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might highly be subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.

There were no assets or liabilities recorded at fair value on a nonrecurring as of September 30, 2025 and December 31,2024.

The following tables present the carrying amounts and fair values of financial instruments on a non-recurring basis, by the level of valuation inputs in the fair value hierarchy, as of September 30, 2025 and December 31, 2024:

The change in the liability measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value are presented in the following table:

As of September 30, 2025 and on December 31, 2024, the fair market of the private placement warrants, and PIPE warrants, were based on Black-Scholes Merton option pricing model. As of September 30, 2025, the fair market value of the Abaca third anniversary payment consideration was determined using a Monte Carlo Simulation method. The valuation was performed by the Company as of September 30, 2025, and by a third-party prior for prior periods.

During the three and nine months ended September 30, 2025, and September 30, 2024, there were no changes in the classification of financial instruments within Level 2 and Level 3 of the fair value hierarchy.

The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants, public warrants, third anniversary payment consideration and Abaca warrants as of their measurement dates:

On October 3, 2025, the Company issued 37,517 shares of common stock to the Abaca shareholders as part of the third anniversary consideration payment under the acquisition agreement (see Note 3), valued at $0.3 million.

Note 17 -Income Taxes

The Company has fully reserved its deferred tax assets of $44.7 million and $44.4 million as of September 30, 2025, and December 31, 2024, respectively. As of September 30, 2025, and December 31, 2024, the Company has net operating loss “NOL” of approximately $24.6 million and $20.4 million, respectively. The NOL can be carried forward indefinitely but limited to offset 80% of taxable income**.**

In addition, the Company has other deferred tax assets for temporary differences of $20.1 million and $24.0 million as of September 30, 2025 and December 31, 2024, respectively.

Pursuant to Section 382 of the Internal Revenue Code, changes in the Company’s ownership may limit the amount of its NOL carryforwards that could be utilized annually to offset future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. The Company has not performed a NOL limitation study. All of the Company’s income tax returns are subject to examination by the taxing authorities.

The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of September 30, 2025 and December 31, 2024 the Company has no unrecognized income tax benefits.

Note 18 -Stockholders’ Equity (Deficit)

The Board of Directors of the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-20 shares, that became effective on March 14, 2025.

Preferred Stock

The Company is authorized to issue 1,250,000 shares of preferred stock, with a par value of $0.0001 per share, with such designation rights and preferences as may be determined from time to time by the Company’s Board of Directors. As of September 30, 2025, there were 111 shares of convertible preferred stock issued and outstanding, and there were 111 shares of convertible preferred stock issued and outstanding on December 31, 2024. The holders of preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of preferred stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid on the preferred stock. The terms of the preferred stock provide for an initial conversion price of $200.00 per share of Common Stock, which conversion price is subject to downward adjustment on each of the dates that are 10 days, 55 days, 100 days, 145 days and 190 days after the effectiveness of a registration statement registering the shares of Common Stock issuable upon conversion of the preferred stock to the lower of the Conversion Price and the greater of(i) 80% of the volume weighted average price of the Common Stock for the prior five trading days and (ii) $50.00 (the “Floor Price”), provided that, so long as a preferred stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares of Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price. Additionally, on January 25, 2023, at a special meeting of the Company’s stockholders, the stockholders approved a reduction in the floor conversion price of the outstanding preferred stock from $40.00 per share to $25.00 per share.

Series B Convertible Preferred Stock

On September 30, 2025, the Company entered into the SPA with certain institutional and accredited investors (the “Buyers”), under which the Company issued 31,052 shares (35,000 authorized) of series B Convertible Preferred Stock and accompanying Series B Warrants to purchase 1,999,544 shares of Class A Common Stock, for aggregate consideration of $24.8 million, based on the $800 per $1,000 stated-value purchase price specified in the Agreement. Consideration consisted of $6.3 million in cash (of this amount, $5.9 million was received by October 8, 2025), $10.8 million in debt cancellation, see Note 10, $4.0 million related to termination of the FPA, see Note 14, and $0.7 million representing the exchange of Convertible Notes, see Note 13. Offering costs of $0.4 million were charged to additional paid-in capital. Members of the Company’s management team and board of directors purchased 284 Series B Convertible Preferred Stock and accompanying Series B Warrants to purchase 18,290 shares of Class A Common Stock.

The Series B Convertible Preferred Stock has a stated value of $1,000 per share and ranks senior to all classes of common stock with respect to dividends and liquidation. Dividends accrue only when declared by the Board of Directors, on an as-converted basis. Each share is convertible at the holder’s option into common stock at an initial conversion price of $7.7644 per share, subject to proportional adjustment for stock splits, dividends, combinations, or similar events.

The Series B Convertible Preferred Stock includes reset and anti-dilution provisions substantially similar to those in the Series B Warrants to purchase Class A Common Stock. Specifically, (i) the conversion price automatically resets at 60, 90, and 180 days after the applicable date to the lower of the then-current market price or the prior conversion price (subject to a floor of $1.5528 as defined in the Certificate of Designation), and (ii) further adjustments apply upon subsequent equity issuances below the then-current conversion price. The Preferred Shares are also subject to a 4.99% beneficial-ownership limitation (increasable to 9.99% with 61 days’ notice). With the Required Holders’ consent, the Board may voluntarily reduce the conversion price for any period permitted under Nasdaq rules.

The Company determined stand-alone fair values for the Series B Convertible Preferred Stock and Series B Warrants using a Monte Carlo simulation model, which produced estimated values of approximately $589 per Series B Convertible Preferred share and $211 per Series B Warrant to purchase Class A Common Stock. Both instruments were classified within stockholders’ equity under ASC 815-40 and ASC 480; no subsequent re-measurement will occur.

Included in the September 30, 2025 issuance described above, the Company issued 1,063 shares of Series B Convertible Preferred Stock and accompanying Series B warrants to purchase in aggregate 68,453 shares of Class A Common Stock to three different independent consultants for services to be rendered through September 30, 2027 (the “Consulting Instruments”). A portion of these instruments were considered nonvested, as a result such outstanding instruments are not recognized in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2025. The unrecognized grant date fair value of the unvested issued shares is approximately $0.5 million. Consistent with ASC 718-10-35-1B and ASC 718-10-45-3, the vested grant-date fair value of $0.3 million was recorded as a prepaid asset. The prepaid asset along with the unvested shares issued will be amortized to expense over the two-year service period. As of September 30, 2025, $0.15 million was categorized as a non-current prepaid asset.

The Company held a special meeting of stockholders on November 6, 2025, the shareholders approved the issuance of common stock upon conversion of the Series B Convertible Preferred Stock and upon exercise of the related Series B Warrants to purchase Class A Common Stock, including participation by certain members of management and the Board of Directors.

The Company filed registration statements on Form S-1 on October 17 and 21, 2025 to register the resale of Series B conversion shares and shares issuable under its equity line of credit. The registration statement for the equity line of credit became effective on November 7, 2025, and the registration for the Series B Preferred Stock and Series B Warrants is expected to become effective in November 2025.

Common Stock

As of September 30, 2025, the Company is authorized to issue up to 130,000,000 shares of Common Stock, with a par value of $.0001 per share. Holders of the Company’s Common Stock are entitled to one vote for each share. As of September 30, 2025 and December 31, 2024, there were 2,915,956 and 2,783,667 shares of Common Stock issued and outstanding, respectively.

Included in additional paid-in-capital is $5.9 million relates to the fair value of the Series B Warrants to purchase Class A Common Stock.

Equity Line of Credit and Related Series B Redemption Obligation

On September 17, 2025, the Company entered into a Common Stock Purchase Agreement (the “ELOC Agreement”) with CREO Investments LLC, pursuant to which the Company, in its sole discretion, may issue and sell up to $150 million of shares of its Class A Common Stock (the “ELOC Shares”) from time to time, subject to customary conditions and limitations, including a 4.99 % beneficial-ownership cap and a 19.99 % exchange cap, as defined in the agreement. The Company concurrently filed a Registration Statement on Form S-1 with the Securities and Exchange Commission to register the resale of the ELOC Shares. The equity line of credit expires on September 17, 2028. When the Company’s Class A common stock is sold through the ELOC, each VWAP stock purchase will be priced at a 10% discount to the lowest stock price of the day, and this discount will be deducted from the payment made to the Company. Under the terms of the ELOC Agreement, the Company may not utilize the facility until the registration statement is declared effective, which occurred on November 7, 2025. On November 6, 2025, the Company obtained shareholder approval authorizing issuance of Class A Common Stock above 19.99% of the Company’s outstanding common stock on the date of the agreement.

If the Company elects to utilize the ELOC, the Class A Common Stock sold will be priced at a 10% discount to the lowest stock price of the day, and this discount will be reduced from the proceeds received by the Company. The discount will be recognized as an expense in the Company’s statement of operations.

As consideration for establishing the facility, the Company issued 1,000 shares of Series B Convertible Preferred Stock and a Series B Warrant to purchase 64,369 shares of Class A Common Stock to the investor on September 30, 2025. The fair value of the shares issued was measured at $800 per share. The Company recorded the $0.8 million within Other Expense for the three and nine months ended September 30, 2025. Accordingly, the Company satisfied its initial commitment-fee obligation under the ELOC Agreement in full. In addition, the Company expended $0.2 million on other ELOC related issuance costs.

The ELOC Agreement further provides that, with mutual consent of the Company and the Investor, the facility may be expanded up to a total commitment of $500 million. The Company is required to issue commitment shares equal to 0.75 % (75 basis points) per $100 million increase pro rata of increased commitment amount, payable in Class A Common Stock valued at the average closing price for the prior five days before the date of issuance.

On September 30, 2025, the Company and the investor executed an Amendment No. 1 to the ELOC Agreement. The amendment altered the use of proceeds to require the Company to apply 25% of the net cash proceeds received under the ELOC Agreement to redeem outstanding shares of the Company’s Series B Convertible Preferred Stock. Under the Certificate of Designation for the Series B Convertible Preferred Stock, redemptions are permitted only at 120% of the stated value of $1,000 per share, plus any accrued but unpaid dividends. Accordingly, each redemption funded with ELOC proceeds will be made at a cash price of $1,200 per share of the Series B Convertible Preferred Stock.

The mandatory-use-of-proceeds clause represents a contractual earmark of future equity proceeds but does not create a separate liability at issuance because no redemption obligation exists until the Company receives proceeds and elects to draw under the facility. Consistent with ASC 480-10-25-4 through 25-14, the Series B Convertible Preferred Stock continues to be classified in permanent equity, as redemption remains conditional on the Company’s discretion to utilize the ELOC and is not an unconditional obligation.

2022 Equity Incentive Plan

The Amended and Restated - 2022 Equity Incentive Plan (the “Plan”) was approved by the Company’s stockholders on June 28, 2022. On April 30, 205, the Plan was amended to provide that the total number of shares of Common Stock that may be issued, under the Plan will automatically increase upon the occurrence of a Dilution Event (as defined in the Plan) and on the first trading day of each calendar year, beginning with calendar year 2026, by such number of shares of Common Stock necessary to make the total shares of Common Stock authorized under the Plan equal to fifteen percent (15%) of the total outstanding shares of Common Stock on the last day of the prior calendar year (subject to a maximum annual increase of 50,000 shares of Common Stock). The Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock bonus awards, and performance compensation awards. The Company has not issued stock appreciation rights, restricted stock, stock bonus awards, or performance compensation awards in the nine months ended September 30, 2025 and September 30, 2024. As of September 30, 2025, a total of 626,749 shares of common stock were authorized for issuance under the Plan, of which 101,639 shares remained available for future issuances.

Stock Options

Stock options are awarded to encourage ownership of the Company’s Common Stock by employees and to provide incentives for employees to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options generally have a 10-year contractual term.

The assumptions used to determine the fair value of options granted in the nine months ended September 30, 2025 using the Black-Scholes-Merton option model are as follows:

The assumptions used to determine the fair value of options granted in the nine months ended September 30, 2024 using the Black-Scholes-Merton model are as follows:

A summary of the Company’s stock option activities and related information for the nine months ended September 30, 2025 is as follows:

The options forfeited during the period were associated with awards previously granted to former officers and employees whose service with the Company terminated prior to vesting or exercise.

On August 7, 2025, the Company granted 183,501 performance-based stock option awards to certain executive officers, including the Chief Executive Officer, Chief Investment and Strategic Officer, and Principal Accounting Officer. These options were issued under the 2022 Stock Option and Incentive Plan and are performance-based awards that vest only upon the Company’s successful completion of an equity transaction resulting in proceeds in excess of $4 million. The performance condition is non-market based as defined in ASC 718-10-20.

As of September 30, 2025, the performance condition is satisfied, and $0.3 million stock-based compensation expense has been recognized.

The following options were outstanding as of September 30, 2025, at their respective exercise price:

Stock compensation expense recognized for stock options for the three and nine months ended September 30, 2025 was $0.6 million and $1.4 million. Stock compensation expense recognized for stock options for the three and nine months ended September 30, 2024 was $0.4 million and $1.4 million respectively.

Stock compensation expenses is comprised of the following:

As of September 30, 2025, there was $0.4 recognized stock compensation expense related to stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 1.15 years based on vesting under the award service conditions. As of September 30, 2025, the intrinsic value was $1.9 million. The fair value of the stock options granted for the three months and nine months ended September 30, 2025 was $1.90 per share and $3.10 per share, respectively. There were no stocks options granted for the three months and nine months ended September 30, 2024.

Restricted Stock Units (“RSUs”)

A summary of the Company’s RSU activities and related information for the nine months ended September 30, 2025 is as follows:

Stock compensation expense for RSU for the three and nine months ended September 30, 2025 was $0.09 million and $0.03 million, respectively. Stock compensation expense for RSU for the three and nine months ended September 30, 2024, was $0.03 million and $0.1 million, respectively.

All RSU awards recognized during the three and nine months ended September 30, 2025, and 2024 relate to employee stock awards.

For the nine months ended September 30, 2025 and September 30, 2024, the Company completed a net share settlement for 4,292 and 5,392, restricted shares on behalf of certain employees that participate in the Plan upon the vesting of the restricted shares pursuant to the terms of the Plan, respectively. The net share settlement was in connection with payroll taxes incurred on restricted shares that vested and were transferred to the employees during the nine months ended September 30, 2025 and September 30, 2024 which created taxable income for the employees. At the employees’ request, the Company has paid these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares to the Company. These transactions resulted in a decrease of $0.00 million and $0.1 million for the nine months ended September 30, 2025 and September 30, 2024, to shareholders’ deficit on the unaudited condensed consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

As of September 30, 2025, there was $0.0 million of unrecognized stock compensation expense related to RSU. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximatelysix months based on vesting under the award service conditions.

Note 19-Commitments and Contingencies

Contractual Commitments

The Company has an employment agreement with its Chief Executive Officer. Under the terms of the agreement, if the contract is not renewed or is terminated without cause, the Company is obligated to pay severance equal to the CEO’s then-current annual base salary, which is $0.4 million as of September 30, 2025. The agreement also provides for an annual cash bonus opportunity of up to 100% of base salary, and for long-term incentive compensation, the terms of which are to be determined by the Board of Directors.

The Company is party to contractual obligations, including lease liabilities related to operating leases, and stipulated cash bonus arrangements with employees. These obligations are time-based and are reflected in the accompanying unaudited condensed consolidated financial statements. The Company expects to meet these commitments in the ordinary course of business.

Nasdaq Listing Compliance

On April 7, 2025, the Company received a notice from Nasdaq indicating that it no longer met the continued listing requirements under Listing Rule 5550(b)(1), which requires a minimum of $2.5 million of stockholders’ equity. The Company submitted a compliance plan on May 22, 2025, which was accepted by Nasdaq.

On September 30, 2025, the Company issued Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock, net of offering costs that contributed $24.6 million in incremental equity capital.

As a result of the equity financing, the Company’s stockholders’ equity increased to approximately $7.0 million as of September 30, 2025, which exceeds the $2.5 million minimum equity requirement for continued listing on Nasdaq. Nasdaq subsequently confirmed that the Company had regained compliance with Rule 5550(b)(1). There can be no assurance that the Company will be able maintain compliance with any other Nasdaq requirement in the future.

Legal and Related Matters

The Company is involved in, or has been involved in, arbitrations or various other legal proceedings that arise from the normal course of its business. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the Company’s results of operations, balance sheets and cash flows due to defense costs, and divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings. With respect to the cases described below, the Company evaluates the associated developments on a regular basis and accrues a liability when the Company believes a loss is probable and the amount can be reasonably estimated.

Abaca legal case in Denver

On October 17, 2024, the Company filed a declaratory judgment action in the Denver County District Court, Case No. 2024CV33187, against Daniel Roda, Gregory W. Ellis, and James R. Carroll (the “Defendants”), each of whom is a former shareholder of Rockview Digital Solutions, Inc. (d/b/a Abaca), which the Company acquired in October 2022. The action relates to a $3.0 million contingent merger consideration payment due under the merger agreement and its subsequent amendments. The Company initiated litigation to clarify the appropriate party authorized to receive the payment following internal disputes among the former Abaca shareholders.

On November 21, 2024, the Company deposited the $3.0 million payment into the registry of the Denver County District Court in accordance with a court-approved motion, and the funds remain held by the court pending resolution of the dispute.

On December 19, 2024, the Defendants filed a counterclaim against the Company alleging breach of contract and related causes of action, and a third-party claim was asserted against a member of the Company’s board of directors. As of the date of these financial statements, no trial date has been set, and the case remains in the pleading stage.

On January 16, 2025, the Company filed a motion to dismiss all counterclaims filed against the Company.

On April 18, 2025, the District Court for the City and County of Denver, Colorado (i) dismissed Gregory W. Ellis as a counter-plaintiff and third-party plaintiff because Mr. Ellis lacked standing to bring any claim, and (ii) denied a third-party’s request to intervene in the litigation. The remainder of the case will proceed to the discovery phase of litigation.

The Company is vigorously defending against the counterclaims and continues to monitor the proceedings and potential financial exposure. Based on the current status of the litigation, and in consultation with legal counsel, the Company has determined that no accrual for loss is required under ASC 450-20 as of September 30, 2025.

Note 20 -Subsequent Events

The Company has evaluated events and transactions subsequent to September 30, 2025, through the date the unaudited condensed consolidated financial statements were issued and has determined no other material events or transactions occurred that would require adjustment or disclosure in the financial statement, except as disclosed below:

On October 3, 2025, the Company issued 37,517 shares of common stock to the Abaca shareholders in accordance with the acquisition agreement for the third anniversary consideration payment (Note 3) approximately $0.3 million.

As of October 8, 2025, the Company received $5.9 million in connection with the Series B Convertible Preferred Stock and Series B Warrants to purchase Class A Common Stock.

On October 31, 2025, ADTX redeemed approximately 44 shares of its preferred stock held by the Company for cash proceeds of $0.05 million. The redemption occurred pursuant to the preferred share terms.

Subsequent to September 30, 2025, the Company issued 127,603 shares of common stock under its ELOC, receiving gross proceeds of $0.2 million.

On November 6, 2025, the Company’s shareholders approved several actions at a special meeting:

The Company filed registration statements on Form S-1 on October 17 and 21, 2025 to register the resale of Series B Convertible Preferred Stock and shares issuable under its equity line of credit. The registration statement for the equity line of credit became effective on November 7, 2025, and the registration for the Series B Convertible Preferred Stock and Series B Warrant is expected to become effective in November 2025.