# CEA Industries Inc. (BNC) 10-Q SEC filing - Q4 FY2026
- Filed: Mar 16, 2026, 4:55 PM EDT
- Fiscal quarter: Q4 FY2026
- Calendar quarter: Q2 2026
- Accession: 0001493152-26-010296
- OpenCapital page: https://www.opencapital.sh/filings/0001493152-26-010296
- Markdown URL: https://www.opencapital.sh/filings/0001493152-26-010296.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1482541/000149315226010296/0001493152-26-010296-index.htm
## Filing documents
- [10-Q (form10-q.htm)](https://www.sec.gov/Archives/edgar/data/1482541/000149315226010296/form10-q.htm)
---
## 10-Q
SEC source: [form10-q.htm](https://www.sec.gov/Archives/edgar/data/1482541/000149315226010296/form10-q.htm)
**UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington,
D.C. 20549**
**FORM10-Q**
☒ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**FOR
THE QUARTERLY PERIOD ENDED JANUARY 31, 2026**
***OR***
☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
Commission
File Number: 001-41266
**CEA
INDUSTRIES INC.**
(Exact
name of registrant as specified in its charter)
**Nevada** **27-3911608**
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
**385 South Pierce Avenue, Suite C**
**Louisville, Colorado** **80027**
(Address of principal executive offices) (Zip code)
**(303) 993-5271**
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
**Title of each class** **Trading Symbol(s)** **Name of each exchange on which registered**
Common Stock, $0.00001 par value BNC Nasdaq Capital Market
Warrants to purchase common stock BNCW Nasdaq Capital Market
Preferred stock purchase rights Nasdaq Capital Market
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. **YES** ☒ **NO** ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). **YES** ☒ **NO** ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
**Large Accelerated Filer** ☐ **Accelerated Filer** ☐
**Non-accelerated Filer** ☒ **Smaller Reporting Company** ☒
**Emerging Growth Company** ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). **YES** ☐ **NO** ☒
As
of March 13, 2026, the number of outstanding shares of common stock of the registrant was 42,895,841.
**CEA
Industries Inc.**
**Quarterly
Report on Form 10-Q**
**For
the Quarterly Period Ended January 31, 2026**
**Table
of Contents**
| | **Page** |
| --- | --- |
| [Cautionary Statement](#a_001) | ii |
| [PART I — FINANCIAL INFORMATION](#a_002) | 2 |
| [Item 1. Financial Statements (Unaudited)](#a_003) | 2 |
| [Condensed Consolidated Balance Sheets as of January 31, 2026 (Successor) (Unaudited) and April 30, 2025 (Predecessor) (Audited)](#a_004) | 2 |
| [Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended January 31, 2026 (Successor) and the Three Months Ended January 31, 2025 (Predecessor), for the Period from June 7, 2025 through January 31, 2026 (Successor), the Period from May 1, 2025 through June 6, 2025 (Predecessor), and the Nine Months Ended January 31, 2025 (Predecessor) (Unaudited)](#a_005) | 3 |
| [Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended January 31, 2026, for the Period from June 7, 2025 through January 31, 2026 (Successor), the Period from May 1, 2025 through June 6, 2025 (Predecessor), the Three Months Ended January 31, 2025 (Predecessor) and the Nine Months Ended January 31, 2025 (Predecessor) (Unaudited)](#a_006) | 4 |
| [Condensed Consolidated Statements of Cash Flows for the Period from June 7, 2025 through January 31, 2026 (Successor), the Period from May 1, 2025 through June 6, 2025 (Predecessor), and the Nine Months Ended January 31, 2025 (Predecessor) (Unaudited)](#a_007) | 5 |
| [Notes to the Condensed Consolidated Unaudited Financial Statements](#a_008) | 6 |
| [Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations](#sk_001) | 28 |
| [Item 3. Quantitative and Qualitative Disclosures About Market Risk](#sk_002) | 35 |
| [Item 4. Controls and Procedures](#sk_003) | 35 |
| [PART II — OTHER INFORMATION](#sk_005) | 36 |
| [Item 1. Legal Proceedings](#sk_006) | 36 |
| [Item 1A. Risk Factors](#sk_004) | 37 |
| [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](#sk_008) | 41 |
| [Item 5. Other Information](#sk_007) | 41 |
| [Item 6. Exhibits](#vvb_001) | 41 |
i
***In
this Quarterly Report on Form 10-Q, unless otherwise indicated, the “Company”, “we”, “us” or “our”
refer to CEA Industries Inc. and, where appropriate, its wholly owned subsidiaries.***
**CAUTIONARY
STATEMENT**
This
Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in Item 2, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are
not historical fact but are based on current management expectations that involve substantial risks, uncertainties, and other factors,
some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed
in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance.
We generally identify forward-looking statements by terminology such as “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “could,” “intends,” “target,”
“projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,”
or “continue,” or the negative of these terms or other similar words. All statements, other than statements of historical
fact, are statements that could be deemed forward-looking statements including, but not limited to, any projections of revenue, gross
profit, earnings or loss, tax provisions, cash flows or other financial items; any statements of the plans, strategies or objectives
of management for future operations; any statements regarding current or future macroeconomic or industry-specific trends or events and
the impact of those trends and events on us or our financial performance; any statements regarding pending investigations, legal claims
or tax disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking
statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: about our digital asset
treasury strategy, our expectations regarding the market price and adoption of BNB, the native utility token of the Binance ecosystem, a community-driven, decentralized blockchain network originally
initiated by the Binance exchange, the regulatory environment applicable to digital
assets, our ability to manage risks associated with holding digital assets, and statements about:
- the Company’s digital asset treasury strategy, including expectations regarding the acquisition, holding, and potential disposition of BNB and other digital assets;
- the long-term growth, adoption, and value of the Binance ecosystem and BNB tokens;
- the Company’s ability to maintain or grow its position as a significant holder of BNB;
- the volatility of digital asset prices, including BNB, and the impact of such volatility on the Company’s financial condition and results of operations;
- the regulatory environment for digital assets, including potential classification of digital assets as securities and the impact of regulatory developments on the Company’s digital asset holdings and operations;
- the liquidity of digital assets, including the Company’s ability to convert digital assets to fiat currency on acceptable terms;
- the performance of the Company’s operating businesses, including the Fat Panda retail vaping operations and our climate control systems segment;
- the Company’s ability to remediate material weaknesses in internal control over financial reporting.
Forward-looking statements in this Quarterly Report also include statements
regarding: the effects of the shareholder rights agreement on potential change of control transactions; the Company’s liquidity and capital
resources; the Company’s ability to fund operations from its digital asset holdings; expectations regarding custodial and counterparty
risks associated with third-party exchanges; the integration and performance of the Fat Panda acquisition; and other factors that could
cause actual results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.
These
factors should not be construed as exhaustive and should be read with the other cautionary statements in this report.
Although
we believe that we use reasonable assumptions for these forward-looking statements, any of those assumptions could prove to be inaccurate,
and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties,
the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation
by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Item
1A – Risk Factors” in our Transitional Annual Report on Form 10-KT for the four months ended April 30, 2025 and in Part II,
## Item 1. Financial Statements (Unaudited) ITEM
1. FINANCIAL STATEMENTS**
**CEA
Industries Inc.**
**Condensed
Consolidated Balance Sheets**
_(Unaudited) · (Audited)_
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| ASSETS | | |
| Current assets | | |
| Cash and cash equivalents | $11,323,024 | $2,148,606 |
| Accounts receivable, net | 66,016 | 228,507 |
| Related parties receivables, net | - | 668,301 |
| Receivables, net | - | 668,301 |
| Contract assets, net | 233,274 | - |
| Digital assets, current | 6,343,853 | |
| Inventory, net | 3,864,974 | 3,293,947 |
| Prepaid expenses and other | 442,063 | 119,012 |
| Income tax receivable | 185,202 | - |
| Total current assets | 22,458,406 | 6,458,373 |
| Non-current assets | | |
| Property and equipment, net | 270,133 | 322,880 |
| Intangible assets, net | 4,917,213 | - |
| Digital assets, net of current portion | 402,836,035 | - |
| Goodwill | 4,170,151 | - |
| Deposits | 235,037 | 217,379 |
| Deferred tax assets | - | 154,951 |
| Operating lease right-of-use asset | 1,886,600 | 1,890,013 |
| Total non-current assets | 414,315,169 | 2,585,223 |
| TOTAL ASSETS | $436,773,575 | $9,043,596 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| LIABILITIES | | |
| Current liabilities | | |
| Accounts payable and accrued liabilities | $6,283,380 | $2,255,445 |
| Deferred revenue | 501,182 | - |
| Related party note payable | 367,150 | - |
| Income taxes payable | 13,054 | 105,476 |
| Current portion of operating lease liability | 709,245 | 528,914 |
| Promissory note payable | 694,684 | - |
| Royalty liabilities | - | 18,051 |
| Total current liabilities | 8,568,695 | 2,907,886 |
| Non-current liabilities | | |
| Operating lease liability, net of current portion | 1,236,830 | 1,374,639 |
| Deferred tax liabilities | 1,263,118 | - |
| Convertible promissory note payable | 750,022 | - |
| Warrant liabilities - stapled warrants | 60,070,872 | - |
| Total non-current liabilities | 63,320,842 | 1,374,639 |
| TOTAL LIABILITIES | 71,889,537 | 4,282,525 |
| Commitments and contingencies (Note 12) | | |
| SHAREHOLDERS’ EQUITY | | |
| Successor | | |
| Common stock $0.00001 par value; 200,000,000 authorized; 43,673,955 shares issued and outstanding | 437 | - |
| Common stock, unlimited authorized; 1,410 shares issued and outstanding | - | 401 |
| Additional paid-in capital | 235,422,023 | - |
| Retained earnings | 129,420,280 | 4,837,746 |
| Accumulated other comprehensive income (loss) | 41,298 | (77,076) |
| Total shareholders’ equity | 364,884,038 | 4,761,071 |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $436,773,575 | $9,043,596 |
The
accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
2
**CEA Industries Inc.**
### Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
_(Unaudited)_
| Line item | Successor / Three Months Ended January 31, 2026 | Predecessor / Three Months Ended January 31, 2025 | Successor / Period from June 7, 2025 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Predecessor / Nine Months Ended January 31, 2025 |
| --- | --- | --- | --- | --- | --- |
| Revenue | $7,334,626 | $6,908,817 | $19,055,752 | $2,927,689 | $21,313,671 |
| Cost of revenue | 5,571,329 | 5,146,901 | 13,827,593 | 2,001,537 | 13,824,712 |
| Gross profit | 1,763,297 | 1,761,916 | 5,228,159 | 926,152 | 7,488,959 |
| Operating expenses | | | | | |
| Advertising and marketing expenses | 284,366 | 191,531 | 5,010,953 | 63,202 | 490,008 |
| Unrealized loss on digital assets | 159,791,308 | - | 45,757,590 | - | - |
| Selling, general and administrative expenses | 5,997,657 | 612,731 | 34,599,188 | 842,348 | 4,798,756 |
| Total operating expenses | 166,073,331 | 804,262 | 85,367,731 | 905,550 | 5,288,764 |
| Operating income (loss) | (164,310,034) | 957,654 | (80,139,572) | 20,602 | 2,200,195 |
| Other income (expense), net | | | | | |
| Airdrop income | 1,265,452 | - | 7,093,030 | - | - |
| Gain on change in fair value of warrant liability | 38,061,767 | - | 244,879,854 | - | - |
| Interest expense | (158,330) | - | (822,607) | - | - |
| Other income (expense), net | 176,792 | - | (80,223) | - | - |
| Total other income, net | 39,345,681 | - | 251,070,054 | - | - |
| Income (loss) before income tax expense (benefit) | (124,964,353) | 957,654 | 170,930,482 | 20,602 | 2,200,195 |
| Income tax expense (benefit) | (18,392,213) | 184,337 | (291,754) | 1,589 | 426,838 |
| Net income (loss) | $(106,572,140) | $773,317 | $171,222,236 | $19,013 | $1,773,357 |
| Other comprehensive income (loss) | | | | | |
| Foreign currency translation adjustment | 90,848 | $(248,695) | 41,298 | 34,825 | (237,911) |
| Total comprehensive income (loss) | $(106,481,292) | $524,622 | $171,263,534 | $53,838 | $1,535,446 |
| Net income (loss) per share of common stock attributable to common stockholders | | | | | |
| Basic | $(2.00) | $548.45 | $8.29 | $13.48 | $1,257.70 |
| Diluted | $(2.00) | $548.45 | $8.23 | $13.48 | $1,257.70 |
| Weighted average number of common shares outstanding | | | | | |
| Basic | 53,180,317 | 1,410 | 20,666,014 | 1,410 | 1,410 |
| Diluted | 53,180,317 | 1,410 | 20,800,037 | 1,410 | 1,410 |
The
accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
**CEA Industries Inc.**
### Condensed Consolidated Statements of Changes in Shareholders’ Equity
_(Unaudited)_
| Line item | Number of Shares / Common Stock | Amount / Common Stock | Paid in Capital / Additional Paid in / Capital | Retained Earnings / Retained / Earnings | Comprehensive Income (Loss) / Accumulated Other Comprehensive / Income (Loss) | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Successor | | | | | | |
| Balance, November 1, 2025 | 45,321,002 | $454 | $248,946,201 | $235,992,420 | $(49,550) | $484,889,525 |
| Repurchase of common stock | (1,647,047) | (17) | (8,883,941) | | - | (8,883,958) |
| Stock based compensation expense | - | | (4,640,237) | | | (4,640,237) |
| Foreign currency translation adjustment | | | | | 90,848 | 90,848 |
| Net loss | | | | (106,572,140) | | (106,572,140) |
| Balance, January 31, 2026 | 43,673,955 | $437 | $235,422,023 | $129,420,280 | $41,298 | $364,884,038 |
| Line item | Common Stock / Number of Shares | Common Stock / Amount | Additional Paid in / Capital | Retained / Earnings | Accumulated Other Comprehensive / Income (Loss) | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Successor | | | | | | |
| Balance, June 7, 2025 | 802,346 | $8 | $49,613,146 | $(41,801,956) | - | $7,811,198 |
| Common shares issued to directors on settlement of restricted stock units | 4,189 | - | 49,379 | - | - | 49,379 |
| Stock based compensation expense | - | - | 10,841 | - | - | 10,841 |
| Common shares issued on acquisition of Fat Panda | 39,000 | 1 | 313,950 | - | - | 313,951 |
| Issuance of shares and warrants in private offering, net of issuance costs of $18,530,076 | 41,754,478 | 418 | 185,775,901 | - | - | 185,776,319 |
| Issuance of 856,275 shares via ATM, net of issuance costs | 856,275 | 8 | 12,928,313 | - | - | 12,928,321 |
| Exercise of warrants | 2,393,884 | 24 | | - | - | 24 |
| Repurchase of common stock | (2,176,217) | (22) | (13,269,507) | - | - | (13,269,529) |
| Foreign currency translation adjustment | - | - | - | - | 41,298 | 41,298 |
| Net income | - | - | - | 171,222,236 | - | 171,222,236 |
| Balance, January 31, 2026 | 43,673,955 | $437 | $235,422,023 | $129,420,280 | $41,298 | $364,884,038 |
| Line item | Shares / Common Stock | Amount / Common Stock | Capital / Additional Paid in | Earnings / Retained | Income (Loss) / Accumulated Other Comprehensive | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Predecessor | | | | | | |
| Balance, May 1, 2025 | 1,410 | $401 | - | $4,837,746 | $(77,076) | $4,761,071 |
| Foreign currency translation adjustment | - | - | - | - | 34,825 | 34,825 |
| Net income | - | - | - | 19,013 | - | 19,013 |
| Balance, June 6, 2025 | 1,410 | $401 | - | $4,856,759 | $(42,251) | $4,814,909 |
| Line item | Common Stock / Shares | Common Stock / Amount | Additional Paid in / Capital | Retained / Earnings | Accumulative Other Comprehensive / Income | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Predecessor | | | | | | |
| Balance, November 1, 2024 | 1,410 | $401 | - | $5,267,857 | $(65,373) | $5,202,885 |
| Foreign currency translation adjustment | - | - | - | - | (248,695) | (248,695) |
| Net income | - | - | - | 773,317 | - | 773,317 |
| Balance, January 31, 2025 | 1,410 | $401 | - | $6,041,174 | $(314,068) | $5,727,507 |
| Line item | Common Stock / Shares | Common Stock / Amount | Additional Paid in / Capital | Retained / Earnings | Accumulative Other Comprehensive / Income | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Predecessor | | | | | | |
| Balance, May 1, 2024 | 1,410 | $401 | - | $4,267,817 | $(76,157) | $4,192,061 |
| Foreign currency translation adjustment | - | - | - | - | (237,911) | (237,911) |
| Net income | - | - | - | 1,773,357 | - | 1,773,357 |
| Net income (loss) | - | - | - | 1,773,357 | - | 1,773,357 |
| Balance, January 31, 2025 | 1,410 | $401 | - | $6,041,174 | $(314,068) | $5,727,507 |
The
accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
**CEA Industries Inc.**
### Condensed Consolidated Statements of Cash Flows
_(Unaudited)_
| Line item | Successor / Period from June 7 through January 31, 2026 | Predecessor / Period from May 1 through Jun 6, 2025 | Predecessor / Period from May 1 through January 31, 2025 |
| --- | --- | --- | --- |
| Cash flows from operating activities | | | |
| Net income | $171,222,236 | $19,013 | $1,773,357 |
| Adjustments to reconcile net income to net cash used in operating activities | | | |
| Depreciation and amortization | 396,947 | 13,258 | 82,668 |
| Share-based compensation | 60,220 | - | - |
| Amortization of debt discount | 112,750 | - | - |
| Non-cash income from airdrops | (7,093,030) | - | - |
| Non-cash fees paid in digital assets | 604,155 | | |
| Unrealized loss on digital assets | 45,757,590 | - | - |
| Change in fair value of warrant liabilities | (244,879,854) | - | |
| Loss on disposal of assets | 580 | - | - |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | 67,051 | 53,226 | 39,578 |
| Income taxes payable | (276,404) | 1,589 | 363,326 |
| Inventory | (160,671) | (362,569) | 135,280 |
| Prepaid expenses | 1,183,283 | 6,632 | (66,065) |
| Accounts payable and accrued liabilities | 837,435 | 35,336 | (2,501,351) |
| Lease liabilities | 24,347 | 256 | 49,548 |
| Deferred revenue | 34,967 | - | - |
| Royalty | - | (5,183) | (21,988) |
| Related parties | - | - | (19,493) |
| Contract assets | 1,054 | - | - |
| Deferred tax asset | - | - | (140,869) |
| Net cash used in operating activities | (32,107,342) | (238,442) | (306,009) |
| Cash flows from investing activities | | | |
| Cash paid for acquisitions of Fat Panda | (10,398,134) | - | - |
| Purchase of digital assets | (175,250,249) | - | - |
| Purchases of property and equipment | (9,437) | - | (56,153) |
| Net cash used in investing activity | (185,657,820) | - | (56,153) |
| Cash flows from financing activities | | | |
| Proceeds from notes payable | 3,910,282 | - | - |
| Proceeds from issuance of common stock and warrants in PIPE offering | 226,837,431 | - | - |
| Issuance cost of common stock and warrants in PIPE offering | (9,308,741) | - | - |
| Proceeds from issuance of common stock | 12,928,321 | - | - |
| Warrants exercised | 24 | - | - |
| Repurchase of shares | (12,774,165) | - | - |
| Repayments from notes payable | (3,972,088) | | |
| Net cash provided by financing activity | 217,621,064 | - | - |
| Net decrease in cash and cash equivalents | (144,098) | (238,442) | (362,162) |
| Effect of exchange rate changes on cash and cash equivalents | 12,076 | 13,620 | (90,835) |
| Cash and cash equivalents, beginning of period | 11,455,046 | 2,148,606 | 2,076,614 |
| Cash and cash equivalents, end of period | $11,323,024 | $1,923,784 | $1,623,617 |
| Non-cash Investing and Financing Activities: | | | |
| Proceeds from issuance of common stock for Fat Panda acquisition | $(313,950) | - | - |
| Accrued share repurchase liability | $(495,365) | - | - |
| CRA indemnity note | $361,596 | - | - |
| Issuance of related party notes for Fat Panda acquisition | $1,262,158 | - | - |
| In-kind digital assets contribution received against issuance of equity and warrants in PIPE offerings | $273,198,354 | - | - |
| In-kind digital assets acquired from PIPE offerings proceeds | $(273,198,354) | - | - |
| Supplemental cash flow information | | | |
| Cash paid for interest | $600,000 | - | - |
| Cash paid for income taxes | - | - | $570,644 |
The
accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
**CEA
Industries Inc.**
**Notes
to Condensed Consolidated Statements Financial Statements**
***(Unaudited)***
### **Note 1 – Nature of Operations**
***Description
of Business***
CEA
Industries Inc. (the “Company”) was incorporated under the laws of the State of Nevada on October 14, 2009, and is headquartered
in Louisville, Colorado. Historically, the Company operated a portfolio of consumer and commercial businesses, including climate control
systems for controlled environment agriculture and retail operations in the vaping industry.
In August 2025, the Company initiated a strategic transformation by adopting
a digital asset treasury strategy focused exclusively on BNB, the native token of the BNB Chain. Through its wholly owned subsidiary,
CEA BRS LLC, a Delaware limited liability company and the sole stockholder of BNC BNB Cayman, a Cayman Islands exempt company, the Company
seeks to build and manage the largest corporate treasury of BNB, providing institutional-grade exposure to blockchain infrastructure and
decentralized finance (DeFi).
The Company’s treasury
operations currently include acquiring and holding BNB and the Company may generate income from airdrops received in connection with its BNB holdings. The Company may in the future generate returns
through additional digital asset-related activities such as validation services, lending, and other decentralized finance protocols,
though no BNB is currently staked or pledged. The Company’s BNB-focused Digital Asset Treasury (“DAT”) strategy
was on August 5, 2025, following the closing of a private placement that raised approximately $500 million (the “PIPE Transaction”), with up to $750 million in additional proceeds available through warrant exercises. Under the DAT strategy, BNB is the primary treasury reserve
asset.
In connection with this strategic shift,
the Company changed its Nasdaq ticker symbol from “VAPE” to “BNC” on August 6, 2025, reflecting the Company’s strategic focus on BNB as its primary treasury
asset while continuing its core business operations. While the Company continues to operate its legacy business and beginning in the second
fiscal quarter ended October 31, 2025, its financial results also reflect the implementation of its DAT.
Additionally, on June 6, 2025 (the “Acquisition Date”), the
Company completed the acquisition of Fat Panda Ltd. and its related entities (“Fat Panda”) (the “Fat Panda Acquisition”),
entering the Canadian nicotine vape industry. This acquisition aligned with the Company’s strategy at that time to focus on high-growth,
regulated consumer markets and provide a vertically integrated infrastructure to support retail expansion and e-commerce capabilities.
### **Note 2 – Basis of Presentation and Significant Accounting Policies**
***Basis
of Presentation***
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note
disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. In the
opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been
included. Operating results for the successor period from June 7, 2025 to January 31, 2026 and the predecessor period from May 1, 2025 to June 6, 2025, are not necessarily indicative of the
results that may be expected for the fiscal year ending April 30, 2026.
The
balance sheet information as of April 30, 2025, has been derived from the audited financial statements at that date but does not include
all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated
financial statements and notes thereto contained in the Transitional Annual Report on Form 10-KT for the four months ended April 30,
2025.
On
the Acquisition Date, the Company completed the Fat Panda Acquisition. As described in *Note 4 – Business Combination*,
the Company has been identified as the accounting acquirer (the “Successor”) and Fat Panda as the accounting predecessor
(the “Predecessor”) in accordance with the acquisition method of accounting under ASC 805, Business Combinations. As a result
of this designation, the financial statements reflect a change in reporting entity. Financial information for periods prior to the Acquisition
Date represents the historical operations of Fat Panda and is labelled as “Predecessor.” Financial information for periods
beginning on and after the Acquisition Date reflects the operations of the combined entity under the control of the Company and is labelled
as “Successor” since the company operations prior to the acquisition were insignificant relative to those of Fat Panda. The
merger was accounted for as a business combination using the acquisition method of accounting. The Successor financial statements reflect
a new basis of accounting based on the fair value of the identifiable net assets acquired. Determining the fair value of certain assets
and liabilities assumed involves significant judgment and the use of estimates and assumptions. See Business Combinations below for additional
information on the fair values of assets and liabilities recorded in connection with the Fat Panda Acquisition.
As
a result of applying the acquisition method of accounting as of the Acquisition Date, the accompanying condensed consolidated financial
statements include a black line division to distinguish between the Predecessor and Successor reporting entities. These entities are
presented on different bases and are therefore not comparable. The lack of comparability is primarily due to the impacts of the Fat Panda
Acquisition, including the remeasurement of acquired assets and assumed liabilities at fair value in the Successor condensed consolidated
financial statements.
6
***Use
of Estimates and Assumptions***
The
preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the financial statements and the notes. Actual results may ultimately
differ materially from those estimates.
***Digital
Assets***
In December 2023, the FASB issued ASU 2023-08, Digital Assets, which provides
guidance on the recognition, measurement, presentation, and disclosure of digital assets through the creation of ASC 350-60, Intangibles
– Goodwill and Other – Crypto Assets (“ASC 350-60”). ASU 2023-08 became effective for all entities for fiscal
years beginning after December 15, 2024. The standard became effective for the Company on May 1, 2025, and no cumulative-effect adjustment
was required. The Company accounts for its digital assets, including BNB tokens, in accordance with ASC 350-60. The Company has determined
its digital assets meet the scoping criteria of ASC 350-60, which requires eligible crypto assets to be measured at fair value, with changes
in fair value recognized in net income. Fair value is determined in accordance with ASC 820, Fair Value Measurement, using quoted prices
in active markets. The Company has designated the Binance exchange as its principal market as it is the market that the Company has access
to and has the greatest volume and level of activity of BNB for determining the fair value of BNB tokens.
The Company may deposit certain digital assets with certain third-party exchanges to facilitate digital asset treasury
activities. Assets that would be held on these exchanges may not be maintained in segregated wallets under the Company’s exclusive
control and could be pooled with assets of other customers. Due to the lack of sufficient regulatory oversight and the Company’s
inability to prevent such an exchange from using such assets for purposes other than those directed by the Company, the Company has concluded
it would not have complete control over the deposited assets. Accordingly, such amounts would be recorded as receivables from the exchange
within current assets, rather than as digital assets on the condensed consolidated balance sheet, as the Company does not expect that
it would hold these receivables for more than 12 months.
The Company holds its BNB digital assets with a non-U.S. Binance-ecosystem custodial provider and periodically receives
airdrops from blockchain projects within the Binance ecosystem. Airdrops are distributed randomly without consideration or contractual
agreement; therefore, they do not meet the criteria for revenue recognition under ASC 606. The Company records the fair value of airdrops
upon receipt and classifies the income as non-operating, presented within other income in the condensed consolidated statements of operations.
The activity from remeasurement of digital assets at fair value is reflected
in the condensed consolidated statements of operations within unrealized gain/loss on digital assets. Realized gains and losses from the
derecognition of digital assets would be included in the realized gain/loss on digital assets in the condensed consolidated statements
of operations. During the period, the Company has converted digital assets (such as airdrops) into stablecoins and BNB as part of its
regular operations. The Company has not disposed of digital assets for fiat currency during the reporting period, in the event there are
disposals in the future, the Company will use the specific identification method to calculate the realized gains/losses on digital assets.
Sales
and purchases of digital assets are reflected as cash flows from investing activities in the condensed consolidated statements of cash
flows. Contributions of digital assets received as part of the consideration received in a private placement (referred to as PIPE Transaction
as discussed in *Note 13 – Shareholders’ Equity*) are presented within supplemental information for non-cash investing
and financing activities in the condensed consolidated statements of cash flows.
***Cash
and Cash Equivalents***
All
highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.
7
As
of January 31, 2026 (Successor), the Company had approximately $10.0 million in cash deposits in excess of the Federal Deposit Insurance
Corporation insurance limits of $0.3 million at one financial institution and approximately $1.0 million or $1.3 million Canadian dollars (“CAD”) in cash deposits
in excess of the Canada Deposit Insurance Corporation insurance limits of $0.1 million CAD at certain financial institutions.
The
Company periodically monitors the financial condition of its financial institutions and considers strategies to mitigate credit risk
exposure related to uninsured balances. The Company has not experienced any losses to date on depository accounts. The Company maintains
its cash accounts with high credit quality financial institutions and therefore believes that its loss exposure is minimal.
***Fair
Value Measurement***
The
Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurement, which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date.
The
Company uses a three-level hierarchy to prioritize the inputs used in measuring fair value:
Level
1 – Quoted prices in active markets for identical assets or liabilities.
Level
2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in
active markets or other market-corroborated inputs.
Level
3 – Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in
pricing the asset or liability.
The Company has designated the Binance exchange as its principal market
for its digital assets as it is the market to which its wholly owned subsidiary, BNC BNB Cayman, has access and that provides the greatest
volume and level of orderly transactions. The Company reassesses its principal market when facts and circumstances change, including but
not limited to when new markets become accessible, or the volume/activity in the current principal market declines. For digital assets
that trade continuously across global markets, the Company applies a consistent valuation cut-off at midnight UTC on the reporting date
to determine fair value. All digital assets are measured at fair value using quoted prices in their respective principal markets, which
are classified as Level 1 inputs under ASC 820.
All
of the Company’s digital assets, including BNB, BTC, USDT, and USDC, are held by BNC BNB Cayman, and the principal market for each
asset is determined based on the market accessible to this subsidiary. The Company has elected the Fair Value Option for its USDC holdings
to align with the treatment of its other digital assets. USDC is measured at fair value on a recurring basis using quoted prices in the
Company’s principal market on the date of recognition.
The
Company’s Stapled Warrants, issued in October 2025, are liability classified, and fair valued using a Monte-Carlo option model
using Level 3 inputs. Information related to the Stapled Warrants is disclosed in *Note 15 – Investor
Warrants*.
The
Company’s financial assets and liabilities consist of cash, accounts receivable, accounts payable, accrued expenses and debt.
The carrying value of cash, accounts receivable, accounts payable, and accrued expenses approximates fair value due to the short-term
nature of those instruments. The carrying value of debt approximates fair value due to the variable rate nature of the debt.
***Basic
and Diluted Earnings (Loss) per Share***
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, Earnings per Share (“ASC 260”).
Basic EPS is computed by dividing undistributed earnings attributable to common stockholders by the weighted-average number of common
shares outstanding during the period. The diluted impact from potential common stock instruments is calculated using the treasury stock
method, and if-converted method as applicable, unless the effect would be anti-dilutive.
***Business
Combinations***
For
acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The consideration transferred
for the acquired business is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition,
including identifiable intangible assets. Any excess of the amount paid over the estimated fair values of the identifiable net assets
acquired is allocated to goodwill. Acquisition-related costs, such as professional fees, are excluded from the consideration transferred
and are expensed as incurred. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible
assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to
refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments
to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.
In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded in connection
with a business combination as of the acquisition date.
8
***Goodwill***
Goodwill
represents the excess of the purchase price for an acquisition over the fair value of the identifiable net assets acquired in a business
combination. Goodwill recognized in connection with the acquisition is denominated in the functional currency of the acquired entity
and was translated into U.S. dollars using the exchange rate as of the acquisition date. Goodwill is subsequently translated into U.S.
dollars at each reporting date using the period-end exchange rate.
Goodwill
is not amortized but is tested for impairment at least annually at the reporting unit level, or more frequently if events or changes
in circumstances indicate that the Company’s carrying amount may not be recovered. The Company first performs a qualitative assessment
to determine whether it is more likely than not that the fair value of the relevant reporting unit is less than its carrying amount.
If a quantitative assessment is required, the Company compares the estimated fair value of the reporting unit with its carrying value.
If the carrying value exceeds the reporting unit’s fair value, the Company recognizes an impairment loss in an amount equal to
that excess, limited to the carrying amount of goodwill.
During
the quarter ended January 31, 2026, the Company evaluated events and circumstances in accordance with the qualitative assessment guidance
in ASC 350-20 to determine whether it was more likely than not that the fair value of the Fat Panda reporting unit was less than its
carrying amount. Based on this evaluation, management concluded that it was not more likely than not that the fair value of the reporting
unit was less than its carrying amount.
***Intangible
Assets***
The
Company has recognized two intangible assets: one with an indefinite useful life and one with a finite useful life. The indefinite-lived
intangible asset, a trade name, is not subject to amortization. Instead, it is evaluated for impairment on an annual basis, or more frequently
if events or changes in circumstances suggest that the asset may be impaired. The impairment assessment involves estimating the fair
value of the trade name using discounted future cash flows and comparing it to its carrying amount. If the carrying amount exceeds the
estimated fair value, an impairment charge is recorded for the difference.
The
finite-lived intangible asset, also a trade name, is recorded at historical cost less accumulated amortization. Amortization is recognized
on a straight-line basis over the asset’s estimated useful life of 10 years, which is determined based on the expected economic
benefit and usage of the asset. This asset is reviewed for impairment whenever indicators of potential impairment arise. The evaluation
compares the carrying value to the estimated future undiscounted cash flows expected to be generated by the asset. If the carrying value
exceeds those cash flows, the asset is considered impaired, and the impairment loss is measured as the excess of the carrying amount
over its fair value.
Based
on the carrying value of intangible assets at January 31, 2026, estimated amortization expense for the subsequent five years is as follows:
remaining one quarter of 2026—$128 thousand; 2027—$526 thousand; 2028—$527 thousand; 2029—$526 thousand; 2030—$526 thousand; and thereafter—$2.7 million.
***Revenue
Recognition***
The
Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires revenue to be recognized
as control of promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company
expects to be entitled.
Fat
Panda revenues consist primarily of retail sales, e-commerce and phone orders, factory-direct wholesale sales, and franchise arrangements.
Retail sales represent a single performance obligation satisfied at the point of sale. Revenue is recognized upon payment and delivery,
net of sales taxes. Based on historical data, no material liability for returns was recorded for the periods presented.
Revenue
from e-commerce, phone orders, and factory-direct wholesale is recognized upon shipment (FOB shipping point). Shipping and handling are
considered fulfilment costs. Historical return rates are minimal; no allowance for returns has been recorded.
Gift
card sales are recorded as a liability at issuance and recognized upon redemption or when breakage becomes probable. Loyalty programs,
such as “buy 10, get 1 free” punch cards, represent separate performance obligations; related liabilities were immaterial
for all periods presented.
9
Franchise
royalty fees are variable consideration based on a percentage of franchisee sales and are recognized in the period sales occur. Initial
franchise fees are recognized upon opening of the new franchise location.
Climate
control revenues are derived from contracts that may include engineering and technical services and the sale of climate control system
equipment and components. These contracts may span multiple phases, from facility design to equipment delivery and start-up. The Company
does not provide construction or installation services. A performance obligation is a promise in a contract to transfer a distinct good
or service. Most client control contracts include multiple performance obligations, while certain contracts consist of a single performance
obligation, typically engineering-only services.
The
transaction price is allocated to each performance obligation based on its standalone selling price. For engineering services, standalone
selling price is estimated using project characteristics such as facility size and system complexity. For equipment sales, standalone
selling price is determined by expected costs plus an appropriate margin. When prices are highly variable, the Company uses a combination
of methods and observable inputs. Revenue is recognized when control transfers - generally upon shipment for goods and over time for
engineering services based on percentage completion toward milestones.
The
Company excludes taxes assessed by governmental authorities from transaction prices and recognizes revenue net of sales taxes. Freight
revenue and related costs are recorded when control of goods passes to the customer. The Company offers assurance-type warranties only
and maintains a warranty reserve based on historical costs.
***Concentrations***
One
customer accounted for 91% of the (Successor) Company’s accounts receivable as of January 31, 2026. The (Predecessor) Company’s
accounts receivable from three customers made up 57%, 33%, and 10% of the total accounts receivable balance as of April 30, 2025.
***Foreign
Currency Translation***
The
Company’s condensed consolidated financial statements are presented in U.S. dollar (“USD”). Financial statements of
foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange
rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of accumulated
other comprehensive loss within condensed consolidated statements of common shareholders’ equity as currency translation adjustment.
Monetary assets and liabilities that are denominated in foreign currencies are translated at the rate prevailing at each reporting date.
The U.S. dollar effects that arise from translating the net assets of these companies are recorded in other comprehensive income.
***Warrants***
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and
ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all
of the requirements from equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary
shares, among other conditions for equity classification. This assessment, which requires the use of professional judgement, is conducted
at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For warrants
that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in
capital at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are required
to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated
fair value of the warrants are recognized as a non-cash gain or loss on the condensed consolidated statements of operations.
***Correction
of Error – RSU Compensation***
In July 2025, prior to the closing of the PIPE Transaction,
the Company erroneously recognized $4.6 million of compensation expense prematurely. Accordingly, the Company reversed the previously
recognized $4.6 million of compensation expense in the current period. The Company evaluated the impact in accordance with SEC Staff Accounting
Bulletins (“SAB”) 99 Topic 1.M, Materiality, and SAB 108 Topic 1.N, Accounting Changes and Error Corrections and concluded
that the error and subsequent correction were not material to prior or current interim condensed consolidated financial statements.
10
***Recently
Issued Accounting Pronouncements***
In
July 2025, the FASB issued Accounting Standards Update No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient (for
all entities) and an accounting policy election for non-public entities when estimating expected credit losses for current receivables
and contract assets under ASC 606. The standard is effective for annual reporting periods beginning after December 15, 2025, including
interim periods within those fiscal years, and early adoption is permitted. The amendments are applied prospectively, and eligible entities
can choose to apply the practical expedient and accounting policy election, with required disclosures. The Company is currently evaluating
the potential impact of adopting this guidance on its consolidated financial statements and disclosures.
In
January 2025, the FASB issued Accounting Standards Update No. 2025-01 to clarify the effective date of ASU 2024-03 (disaggregation of
income statement expenses) for non-calendar year-end entities. The clarification ensures that initial adoption is required in an annual
reporting period (rather than unintentionally in an interim period) for entities with non-calendar year ends. The amendments align with
the effective dates stated in ASU 2024-03 (annual periods beginning after December 15, 2026, and interim periods within fiscal years
beginning after December 15, 2027) and early adoption is permitted. The Company is currently evaluating the potential impact of this
guidance on its unaudited consolidated financial statements and related disclosures.
In
December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures
(“ASU 2023-09”), which enhances transparency by requiring additional disaggregation in the rate reconciliation and expanded
disclosures of income taxes paid by jurisdiction. ASU 2023-09 is effective for annual reporting periods beginning after December 15,
2024, for public business entities. As the Company’s fiscal year ending April 30, 2026 begins after that date, the Company will
adopt this standard in its annual Form 10-K for the fiscal year ending April 30, 2026. The Company does not expect ASU 2023-09 to affect
its interim disclosures for the current fiscal year.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated
to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosure.
### **Note 3 - Digital Assets**
The
following table sets forth the units held, cost basis, and fair value of digital assets held, as shown on the condensed consolidated
balance sheet as of January 31, 2026:
Schedule of Units Held Cost Basis And Fair Value of Digital Assets Held
| Crypto Assets held: | Number of Tokens | Cost | Fair Value |
| --- | --- | --- | --- |
| BNB | 515,544 | $446,454,159 | $402,836,035 |
| BTC | 55 | 6,451,182 | 4,311,665 |
| USDC | 1,155,356 | 1,155,356 | 1,155,356 |
| USDT | 876,832 | 876,832 | 876,832 |
| Total | 2,547,787 | $454,937,529 | $409,179,888 |
BTC,
USDC, and USDT are classified within current digital assets, as they are held primarily for operating liquidity and are expected to be
available for use within the next twelve months. As of January 31, 2026, the Company has no digital assets held with third party exchanges, accordingly, has no digital
assets receivable.
Cost
basis is equal to the cost of the digital asset, net of any transaction fees, if any, at the time of purchase or upon receipt.
11
The
following table summarizes the Company’s digital asset holdings, as of:
Schedule of Digital Asset Holdings
| Balance as of June 7, 2025 / Fair value of digital assets held, beginning | Balance / - |
| --- | --- |
| Purchases | 448,448,603 |
| Airdrop income | 7,093,030 |
| Commission expense | (604,155) |
| Unrealized loss on BNB | (43,618,088) |
| Unrealized loss on BTC | (2,139,502) |
| Balance as of January 31, 2026 | $409,179,888 |
| Fair value of digital assets held, ending | $409,179,888 |
### **Note 4 - Business Combinations**
On
the Acquisition Date, the Company acquired Fat Panda, Central Canada’s leading retailer and manufacturer of vaping products, holding
a significant market share across Manitoba, Ontario, and Saskatchewan. With 33 retail locations and a thriving e-commerce platform, Fat
Panda offers a wide range of high-quality vape devices and e- liquids, including its own premium in-house line.
The
purchase price was $12.7 million comprised of $10.7 million in cash to the sellers, 39,000 shares of the Company’s
common stock with an agreed value of $0.3 million, an indemnity note totaling $0.4 million and seller notes totaling $1.4 million.
A portion of the purchase price was funded by a short-term loan from a United States based lender in the amount of $4.0 million, which
was due in nine months (the “FP Loan”). In addition, $1.9 million was placed in escrow to support post-closing adjustments,
indemnity obligations, and employee-related matters. On December 4, 2025, the Company repaid the outstanding balance of the FP Loan in
full.
The
purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon
their preliminary estimated fair values as of the Acquisition Date. The excess of the purchase price over the tangible and intangible
assets acquired and liabilities assumed has been recorded as goodwill. The goodwill is primarily attributable to the assembled workforce,
synergies expected from combining operations, and future growth opportunities.
The
following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date and is based
on the best estimate of management, which is subject to change within the measurement period.
Schedule of the Preliminary Fair Value of Assets Acquired and Liabilities Assumed
| Line item | As Initially Reported | Adjustment Increase (Decrease) | Revised Amount |
| --- | --- | --- | --- |
| Cash and cash equivalents | $1,924,558 | - | $1,924,558 |
| Accounts receivable | 176,720 | (48,829) | 127,891 |
| Related party receivables | 674,296 | - | 674,296 |
| Inventory | 3,690,227 | (20,316) | 3,669,911 |
| Prepaid expenses | 113,371 | (33,064) | 80,307 |
| Fixed assets | 314,515 | - | 314,515 |
| Right-of-use asset | 1,854,018 | (21,933) | 1,832,085 |
| Deposits | 219,330 | - | 219,330 |
| Intangibles – trade name | 5,236,869 | - | 5,236,869 |
| Goodwill | 4,206,487 | (54,509) | 4,151,978 |
| Accounts payable and accrued liability | (2,311,420) | 46,526 | (2,264,894) |
| Income taxes payable | (108,030) | - | (108,030) |
| Deferred tax liability | (1,257,613) | - | (1,257,613) |
| Lease liabilities - short-term | (533,659) | - | (533,659) |
| Current portion of royalty liabilities | (12,970) | 12,970 | - |
| Lease liabilities - long-term | (1,334,281) | - | (1,334,281) |
| Total net assets acquired | $12,852,418 | $(119,155) | $12,733,263 |
During
the period from June 7, 2025 to January 31, 2026, the Company recorded measurement period adjustments resulting from new information about facts
and circumstances that existed as of the Acquisition Date. These adjustments primarily related to updated valuations of working capital
accounts, including accounts receivable. inventory, prepaid expenses, right-of-use asset, and accrued liabilities, as well as the fair
value of the notes issued to the seller as part of the purchase consideration. In accordance with ASC 805, the Company retrospectively
adjusted the provisional amounts recognized at the Acquisition Date to reflect these new measurements. The adjustments resulted in changes
to certain current assets and liabilities and the fair value of notes issued as consideration. The cumulative impact of these adjustments
was recorded as a decrease to goodwill, and prior-period comparative information has been revised as if the adjustments had been recognized
at the Acquisition Date.
12
As
part of the purchase price allocation, the Company determined the identifiable intangible assets were a trade name. The fair value of
the intangible assets was estimated using variations of the income approach. Specifically, the relief from royalty method was utilized
to estimate the fair value of the trade name. The valuation of intangible assets incorporates significant unobservable inputs (Level
3 inputs) and requires significant judgment and estimates, including the amount and timing of future cash flows and discount rates. The
cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the
implied rate of return from the transaction model and the weighted average cost of capital.
Due
to the timing of the completion of the acquisition, the purchase price and related allocations are preliminary and could be revised as
a result of adjustments made to the purchase price and additional information obtained regarding assets acquired and liabilities assumed.
Such adjustments may include, but are not limited to, changes in the estimated fair values of identifiable intangible assets, assumed
liabilities, and deferred taxes. The purchase price allocation will be finalized during the measurement period, which may extend up to
one year from the acquisition date.
The
Company’s buyer transaction costs to acquire Fat Panda totaled approximately $1.0 million and are included within transaction
costs in the condensed consolidated statements of operations for the period from June 7, 2025, through January 31, 2026 (Successor).
The
following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the nine months
ended January 31, 2026, and 2025, as if the Fat Panda Acquisition and related financing had occurred on May 1, 2024.
This
information gives effect to certain purchase accounting and financing adjustments and is based on the historical financial statements
of the Company. It is presented for illustrative purposes only and is not necessarily indicative of the Company’s actual operating
results had the Fat Panda Acquisition and related financing occurred on May 1, 2024, nor is it indicative of future results.
Schedule of Certain Purchase Accounting and Financing Adjustments
| Line item | Proforma / For the nine months ended January 31, 2026 | Proforma / For the nine months ended January 31, 2025 |
| --- | --- | --- |
| Revenue | $24,602,776 | $24,011,169 |
| Net income/(loss) | $208,814 | $(2,693,757) |
| Line item | Proforma / For the three months ended January 31, 2026 | Proforma / For the three months ended January 31, 2025 |
| --- | --- | --- |
| Revenue | $7,334,626 | $7,375,640 |
| Net income/(loss) | $(76,681) | $(503,901) |
Pro
forma financial information is presented as if the operations of Fat Panda had been included in the consolidated results of the Company
since May 1, 2024, and reflects transactions that are directly attributable to the Fat Panda Acquisition and related financing. Pro forma
adjustments to the nine months ended January 31, 2026 and 2025 include adjustments for amortization of preliminary marketing-related
intangible assets, elimination of non-recurring transaction costs incurred related to the acquisition, debt discount amortization and
interest expense on the $4.0 million bridge loan, and debt discount amortization and interest expense on the promissory notes issued
to the sellers of Fat Panda.
### **Note 5 – Leases**
The
Company recorded operating lease costs for the period from June 7, 2025, through January 31, 2026 (Successor) of $0.4 million. For
the period from May 1, 2025, through June 6, 2025 (Predecessor) operating lease costs was $91.8 thousand and for the nine months ended
January 31, 2025 (Predecessor), operating lease costs was $0.4 million.
13
The
Company’s operating and finance right-of-use assets and lease liabilities are as follows:
Schedule of Lease Cost
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| Operating lease right-of-use asset | $1,886,600 | $1,890,013 |
| Operating lease liability, current | $709,245 | $528,914 |
| Operating lease liability, long-term | $1,236,830 | $1,374,639 |
| Line item | Successor / Period from June 7 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Predecessor / Nine Months Ended January 31,2025 |
| --- | --- | --- | --- |
| Cash paid for operating lease | $421,172 | $91,749 | $433,492 |
Future
annual minimum lease payments under non-cancellable operating leases as of January 31, 2026, were as follows:
Schedule of Future Annual Minimum Lease Payments
| Years ending April 30, | Successor / January 31, 2026 |
| --- | --- |
| 2026 (excluding the nine months ended January 31, 2026) | $208,973 |
| 2027 | 752,582 |
| 2028 | 502,664 |
| 2029 | 318,414 |
| 2030 | 185,903 |
| Thereafter | 216,417 |
| Total minimum lease payments | 2,184,953 |
| Less imputed interest | (238,878) |
| Present value of minimum lease payments | $1,946,075 |
Other
information related to leases were as follows:
Schedule of Other Information Related to Leases
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| Weighted-average remaining lease term (in years) | 2.32 | 4.13 |
| Weighted-average discount rate | 4.9% | 6.3% |
### **Note 6 – Inventory**
Inventory
consisted of the following:
Schedule of Inventory
_(Unaudited) · (Audited)_
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| Finished goods | $3,772,546 | $3,241,365 |
| Raw materials | 398,952 | 264,027 |
| Allowance for excess & obsolete inventory | (306,524) | (211,445) |
| Inventory, net | $3,864,974 | $3,293,947 |
Labor
and overhead expenses of $0.6 million and $0.6 million were included in the inventory balance as of January 31, 2026 (Successor), and
April 30, 2025 (Predecessor), respectively.
Advance
payments on inventory purchases are recorded in prepaid expenses until title for such inventory passes to the Company. Prepaid expenses
included $0.5 million and $0 in advance payments for inventory as of January 31, 2026 (Successor), and April 30, 2025 (Predecessor),
respectively.
14
### **Note 7 – Property and Equipment**
Property
and Equipment consisted of the following:
Schedule of Property and Equipment
_(Unaudited) · (Audited)_
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| Vehicles | $156,391 | $139,524 |
| Leasehold improvements | 319,159 | 310,320 |
| Computer equipment | 71,625 | 70,679 |
| Machinery and equipment | 40,574 | - |
| Furniture and fixtures | 213,701 | 194,895 |
| Signs | 232,515 | 214,464 |
| Computer software | 151,410 | 141,024 |
| Property and equipment at cost | 1,185,375 | 1,070,906 |
| Accumulated depreciation | (915,242) | (748,026) |
| Property and equipment, net | $270,133 | $322,880 |
Depreciation
expense for the period from June 7, 2025, through January 31, 2026 (Successor) was $160.5 thousand. For the period from May 1, 2025,
through June 6, 2025 (Predecessor) depreciation expense was $6.7 thousand and for the nine months ended January 31, 2025 (Predecessor),
depreciation expense was $ 82.7 thousand.
### **Note 8 – Accounts Payable and Accrued Liabilities**
Accounts
payable and accrued liabilities consisted of the following:
Schedule of Accounts Payable and Accrued Liabilities
_(Unaudited) · (Audited)_
| Line item | Successor / January 31, 2026 | Predecessor / April 30, 2025 |
| --- | --- | --- |
| Accounts payable | $4,941,163 | $740,096 |
| Accrued payroll liabilities | 615,682 | 1,449,200 |
| Sales tax payable | 227,483 | 66,149 |
| Other accrued expenses | 499,052 | - |
| Total | $6,283,380 | $2,255,445 |
15
### **Note 9- Revenue**
The
following table sets forth the Company’s revenue by source:
Schedule of Revenue by Source
| Line item | Successor / Three Months Ended January 31, 2026 | Predecessor / Three Months Ended January 31, 2025 | Successor / Period from June 7, 2025 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Predecessor / Nine Months Ended January 31, 2025 |
| --- | --- | --- | --- | --- | --- |
| CEA equipment and systems sales | $612,894 | - | $913,464 | - | - |
| CEA engineering and other services | - | - | 87,993 | - | - |
| CEA other sales | 63,088 | - | 85,912 | - | - |
| Retail Vape sales | 6,349,605 | 6,146,808 | 17,177,653 | 2,761,077 | 18,947,052 |
| E-commerce Vape sales | 228,151 | 719,091 | 506,220 | 165,818 | 1,989,873 |
| Factory direct wholesale Vape sales | 62,230 | 42,918 | 265,852 | 794 | 255,408 |
| Franchise fee Vape sales | - | - | - | - | 121,338 |
| Other Vape sales | 18,658 | - | 18,658 | - | - |
| Total revenue | $7,334,626 | $6,908,817 | $19,055,752 | $2,927,689 | $21,313,671 |
As
of January 31, 2026 (Successor), the Company’s remaining performance obligations, or backlog, was approximately $0.6 million are expected to be recognized within one year. The Company expects to recognize this revenue as the related services are
performed. However, the timing of the recognition is subject to uncertainty due to the nature of the underlying contracts, and there
is no assurance that all remaining performance obligations will result in revenues.
Geographic
Information
The
Company classifies sales by customers’ locations in two geographic regions: the United States and Canada.
Schedule of Sales by Customers Locations in Geographic Regions
| Line item | Successor / Three Months Ended January 31,2026 | Predecessor / Three Months Ended January 31, 2025 | Successor / Period from June 7 through January 31, 2026 | Predecessor / Period from May 1 through June 6,2025 | Predecessor / Nine Months Ended January 31,2025 |
| --- | --- | --- | --- | --- | --- |
| United States | $675,981 | - | $1,087,371 | - | - |
| Canada | 6,658,645 | 6,908,817 | 17,968,381 | 2,927,689 | 21,313,671 |
| Total | $7,334,626 | $6,908,817 | $19,055,752 | $2,927,689 | $21,313,671 |
### **Note 10 – Note Payable**
In
connection with the Company’s acquisition of Fat Panda, the Company entered into an interim loan facility with CEAD Panda Lender
LLC, under which it borrowed $4.0 million effective June 4, 2025. The loan required interest-only payments until maturity, payable monthly,
with an interest rate of 3% for the first three months and 2% per month thereafter on the outstanding principal. The loan was secured
by a first lien on all the assets of the Company, 16728502 CANADA INC and Fat Panda Ltd., now amalgamated as Fat Panda Ltd., subject
to certain exceptions and permitted liens and permitted dispositions.
The
loan facility included customary borrower representations and warranties, event of default, and various covenants, including requirements
to maintain at least $1.5 million on cash and a minimum of $4.0 million in working capital (inclusive of cash). On December 4, 2025,
the Company repaid the outstanding balance of the FP Loan in full. Interest expense recognized for the period includes amounts related
to this interim loan facility prior to repayment.
### **Note 11 – Related Party Note Payable and Related Party Convertible Note Payable**
In
connection with the Fat Panda Acquisition on the Acquisition Date, the Company issued three notes payable to selling shareholders, one
of whom is the President of Fat Panda, a current employee of the Company.
The
first note payable was issued in the principal amount of $0.4 million ($0.5 million CAD) to certain selling shareholders of Fat Panda
Inc. The note is interest free and repayable in full within 15 days following the date that Canada Revenue Agency issues a letter confirming
that there is no tax liability in respect of an issue identified in the Purchase Agreement for acquisition of the Fat Panda group of
companies. If the letter from Canada Revenue Agency indicates that there is a tax liability in respect of an issue identified in the
Purchase Agreement, the amount of the loan repayment will be reduced, dollar for dollar, by the amount of any tax liability assessed.
16
The
second note payable was issued as a promissory note in the principal amount of $0.7 million ($1.0 million CAD) to the President of Fat
Panda, a former owner and current employee of the Company. The note bears interest at 7% per annum, with interest payable monthly. The
note has a maturity date of November 30, 2026. Interest expense recognized for the period includes amounts related to this promissory
note.
The
third note payable, also issued to the President of Fat Panda, is a convertible promissory note with a principal amount of $0.7 million
($1.0 million CAD). The note bears interest at 7% per annum and is convertible, at the Lenders option, in shares of the Company’s
common stock at a conversion price of $19.00 per share. If no conversion notice is submitted to the Company by the Lender before the
due date of his intent to convert the principal amount, the entire principal plus interest shall become due on June 1, 2027. Interest
expense recognized for the period includes amounts related to this convertible promissory note.
The
table below represents the outstanding amount of promissory note and convertible promissory note as of January 31, 2026:
Schedule of Promissory Note and Convertible Promissory Note
| Line item | Related Party Note | Related Party Promissory Note | Related Party Convertible Promissory Note |
| --- | --- | --- | --- |
| Principal | $367,150 | $756,329 | $756,329 |
| Less: discount | - | (61,645) | (6,307) |
| Carrying value | $367,150 | $694,684 | $750,022 |
### **Note 12 – Commitments and Contingencies**
***Litigation***
From
time to time, in the normal course of business, the Company is subject to claims and legal proceedings. Ligation is inherently unpredictable,
and the Company’s assessments may change as matters progress. The Company expenses legal fees as incurred and records a liability
for contingent losses when it is both probable that a loss has been incurred and the amount can be reasonable estimated. An unfavorable
outcome to any matter, if material, could adversely affect the Company’s financial condition, liquidity or results of operations.
***Abraham
Gomez Matter***
On
February 24, 2026, Abraham Gomez, an individual, filed a civil complaint in the Superior Court of the State of California, County of
Tulare, captioned Abraham Gomez v. CEA Industries, Inc., et al., (Case No. VCU331863), against the Company and Hans Thomas, a director
of the Company. The complaint asserts various claims against the defendants, including claims for fraud, promissory estoppel, quantum
meruit and unjust enrichment, arising from alleged investment-related discussions and alleged services purportedly performed for the
benefit of the Company. The plaintiff seeks damages, including compensatory damages according to proof (which the complaint alleges exceed
approximately $2.75 million), together with interest, attorneys’ fees, costs and other relief. As of March 13, 2026, the Company has not
yet filed its response to the complaint but intends to defend the action vigorously. At this preliminary stage of the matter, the Company cannot reasonably estimate the possible
loss or range of loss, if any, that may result from the proceeding.
***Optima
Consulting Services, LLC Matter***
On
or about April 17, 2024, Optima Consulting Services, LLC (the “Claimant”), a client of the Company under an equipment and
engineering contract, notified the Company of a potential claim and demanded mediation. On or about October 28, 2024, Claimant asserted
claims for negligent/defective design and breach of warranty, alleging damages exceeding $2.0 million. The Company denied the claims,
believing it satisfied all contractual obligations and that any issues were attributable to Claimant and/or third parties. The matter
was mediated under the AAA process. Effective May 9, 2025, the parties entered into a settlement agreement under which all claims were
resolved for a payment of $0.3 million by the Company. This settlement payment was funded by the Company’s insurance coverage,
except for $35 thousand representing the deductibles, which was paid by the Company.
***Sweet
Cut Grow, LLC and Green Ice, LLC Matter***
On
October 20, 2023, Sweet Cut Grow, LLC and Green Ice, LLC (collectively, “Claimant”), clients of the Company under an equipment
contract and engineering contract, filed a demand for arbitration asserting claims for breach of contract, breach of warranty, and unjust
enrichment, and seeking $1.0 million in damages, plus interest. The Company denies the claims and has asserted a counterclaim. The Company
believes it fulfilled all its contractual obligations and that any alleged issues related to the negligence of a third-party supplier.
The
parties are required to arbitrate under the rules of the American Arbitration Association (“AAA”). The arbitration is expected
to be heard in Denver, Colorado, in 2026 unless resolved earlier. The matter is currently in the discovery phase, and the parties are
engaged in active settlement discussions. Legal fees will be borne by each party. In light of ongoing negotiations and the likelihood
of settlement, the Company has accrued an estimate of $0.4 million to warranty expense.
17
***Canadian
Payroll Taxes***
We
have estimated approximately $0.2 million of potential liability related to Canadian payroll tax matters for the period from 2020-2025.
Other than this matter, no additional losses or provisions for loss contingency have been recorded to date.
As
discussed in *Note 11 – Related Party Notes Payable and Related Party Convertible Note Payable* above*,* any tax liability
assessed in connection with this matter will reduce the repayment amount of the related vendor note to the former owners of Fat Panda
on a dollar for dollar basis.
***Leases***
The
Company has 36 agreements to lease retail space, office and manufacturing space in Manitoba, Saskatchewan, and Ontario, Canada. The total
square footage of these facilities is approximately 49,076.
The
Company also has a lease agreement for its manufacturing and office space in Louisville, CO. The total square footage of the facility
is 11,491. Refer to *Note 5 – Leases* above.
***Other
Commitments***
In
the ordinary course of business, the Company enters into commitments to purchase inventory and may also provide indemnifications of varying
scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but
not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from
intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements
with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against
certain liabilities that may arise by reason of their status or service as directors, officers, or employees. The Company maintains director
and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its
officers and employees, and former officers, directors, and employees of acquired companies, in certain circumstances.
### **Note 13 – Shareholders’ Equity**
***Stockholder
Rights Agreement***
On
December 26, 2025, the Board of Directors (the “Board”) of the Company adopted a limited duration shareholder rights agreement
(the “Rights Agreement”). This agreement is designed to reduce the probability that any person, entity, or group can gain
control of the Company through open-market accumulation without providing all shareholders with an appropriate control premium or affording
the Board sufficient time to make well-informed decisions in the best interests of all shareholders. In accordance with the Rights Agreement,
the Company issued, as a dividend, one right (a “Right”) for each share of the Company’s common stock held as of January
8, 2026, and for each share of certain outstanding common stock warrants. Each Right allows its holder to purchase 1/1000th of a share
of Series C Junior Participating Preferred Stock at an exercise price of $33.50 per Right. Each share of Series C Junior Participating
Preferred Stock is equivalent to 1,000 shares of the Company’s common stock. The Rights have a limited term and will expire on
December 26, 2026, or earlier, as specified in the Rights Agreement.
Under
the terms of the Rights Agreement, if any person or group (an “Acquiring Person”) obtains beneficial ownership of 15% or
more of the Company’s outstanding common stock, subject to certain exceptions, including an exception for current holders exceeding
this percentage who do not acquire additional shares, the Rights become exercisable. All holders of Rights (excluding those held by the
Acquiring Person, which will become void and non-exercisable) are entitled to purchase shares of the Company’s common stock at
a 50% discount to the prevailing market price, at an exchange ratio of one share of common stock, or one one-thousandth of a share of
Series C Junior Participating Preferred Stock (or of another class or series of preferred stock with equivalent rights, preferences,
and privileges), per outstanding Right, subject to adjustment.
The
adoption of the Rights Agreement had no effect on the Company’s condensed consolidated financial statements, including basic and
diluted earnings per share.
18
***PIPE
Financing***
In
August 2025, the Company entered into securities purchase agreements with a group of institutional and accredited investors pursuant
to which it issued and sold shares of common stock and various classes of warrants (the “PIPE Warrants”) in a private placement
(the “PIPE Transaction”):
| ● | 41,754,478 shares of common stock at a purchase price of $10.10 per share; |
| --- | --- |
| ● | 7,750,510 pre-funded warrants, each exercisable for one share of common stock at an exercise price of $0.00001 per share (“Pre-Funded Warrants”); and |
| ● | 49,504,988 stapled warrants (warrants issued together with shares), each exercisable at $15.15 per share (“Stapled Warrants”). |
On
August 5, 2025, the Company closed the PIPE Transaction, which was settled through a combination of cash and digital assets. The
Company received aggregate proceeds of $208.3 million in cash and cash equivalent proceeds, net of issuance costs and $273.2 million in digital assets, consisting of USDT, USDC and BTC. The Company allocated $305.0 million in proceeds to warrant liability based on fair value of the Stapled Warrants with the remaining proceeds of $195.0 million were recorded in additional paid-in capital, net of issuance costs. The Company incurred a total of $23.9 million in issuance costs. Issuance costs of $14.5 million were allocated to Stapled Warrants and recorded as an expense in condensed consolidated statements of operations.
***At-The-Market
Offering***
On
August 25, 2025, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement “or “ATM Program”)
with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell shares of its common stock
having an aggregate offering price of up to $50.0 million from time to time through the Agent, acting as the Company’s sales agent
or principal. Sales under the ATM Agreement, if any, will be made by means of ordinary brokers’ transactions on Nasdaq or otherwise
at market prices prevailing at the time of sale, or at prices related to prevailing market prices. Under the ATM agreement, the Company
has provided the Agent with customary indemnification rights, and the Agent will be entitled to a commission of up to 3.0% of the gross
proceeds from each sale of the ATM Shares effectuated through or to the Agent.
During
the period ended January 31, 2026, the Company sold 856,275 shares under the ATM Program for net proceeds of $12.9 million, after deducting
sales commissions and other offering costs.
***Share
Repurchase Program***
On
September 22, 2025, the Company entered into a Stock Repurchase Agreement with Cantor Fitzgerald & Co. pursuant to which the Company
agreed to repurchase shares of its common stock. Under the terms of the agreement, the Company repurchased an aggregate of 1,647,047 and 2,176,217 shares of its common stock during the quarter ended January 31, 2026 and the period from June 7, 2025 through January 31, 2026, for aggregate
purchase prices of $8.9 million and $13.2 million, respectively. The repurchased shares were retired and are no longer
outstanding.
The
repurchases were funded through available cash on hand. The transaction was accounted for as a reduction of stockholders’ equity.
### **Note 14 – Equity Compensation**
**Successor**
***2017
Equity Incentive Plan***
Under
the Company’s 2017 Equity Incentive Plan, as may be modified and amended by the Company from time to time (the “2017
Equity Plan”), the Board of Directors (the “Board”) (or the compensation committee of the Board, if one is
established) may grant equity-based awards, including stock options, stock appreciation rights (“SARs”), restricted
stock awards (“RSAs”), restricted stock unit awards (“RSUs”), shares granted as a bonus or in lieu of
another award, and other stock-based performance awards. The 2017 Equity Plan authorized 27,778 shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. Any
shares subject to an award that are forfeited, expire, or otherwise terminate without issuance are again available for grant under the 2017 Equity Plan.
As
of January 31, 2026, of the 27,778 shares authorized under the 2017 Plan for equity awards, 13,641 shares have been issued, awards relating
to 10,383 options remain outstanding, and 3,754 shares remain available for future equity awards.
19
***2021
Equity Incentive Plan***
The
2021 Equity Incentive Plan (the “2021 Equity Plan”) was approved by the Board on March 22, 2021 and by the
Company’s stockholders on July 22, 2021. The 2021 Equity Plan authorizes the Board to grant awards of up to 55,556 shares of common stock. The 2021 Equity Plan provides for the grant of incentive stock options intended to qualify under Section 422
Code, non-qualified stock options, SARs, RSAs, RSUs and other equity linked awards to our employees,
consultants, and directors. If an equity award (i) expires or otherwise terminates without having been exercised in full or (ii) is
settled in cash (*i.e.*, the holder of the award receives cash rather than stock), such expiration, termination or settlement
will not reduce (or otherwise offset) the number of shares of common stock that may be issued pursuant to this Plan.
As
of January 31, 2026, of the 55,556 shares authorized under the 2021 Equity Plan, 35,927 shares have been issued in settlement of restricted
stock units, awards relating to 8,324 non-qualified stock options, 3,401 incentive stock options and 1,330 restricted stock units remain
outstanding. 6,574 shares remain available for future equity awards.
***2025
Equity Incentive Plan***
The Company adopted the 2025 Equity Incentive Plan (the “2025 Equity Plan”) on July 25, 2025. The 2025 Equity Plan authorizes
the Board to grant awards of up to 525,000 shares of common stock. The 2025 Equity Plan provides for the grant of incentive stock options
intended to qualify under Section 422 Code, non-qualified stock
options, stock appreciation rights (“SARs”), restricted stock awards and restricted stock unit awards and other equity linked
awards to our employees, consultants, and directors. If an equity award (i) expires or otherwise terminates without having been exercised
in full or (ii) is settled in cash (*i.e.*, the holder of the award receives cash rather than stock), such expiration, termination
or settlement will not reduce (or otherwise offset) the number of shares of common stock that may be issued pursuant to this Plan.
As
of January 31, 2026, of the 525,000 shares authorized under the 2025 Equity Plan, 524,999 restricted stock units remain outstanding and
one share remains available for future equity awards.
Non-Qualified
and Incentive Stock Options granted to employees and consultants
A
summary of the non-qualified stock options and incentive stock options granted to employees and consultants under the 2017 and 2021 Equity
Plans during the period from June 7, 2025 through January 31, 2026, are presented in the tables below:
Schedule of Stock Option Activity
| Line item | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term ( in years) | Aggregate Intrinsic Value |
| --- | --- | --- | --- | --- |
| Outstanding as of June 7, 2025 | 18,296 | $83.19 | 5.17 | - |
| Granted | 2,700 | 7.74 | 9.36 | - |
| Exercised | - | 0.00 | - | - |
| Forfeited | (450) | 7.74 | - | - |
| Expired | (2,086) | 27.72 | - | - |
| Outstanding as of January 31, 2026 | 18,460 | $79.45 | 5.64 | - |
| Exercisable as of January 31, 2026 | 16,211 | $89.41 | 5.12 | - |
The
aggregate intrinsic value for the stock options outstanding and exercisable as of January 31, 2026, was zero because these options were
out of money on January 31, 2026.
The
Company has issued options with a 10-year contractual term and a vesting period ranging from one month to thirty-two months.
For
the period from June 7, 2025 through January 31, 2026, the Company recorded $11 thousand as compensation expense related to stock options
issued to employees and consultants. As of January 31, 2026, total unrecognized compensation expense for the non-qualified options issued
to employees and consultants is $6 thousand which will be recognized over a weighted average period of 0.36 years.
20
Non-Qualified
Stock Options granted to directors
A
summary of the non-qualified stock options granted to directors under the 2017 and 2021 Equity Plans, during the period from June 7, 2025 through January
31, 2026, are presented in the tables below:
Schedule of Non Qualified Stock Option
| Line item | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value |
| --- | --- | --- | --- | --- |
| Outstanding, June 7, 2025 | 4,760 | $113.34 | 3.53 | - |
| Granted | - | - | - | - |
| Exercised | - | - | - | - |
| Forfeited | - | - | - | - |
| Expired | (1,111) | 52.2 | - | - |
| Outstanding, January 31, 2026 | 3,649 | $131.95 | 3.94 | - |
| Exercisable, January 31, 2026 | 3,649 | $131.95 | 3.94 | - |
The
aggregate intrinsic value for the stock options outstanding and exercisable as of January 31, 2026 was zero because these options were
out of money on January 31, 2026.
During
the period from June 7, 2025 through January 31, 2026, the Company did not incur any compensation expense related to options issued to
directors.
Restricted
Stock Units granted to employees and directors
Effective
July 27, 2025, the Company accelerated the vesting of 1,529 restricted stock units issued to a director and settled these units by the
issuance of 1,529 shares of common stock.
During
the period June 7, 2025 through January 31, 2026, the Company recorded $49.2 thousand as compensation expense related to RSUs issued
to directors and employees. Aggregate fair value of restricted stock units vested during the period June 7, 2025, to January 31, 2026
is $40 thousand.
Schedule of Restricted Units Activity
| Line item | Number of Units | Weighted Average Grant-Date Fair Value |
| --- | --- | --- |
| Unvested, June 7, 2025 | 1,529 | $8.18 |
| Granted | 5,320 | 9.40 |
| Vested and settled with share issuance | (4,189) | - |
| Forfeited/cancelled | (1,330) | 9.40 |
| Unvested, January 31, 2026 | 1,330 | $8.89 |
Stock-based compensation warrants
On
August 5, 2025, the Company entered into a Strategic Advisor Agreements with 10X BNB Cayman Sponsor and YZi Labs Management Ltd
(the “Strategic Advisors”) pursuant to which the Company engaged the Strategic Advisors to provide strategic advice and
guidance relating to the Company’s business, operations, growth initiatives and industry trends in the digital asset
technology sector. As compensation for services rendered by the Strategic Advisor under the Strategic Advisor Agreement, the Company
issued to the Strategic Advisor warrants to purchase 5,940,598 shares of the Company’s Common Stock (the “Strategic Advisor Warrants”) at an exercise price of $0.00001 per share. The Strategic Advisor Warrants were fully vested upon issuance, exercisable at any time after issuance until the five (5)
year anniversary of issuance. The total grant-date fair value of the Strategic Advisor Warrants is $105.5 million, which was accounted for as the issuance cost, net against the cash proceeds from the PIPE Financing.
21
On
August 5, 2025, the Company also entered into an asset management agreement (the “Asset Management Agreement”) with 10X Capital
Partners LLC (the “Asset Manager”). Under the Asset Management Agreement, the Company issued warrants to purchase 990,099 shares of the Company’s Common Stock (“Asset Manager
Warrants”) at an exercise price of $10.23 per share. The Asset Manager Warrants are fully vested at issuance,
exercisable at any time after issuance until the five (5) year anniversary of issuance. The total grant-date fair value of the Asset
Manager Warrants is $15.0 million, which was accounted for as the issuance cost, net
against the cash proceeds from the PIPE Financing.
Strategic
Advisor warrants and Asset Manager warrants are accounted for as equity classified share-based compensation award in accordance with
ASC 718. Following is a summary of the activities of warrants for the period ended January 31, 2026:
Schedule of Warrant Activity
| Outstanding as of June 7, 2025 | Number of Warrants / - | Weighted Average Exercise Price / - | Aggregate Intrinsic Value / - |
| --- | --- | --- | --- |
| Granted | 6,930,697 | 1.46 | |
| Exercised | 2,376,236 | 0 | |
| Forfeited | - | - | |
| Expired | - | - | |
| Outstanding as of January 31, 2026 | 4,554,461 | $2.22 | $17,786,131 |
| Exercisable as of January 31, 2026 | 4,554,461 | $2.22 | $17,786,131 |
The
measurement of fair value of the Strategic Advisor Warrants was determined based on the fair value of the underlying Common Stock on
the issuance date given the nominal exercise price.
The
Company estimated the fair value of Asset Manager warrants using the Black-Scholes option-pricing model, which requires assumptions,
including volatility, the expected term of the warrants, the risk-free interest rate for a period that approximates the expected term
of the warrants, and expected dividend yield. Volatility is estimated based on the historical volatility of the guideline public companies
over a period approximately equal to the expected term. The contractual term of the warrants is used as the expected term since the warrant
holders are nonemployees and expected to hold the warrants to expiration to maximize the value of the warrants.
The
table below summarizes the key assumption inputs used for the valuation for the period from June 7, 2025 through January 31, 2026:
Schedule of Key Assumption Inputs
| Line item | Asset Manager Warrants |
| --- | --- |
| Stock price | $17.7 |
| Exercise price | $10.23 |
| Expected term (in years) | 5 |
| Risk-free interest rate | 3.77% |
| Expected volatility | 110% |
| Expected dividend yield | 0% |
### **Note 15 - Investor Warrants**
**Pre-Funded
Warrants**
On
August 5, 2025, the Company issued Pre-Funded Warrants exercisable for 7,750,510 shares of Common Stock in conjunction with the PIPE
Transaction. The Pre-Funded Warrants are exercisable for a nominal consideration of $0.00001 per share, are exercisable immediately and
may be exercised at any time until all of the Pre-Funded Warrants issued in the Private Placement are exercised in full. The fair value
of the Pre-Funded Warrants was determined based on the fair value of the underlying Common Stock on the issuance date given the nominal
exercise price.
22
**Stapled
Warrants**
On
August 5, 2025, the Company issued Stapled Warrants exercisable for 49,504,988 shares of Common Stock in conjunction with the PIPE Transaction.
The Stapled Warrants are exercisable immediately and may be exercised at any time until three years from issuance for an exercise price
of $15.15 per share. The warrants contain a mandatory exercise right for the Company to force exercise of the warrants if the volume-weighted
average price (“VWAP”) of the common stock exceeds $20.20 for 20 out of 30 trading days. Stapled Warrants are classified
as liability as they are not considered indexed to the Company equity shares in accordance with ASC 815-40 due to certain adjustments
to settlement amount on events that are not within the control of the Company. The following table provides a summary of changes in fair
value of the Company’s warrant liability:
Schedule of Warrant Liability
| Line item | Amount |
| --- | --- |
| Fair value at issuance | $304,950,726 |
| Change in fair value during the period | (244,879,854) |
| Fair value as of January 31, 2026 | $60,070,872 |
The
Company used the Monte-Carlo option model to compute the fair value of the Stapled Warrants. The following table summarizes the level
3 inputs used in the valuation of the Stapled Warrants:
Schedule of Inputs Used in Valuation Warrants
| Line item | August 5, 2025 | January 31, 2026 |
| --- | --- | --- |
| Stock price | $17.77 | $4.99 |
| Expected volatility | 70% | 95% |
| Simulated trading days | 754 | 632 |
| Risk-free interest rate | 3.60% | 3.53% |
| Dividend yield | - | - |
| Holding period (years) | 3.00 | 2.51 |
During
the period from June 7, 2025, to January 31, 2026, a total of 119,535 warrants were exercised on a cashless basis resulting in the issuance
of 17,582 shares of common stock.
The
following table summarizes information about warrants outstanding as of January 31, 2026:
Schedule of Warrant Outstanding
| Line item | Grant date | Warrants outstanding | Exercise price |
| --- | --- | --- | --- |
| Stapled warrants | Aug-25 | 49,504,988 | $15.15 |
| Pre-funded warrants | Aug-25 | 7,750,510 | $0.00 |
| Investor warrants | Feb-22 | 472,590 | $60.00 |
| 2022 Underwriter warrants | Feb-22 | 24,213 | $61.95 |
23
### **Note 16 – Earnings Per Share**
The
following table sets forth the computation of basic and diluted earnings per share:
Schedule of Computation of Basic and Diluted Earnings Per Share
| Line item | 2026 / Successor / Three months ended January 31, | 2025 / Predecessor / Three months ended January 31, | 2026 / Successor / Period from June 7 through January 31, | 2025 / Predecessor / Period from May 1 through June 6, | 2025 / Predecessor / Nine months ended January 31, |
| --- | --- | --- | --- | --- | --- |
| Basic earnings per share: | | | | | |
| Numerator: | | | | | |
| Net income/(loss) available to common shareholders - basic | $(106,572,140) | 773,317 | $171,222,236 | $19,013 | 1,773,357 |
| Denominator: | | | | | |
| Weighted-average number of common shares outstanding – basic | 53,180,317 | 1,410 | 20,666,014 | 1,410 | 1,410 |
| Basic earnings per common share | $(2.00) | $548.45 | $8.29 | $13.48 | $1,257.70 |
| Diluted earnings per share: | | - | | | - |
| Numerator: | | | | | |
| Net income/(loss) available to common shareholders - basic | $(106,572,140) | $773,317 | $171,222,236 | $19,013 | 1,773,357 |
| Add: Interest and discount amortization on convertible notes | - | - | 37,191 | - | - |
| Net income available to common shareholders - dilutive | $(106,572,140) | $773,317 | $171,259,427 | $19,013 | $1,773,357 |
| Denominator: | | | | | |
| Weighted-average number of common shares outstanding – basic | 53,180,317 | 1,410 | 20,666,014 | 1,410 | 1,410 |
| Add: dilutive securities | | | | | |
| Warrants | - | - | 91,161 | - | - |
| Stock options | - | - | 1,007 | - | - |
| RSUs | - | - | 392 | - | - |
| Convertible note | - | - | 41,463 | - | - |
| Weighted-average number of common shares outstanding - diluted | 53,180,317 | 1,410 | 20,800,036 | 1,410 | 1,410 |
| Diluted earnings per common share | $(2.00) | $548.45 | $8.23 | $13.48 | $1,257.70 |
The
following table summarizes the securities that were not included in the computation of diluted income per common share as they are anti-dilutive:
Schedule of Computation Diluted Income Per Common Share
| Line item | Period from November 1, 2025 through January 31, 2026 / Successor | Period from June 7 through January 31, 2026 / Successor |
| --- | --- | --- |
| Unvested RSUs | 1,330 | 1,330 |
### **Note 17 – Income Taxes**
For
the period from June 7, 2025 to January 31, 2026 (Successor), the period from May 1, 2025 to June 6, 2025 (Predecessor) and the nine
months ended January 31, 2025 (Predecessor), the Company’s earnings before income taxes, income tax expense and effective income
tax rate were as follows:
Schedule of Earnings Before Income Taxes, Income Tax Expense and Effective Income Tax Rate
| Line item | Successor / Period from June 7 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Predecessor / Nine months ended January 31, 2025 | Successor / Three months ended January 31, 2026 | Predecessor / Three months ended January 31, 2025 |
| --- | --- | --- | --- | --- | --- |
| Income (loss) before income taxes | $170,930,482 | $20,602 | $2,200,195 | $(124,964,353) | $957,654 |
| Income tax expense (benefits) | (291,754) | 1,589 | 426,838 | (18,392,213) | 184,337 |
| Effective income tax rate | -0.2% | 7.7% | 19.4% | 14.7% | 19.2% |
The
change in the effective tax rate for the period June 7, 2025 to January, 31, 2026 (Successor), compared to the predecessor period for
May 1, 2025 to June 6, 2025 (Predecessor), and the three months ended January 31, 2026 (Successor) compared to January 31, 2025 (Predecessor),
was primarily due to the impact of foreign statutory rates that are lower than the U.S. statutory tax rate, non-deductible transaction
costs, U.S. inclusions on foreign income, and changes to valuation allowances on the legacy business of CEA Industries Inc.’s United
States operations.
During
the first quarter, the Company completed the acquisition of Fat Panda, which is taxed as a Canadian corporation. For Canadian
federal income tax purposes, the transaction was treated as a stock acquisition with no step-up basis in tax. As a result, the
goodwill and intangible assets recorded for financial reporting purposes are not deductible for tax purposes, giving rise to $1.2 million deferred tax liability, which is included in the Company’s net deferred tax liability.
24
As
of January 31, 2026, the Company had $41.3 million of U.S. federal and state net operating loss (“NOL”) carry forwards related
to its legacy U.S. operations. Approximately $11.2 million will expire, if not utilized, in calendar years 2034 through 2037. NOLs generated
subsequent to December 31, 2017 do not expire but may be used to offset no more than 80% of taxable income in any given year.
Pursuant
to Section 382 of the Internal Revenue Code of 1986, as amended, and applicable state law, the Company’s ability to utilize its
NOL carry forwards may be limited if the Company experiences an “ownership change”, generally defined as a greater than50% cumulative change in equity ownership by value over a three-year period. The securities offerings completed in September 2021 and
February 2022, and the August 2025 private placement must be evaluated to determine whether an ownership change has occurred. If an ownership
change is determined to have occurred, the Company’s ability to utilize its NOL carry forwards may be materially limited, which
could adversely affect future tax obligations.
The
Company must assess the likelihood that its net deferred tax assets will be recovered from future taxable income, and to the extent the
Company believes that recovery is not likely, the Company establishes a valuation allowance. Management’s judgment is required
in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded
against the net deferred tax assets.
As
of January 31, 2026, the Company recorded a full valuation allowance against the deferred tax assets related to its U.S operations. Based
on the available evidence, the Company believes it is more likely than not that these deferred tax assets will be realized in the foreseeable
future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal. Estimates of future
taxable income are based on assumptions consistent with the Company’s operating plans. However, if actual results differ from these
estimates, the carrying value of deferred tax assets could be materially impacted.
The
Company also regularly evaluates the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative
guidance. Uncertain tax positions are recorded using a two-step process; (i) the determining whether a tax position is more likely than
not to be sustained on the basis of the technical merits, and (ii) measuring the amount of benefit to recognize as the largest amount
that is more likely than not to be realized upon ultimate settlement. The Company currently has recorded a $0.2 million reserves for
uncertain tax positions in Canada.
On
July 4, 2025, the President signed H.R. 1, the One Big Beautiful Bill Act (the “Act”) into law. The Act includes several
changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including
the restoration of immediate expense of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable
rules for determining the limitation on business interest expense.
The
Act also includes certain changes to the US taxation of foreign activity, including changes to foreign tax credits, GILTI, FDII, and
BEAT, amongst other changes. These changes are generally effective for tax years beginning after Dec. 31, 2025.
The
Company is currently assessing the impact of the Act but does not expect have a material impact on the tax provision.
### **Note 18 – Related Party Transactions**
***Agreements
and Transaction with a Company Director***
Mr. Nicholas J. Etten, a member of the
Company’s Board of Directors, was previously party to two consulting agreements, one dated July 28, 2025 (the “2025
Agreement”) and a prior agreement dated June 19, 2024 which was replaced by the 2025 Agreement. These agreements contemplated
that Mr. Etten would provide advisory services related to acquisition sourcing, strategic consulting, and investor coordination, and
would be compensated at a rate of $2.5 thousand per week, subject to downward adjustment based on hours worked.
The Company paid Mr. Etten $20.0 thousand during the three months ended January 31, 2026, and $72.8 thousand during the period from June 7, 2025 through January 1, 2026 for consulting services under these agreements. In January
2026, the Company identified that payments made to Mr. Etten through June 3, 2025 exceeded the amounts expected by $6.3 thousand. On March 15, 2026, Mr. Etten reimbursed the Company $6.3 thousand.
Mr. Etten terminated the 2025 Agreement on February
2, 2026 with effect from January 1, 2026. As of January 31, 2026, there were no amounts payable to Mr. Etten under the 2025 Agreement.
25
***Promissory
notes to former owner/current employee***
In
connection with the Company’s acquisition of Fat Panda Ltd. on June 6, 2025, the Company issued the following promissory notes
to related parties:
- A promissory note with a principal amount of $0.7 million (CAD $1.0 million) to the President of Fat Panda Ltd., who is an employee of the Company and was a selling shareholder of Fat Panda Ltd.
- A convertible promissory note with a principal amount of $0.7 million (CAD $1.0 million) to the President of Fat Panda Ltd.
- A promissory note with a principal amount of $0.4 million (CAD $0.5 million) to the selling shareholders of Fat Panda Ltd., one of whom continues to be an employee of the Company.
See *Note 11*, *Related Party Note Payable and Related Party Convertible Note Payable*, for additional details.
***Asset
Management Agreement & Accrued Fee with a Company Director***
The
Asset Manager is an entity that is majority-owned and controlled by Hans Thomas, a current member of the Company’s Board of Directors.
In connection with the PIPE Transaction, the Company entered into the Asset Management Agreement with the Asset Manager, pursuant to
which the Company engaged the Asset Manager to provide asset management and related services with respect to the Company’s digital
assets strategy in exchange for the applicable management fees. The Company recorded management fees of $2.0 million and $3.8 million
for the three months and for the period from June 7, 2025 through January 31, 2026, respective, and accrued but not paid asset management fees payable of $0.6 million as of January 31, 2026.
### **Note 19 – Segment Reporting**
During
the second quarter of 2026, the Company introduced a new business line focused on BNB Treasury Management and appointed a new Chief Executive
Officer, who serves as the Chief Operating Decision Maker (“CODM”). These changes triggered a reassessment of the Company’s
operating segments under ASC 280, Segment Reporting. As a result of this reassessment, the Company determined that it now operates two reportable segments: BNB Treasury Management and Retail and Industry. Comparative periods have been re-recast to reflect
this change in segment composition.
The
CODM evaluates the financial performance of the business and makes resource allocation decisions based on these two distinct sources
of business activity:
- BNB Treasury Management – This segment includes income from digital asset activities, costs and expenses related to building and executing the Company’s digital asset strategy, and fair value changes (unrealized gains or losses) on digital assets associated with the Company’s BNB holdings.
- Retail and Industry Segment – This segment includes Fat Panda’s retail and distribution operations along with revenue and operating costs related to designing, engineering, and selling environmental control and other technologies for the Controlled Environment Agriculture industry.
The
“Corporate” category presented in the following table is not considered an operating segment. It consists primarily of corporate
support functions including capital and funding to support the business activities of the company and includes costs and expenses not
allocated to a line of business.
The
CODM uses income (loss) from operations before provision for income taxes as the primary measure to assess segment performance. This
measure is reviewed regularly by examining period-over-period trends, benchmarking against competitors, and monitoring budget versus
actual results. The CODM also considers this metric when evaluating income generated from segment assets to determine whether to reinvest
profits within the segment or allocate resources elsewhere in the entity.
The
following tables present (for each segment and consolidated total) the Company’s revenues and significant expenses regularly provided
to the CODM, reconciled to income (loss) from operations before provision for income tax for each of the periods presented. Total segment
assets provided to the CODM are also disclosed in the tables below for each period presented.
Schedule of Segment Reporting Information
_Three Months Ended January 31, 2026_
| Line item | CEA Industry Segment (Successor) / Retail and Industry Segment (Successor) | BNB Treasury Management Segment | Corporate | Total Consolidated |
| --- | --- | --- | --- | --- |
| Total revenue, net | $7,334,626 | - | - | $7,334,626 |
| Cost of revenue | (5,571,329) | - | - | (5,571,329) |
| Unrealized loss on digital asset | - | (159,791,308) | - | (159,791,308) |
| Other income from airdrop | - | 1,265,452 | - | 1,265,452 |
| Advertising and marketing expenses | (63,506) | - | (220,860) | (284,366) |
| Compensation expenses | (1,394,344) | (175,000) | (312,781) | (1,882,125) |
| Asset management fees | - | (2,013,579) | - | (2,013,579) |
| Professional and contractor fees | (66,004) | (17,070) | (4,815,254) | (4,898,328) |
| Stock-based compensation | 2,310,559 | - | 2,329,679 | 4,640,238 |
| Other segment expenses (1) | (673,406) | (380,724) | (789,732) | (1,843,863) |
| Gain from change in fair value of warrant liabilities | - | - | 38,061,767 | 38,061,767 |
| Interest expense and other income, net | 18,462 | - | - | 18,462 |
| Income (loss) from operations before provision for income tax | $1,895,058 | $(161,112,229) | $34,252,818 | $(124,964,353) |
| Total Assets | 17,429,893 | 409,179,888 | 10,163,794 | 436,773,575 |
26
_Three Months Ended January 31, 2025_
| Line item | CEA Industry Segment (Predecessor) / Retail and Industry Segment (Predecessor) | BNB Treasury Management Segment | Corporate | Total Consolidated |
| --- | --- | --- | --- | --- |
| Total revenue, net | $6,908,817 | - | - | $6,908,817 |
| Cost of revenue | (5,146,901) | - | - | (5,146,901) |
| Advertising and marketing expenses | (191,531) | - | - | (191,531) |
| Compensation expenses | 111,714 | - | - | 111,714 |
| Professional and contractor fees | (157,496) | - | - | (157,496) |
| Other segment expenses (1) | (566,949) | - | - | (566,949) |
| Income (loss) from operations before provision for income tax | $957,654 | - | - | $957,654 |
| Total Assets | 8,342,878 | - | - | 8,342,878 |
| Line item | CEA Industry Segment (Successor) / Period from June 7, 2025 to January 31, 2026 / Retail and Industry Segment (Successor) | BNB Treasury Management Segment / Period from June 7, 2025 to January 31, 2026 | Corporate / Period from June 7, 2025 to January 31, 2026 | Total Consolidated / Period from June 7, 2025 to January 31, 2026 | CEA Industry Segment (Predecessor) (2) / Period from May 1, 2025 to June 6, 2025 / CEA Industry Segment (Predecessor) |
| --- | --- | --- | --- | --- | --- |
| Total revenue, net | $19,055,752 | - | - | $19,055,752 | $2,927,689 |
| Cost of revenue | (13,827,593) | - | - | (13,827,593) | (2,001,537) |
| Unrealized loss on digital asset | - | (45,757,590) | - | (45,757,590) | - |
| Other income from airdrop | - | 7,093,030 | - | 7,093,030 | - |
| Advertising and marketing expenses | (228,930) | - | (4,782,023) | (5,010,953) | (63,202) |
| Compensation expenses | (3,484,911) | (245,000) | (401,685) | (4,131,596) | (431,340) |
| Asset management fees | - | (3,811,936) | - | (3,811,936) | - |
| Professional and contractor fees | (2,302,395) | (224,925) | (5,417,556) | (7,944,876) | (135,359) |
| Stock-based compensation | (33,572) | - | (26,648) | (60,220) | - |
| Other segment expenses (1) | (2,081,302) | (382,004) | (16,187,254) | (18,650,560) | (275,650) |
| Gain from change in fair value of warrant liabilities | - | - | 244,879,854 | 244,879,854 | - |
| Interest expense and other income, net | (902,830) | - | - | (902,830) | - |
| Income (loss) from operations before provision for income tax | $(3,805,781) | $(43,328,425) | $218,064,688 | $170,930,482 | $20,602 |
_Nine Months Ended January 31, 2025_
| Line item | CEA Industry Segment (Predecessor) / Retail and Industry Segment (Predecessor) | BNB Treasury Management Segment | Corporate | Total Consolidated |
| --- | --- | --- | --- | --- |
| Total revenue, net | $21,313,671 | - | - | $21,313,671 |
| Cost of revenue | (13,824,712) | - | - | (13,824,712) |
| Advertising and marketing expenses | (490,008) | - | - | (490,008) |
| Compensation expenses | (2,440,943) | - | - | (2,440,943) |
| Professional and contractor fees | (436,684) | - | - | (436,684) |
| Other segment expenses (1) | (1,921,130) | - | - | (1,921,130) |
| Income (loss) from operations before provision for income tax | $2,200,194 | - | - | $2,200,194 |
(1) Includes other selling, general, and administrative expenses such as occupancy expenses, maintenance expenses, utilities, depreciation and amortization expenses. Starting in the second quarter of 2026, other segment items also include warrant issuance costs, insurance fees and advisory fees.
### **Note 20 – Subsequent Events**
In
accordance with ASC 855, Subsequent Events, the Company has evaluated all subsequent events through the date of issuance of these financial
statements issued. No material subsequent events occurred after January 31, 2026.
27
**ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
*The
following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included
elsewhere in this Quarterly Report, which include additional information about our accounting policies, practices, and the transactions
underlying our financial results, as well as with our audited consolidated financial statements included in our Transitional Annual Report
on Form 10-KT for the four months ended April 30, 2025, as filed with the SEC. In addition to historical information, the following discussion
and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results
could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Cautionary
Statements” appearing elsewhere herein and the risks and uncertainties described or identified in “Item 1A – Risk Factors”
in our Transitional Annual Report on Form 10-KT for the four months ended April 30, 2025, as updated from time to time in the Company’s
filings with the SEC, and Part II, Item 1A of this Quarterly Report entitled “Risk Factors.”*
***Non-GAAP
Financial Measures***
*To
supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures
including net bookings, backlog, as well as adjusted net income (loss) which reflects adjustments for certain non-cash expenses such
as stock-based compensation, unrealized loss on digital assets, gain on change in fair value of warrant liability, airdrop income, certain
debt-related items and depreciation and amortization expense. We believe these non-GAAP measures are helpful in understanding our past
performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be
considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information
prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects
of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our
business. For purposes of this Quarterly Report, (i) “adjusted net income (loss)” and “adjusted operating income (loss)”
mean GAAP net income (loss) and operating income (loss), respectively, after adjustment for non-cash equity compensation expense, unrealized
loss on digital assets, airdrop income, certain debt-related items and depreciation & amortization expense, and (ii) “net bookings”
means new sales contracts executed during the quarter for which we received an initial deposit, net of any adjustments including cancellations
and change orders during the quarter.*
*Our
backlog or remaining performance obligations and net bookings may not be indicative of future operating results, and our customers
may attempt to renegotiate or terminate their contracts for a number of reasons, including delays in or inability to obtain project
financing or licensing or abandonment of the project entirely. Accordingly, there can be no assurance that contracts included in the
backlog or remaining performance obligations will actually generate revenues or when the actual revenues will be
generated.*
**Overview**
CEA
Industries Inc. (the “Company”) was incorporated under the laws of the State of Nevada on October 14, 2009, and is headquartered
in Louisville, Colorado. Historically, the Company operated a portfolio of consumer and commercial businesses, including climate control
systems for controlled environment agriculture and retail operations in the vaping industry.
In August 2025, the Company initiated a strategic transformation by adopting
a digital asset treasury strategy focused on BNB, the native token of the Binance blockchain. Through its wholly owned subsidiary, CEA
BRS LLC, a Delaware limited liability company and the sole stockholder of BNC BNB Cayman, a Cayman Islands exempt company, the Company
seeks to build and manage a substantial corporate treasury of BNB, providing institutional-grade exposure to blockchain infrastructure.
***Overview
of Digital Asset Treasury Strategy***
The
Company has recently implemented a treasury strategy focused on acquiring and holding digital assets, primarily BNB. As of January 31,
2026, the Company held 515,544 BNB tokens with an aggregate fair value of $402.8 million. These digital asset holdings
represent the substantial majority of the Company’s total assets. Management views BNB as a strategic treasury asset and intends
to continue evaluating opportunities to acquire additional digital assets as part of its capital allocation strategy.
The
Company’s strategy represents a significant departure from traditional corporate treasury strategies, which typically involve holding
cash, cash equivalents, and short-term investments. Instead, the Company’s financial condition and results of operations are now
significantly influenced by changes in the market price of BNB. Digital asset markets have historically exhibited significant volatility
and are subject to evolving regulatory frameworks and technological risks. As a result, fluctuations in the market price of BNB will have
a material impact on the Company’s financial condition, results of operations, and the market price of its common stock. Investors
should carefully consider the risks associated with the Company’s digital asset holdings and treasury strategy described under
“Part II, Item 1A – Risk Factors” in this Quarterly Report on Form 10-Q.
The Company may in the future
generate returns through additional digital asset-related activities such as validation services, lending, and other decentralized
finance protocols, though no BNB is currently staked or pledged. The Company’s BNB-focused DAT strategy was launched on August
5, 2025, following the closing of the PIPE Transaction that raised approximately $500 million in cash and digital assets, with up to
$750 million in additional proceeds available through warrant exercises. Under the DAT strategy, BNB is the primary treasury reserve
asset.
To
support this strategy, the Company established CEA BRS LLC, a Delaware limited liability company, as a special purpose entity to hold
and manage certain cryptocurrency assets in accordance with the DAT strategy. Additionally, the Company formed BNC BNB Cayman, an exempted
company organized under the laws of the Cayman Islands, to facilitate international operations and treasury management. These entities
are wholly owned subsidiaries of the Company.
The Company’s BNB holdings are held in custody through
Ceffu, an institutional digital asset custody platform operating within the Binance ecosystem. Ceffu utilizes multi-party computation
wallet infrastructure and maintains segregated account structures designed for institutional holders. While Ceffu operates as a
separate entity from the Binance exchange, our custody arrangement creates concentration exposure to the broader Binance ecosystem. Disruptions
to Ceffu’s operations, changes in its regulatory status, or adverse developments affecting the Binance ecosystem could materially impact
our ability to access, transfer, or liquidate our BNB holdings.
As
a result of the implementation of our BNB focused DAT strategy, digital assets, primarily BNB, now represent 93.7% of our total
assets, while our Retail and Industry segment operating businesses represent a significantly smaller portion of our overall asset
base on economic exposure.
***Key
Drivers of Results of Operations***
The Company’s results of operations are influenced by several key factors,
including: changes in the market price of BNB and other ancillary digital assets held by the Company; fair value adjustments recognized
under applicable accounting standards for digital assets; the generation of airdrop income; operating expenses associated with maintaining
the Company’s public company infrastructure; and strategic decisions regarding the acquisition, holding, or disposition of digital assets.
Because the Company holds a substantial quantity of digital assets, particularly BNB, changes in the market price of BNB may significantly
affect the Company’s reported earnings. These fluctuations may not reflect changes in the Company’s operating performance but instead
reflect market-driven changes in the value of its digital asset holdings.
28
During the period from October 31, 2025 to January 31, 2026, the Company’s
BNB token holdings increased modestly by 0.7%, from 511,932 tokens to 515,544 tokens, reflecting incremental change of 3,612 tokens in holdings during the period. During this same period, the market price of BNB declined significantly
by 28.3%, from $1,089 per token, to $781 per token.
As a result, the aggregate fair value of the Company’s BNB holdings decreased from $557.4 million
to $402.8 million, driven by market price volatility rather than changes in the token quantity. The decline in BNB
market prices had a materially greater impact on the carrying value of digital assets than the operating results of the Company’s
retail and industry business during the same period.
In addition to changes in token prices during this period, the Company recognized a substantial decrease in airdrop-related
income associated with its digital asset holdings. The Company holds the majority of its BNB assets in Ceffu, an institutional custodian
operating within the Binance ecosystem, which enables the Company to maintain eligibility to receive airdrops distributed within the Binance
ecosystem. During the three months ended January 31, 2026, airdrop income totaled $1.3 million, representing a decrease of 77.6% compared
to $5.8 million recognized during the three months ended October 31, 2025. This substantial decline in airdrop-related income reflects
reduced airdrop activity within the Binance ecosystem during the current period. While airdrop income contributed positively to results,
it did not offset the impact of the decline in BNB market prices during the quarter.
In addition to airdrops, a portion of our BNB treasury yield has historically been generated through participation
in Binance Launchpool and HODLer Airdrops – platform programs through BNB holders receive newly issued tokens by locking or holding
BNB. During the quarter ended January 31, 2026, the frequency and scale of these programs declined materially compared to prior periods,
contributing to a reduction in platform-delivered yield. Taken together with the decline in airdrop activity described above, these trends
reflect a broader moderation in yield generation during the period. The Company cannot predict the timing, frequency, or magnitude of
future Launchpool or HODLer Airdrop allocations, and continued reduction in these programs may adversely affect our treasury yield and
results of operations.
***Digital
Asset Market Conditions***
Our treasury strategy is designed to accumulate and
compound BNB over time, with a focus on growing value of our digital asset holdings on a per-share basis as a key long-term measure of shareholder value creation. Digital asset markets
are inherently cyclical, and short-term price fluctuations — while material to our GAAP-reported results in any given quarter —
do not alter our management’s conviction in the long-term trajectory of BNB and the broader Binance ecosystem. We believe our disciplined
approach to treasury management positions the Company to benefit from market recoveries while managing risk through custody, yield optimization,
and strategic capital allocation.
During the three months ended January 31, 2026, digital asset markets experienced
periods of significant price volatility. The market price of BNB fluctuated in response to a variety of factors, including macroeconomic
conditions, investor sentiment toward digital assets, developments affecting cryptocurrency exchanges and blockchain networks, and regulatory
developments in the United States and other jurisdictions. Because the Company holds a significant quantity of BNB, changes in the market
price of BNB had and will continue to have a substantial impact on the Company’s balance sheet and results of operations. Investors should
consider that fluctuations in the Company’s financial results during the period were driven primarily to changes in digital asset market
prices and airdrop yield rather than changes in the Company’s operating activities.
***Our
Retail & Industry Business***
The Company operates its controlled environment agriculture (“CEA”)
business within the Retail and Industry segment, which includes the provision of climate control systems for CEA industry. In June 2025,
the Company acquired Fat Panda which also operates within this segment. As of January 31, 2026, Fat Panda operates 34 retail locations,
including 30 Fat Panda branded stores and 4 Electric Fog branded outlets, along with an e-commerce platform. Fat Panda also manufactures
a proprietary line of premium e-liquids in-house and maintains a portfolio of trademarks and related intellectual property. Revenue from
CEA equipment and systems represents a relatively small portion of consolidated revenue, totaling $1.1 million for the nine months ended
January 31, 2026 and $0.7 million for the three months ended January 31, 2026.
**Recent
Developments**
Subsequent to the quarter end, the Board of Directors
has taken steps to reconstitute all four of its standing committees – the Audit, Compensation, Nominating and Governance, and Strategic
Committees - with three fully independent directors. The Board believes this action reinforces its commitment to strong corporate
governance and shareholder accountability and reflects the Board’s ongoing focus on aligning its structure with best practices for public
companies.
As a result of these governance enhancements and
with the termination of an agreement between 10X Capital Partners LLC (“10X Capital Partners”) and YZi Labs Management
Ltd. (“YZi Labs”), the Company, through the Strategic Committee, is currently engaged in the process of renegotiating
the terms of the Company’s Asset Management Agreement with 10X Capital Partners (the “AMA”) with the goal of
achieving market standard arms-length terms, including reduced management fees, for the benefit of all shareholders. The Company
believes that amending the AMA to better align its terms with the Company’s current scale and asset profile is in the best interest of
shareholders, and is committed to completing this process in an expeditious manner. There can be no assurance, however, that the
renegotiation will be completed on terms acceptable to the Company.
On March 13, 2026, the Company received a letter from
YZi Labs Management Ltd. (“YZi Labs”) that requested that the Company fix a record date for determining the stockholders
entitled to consent to (1) repeal any provision of the Company’s Amended and Restated Bylaws (the “Bylaws”), in effect
at the time such proposal becomes effective, including any amendments thereto, which were not included in the Bylaws that were in effect
and were filed with the SEC on July 25, 2025, (2) increase the size of the Board by seven (7) directors to thirteen (13) directors in
total pursuant to Article II, Section .02 of the Bylaws, (3) amend Article II, Section .04 of the Bylaws to clarify and affirm stockholders’
ability to fill vacancies on the Board, including those resulting from an increase in the size of the Board by the vote or written consent
of the Company’s stockholders or by court order, and (4) elect YZi Labs’ seven (7) nominees: Max S. Baucus, David J. Chapman,
Teresa Marie Goody Guillén, Jiajin “Jane” He, Alex Odagiu, Matthew Roszak and Ling “Ella” Zhang, to serve
as directors of the Company. The Board will review YZi Labs’ letter to evaluate its validity under the Bylaws, and if such letter
is valid the Company will disclose the record date for determining the stockholders entitled to consent to YZi Labs’ proposals.
29
**Results
of Operations**
*Because
fair value changes in digital assets are recorded through our consolidated statements of operations, our BNB Treasury Management segment
results—and consequently our consolidated net income—will be subject to significant volatility based on fluctuations in the
market price of BNB. Investors should expect material period-to-period variations in our reported net income that may bear no relationship
to the operating performance of our Retail and Industry segment.*
***Comparison
of the Three Months Ended January 31, 2026, and January 31, 2025***
| Line item | Successor / Three months ended January 31, 2026 | Predecessor / Three months ended January 31, 2025 | Increase (Decrease) ($) | Percentage Change |
| --- | --- | --- | --- | --- |
| Revenue | $7,334,626 | $6,908,817 | $425,809 | 6% |
| Cost of revenue | 5,571,329 | 5,146,901 | (424,428) | -8% |
| Gross profit | 1,763,297 | 1,761,916 | 1,381 | 0% |
| Operating expenses | | | | |
| Advertising and marketing expenses | 284,366 | 191,531 | (92,835) | -48% |
| Unrealized loss on digital assets | 159,791,308 | - | (159,791,308) | 100% |
| Selling, general and administrative expenses | 5,997,657 | 612,731 | (5,384,926) | -879% |
| Total operating expenses | 166,073,331 | 804,262 | (165,269,069) | -20549% |
| Operating income (loss) | (164,310,034) | 957,654 | (165,267,688) | -17258% |
| Other income (expense), net | | | | |
| Airdrop income | 1,265,452 | - | 1,265,452 | 100% |
| Gain on change in fair value of warrant liability | 38,061,767 | - | 38,061,767 | 100% |
| Interest expense | (158,330) | - | (158,330) | 100% |
| Other income (expense), net | 176,792 | - | 176,792 | 100% |
| Total other income | 39,345,681 | - | 39,345,681 | 100% |
| Income/ (loss) before income tax expense (benefit) | (124,964,353) | 957,654 | (125,922,007) | -13149% |
| Income tax expense (benefit) | (18,392,213) | 184,337 | (18,576,550) | 0% |
| Net Income (Loss) | $(106,572,140) | $773,317 | $(107,345,457) | -13881% |
*Revenues
and Cost of revenue*
Revenue
for the three months ended January 31, 2026 was $7.3 million, compared to $6.9 million for the three months ended January 31, 2025, representing
an increase of $0.4 million, or 6%. The increase in revenue was primarily driven by the CEA equipment and system sales, which contributed
$0.6 million during the quarter. This increase was partially offset by $0.2 million reduction in sales from the discontinuation
of one product as well as pricing adjustments implemented to recover Canadian excise tax.
Cost of revenue increased by $0.5
million or 8%, from $5.1 million for the three months ended January 31,2025 to $5.6 million for the three months ended January 31,
2026. The increase was primarily driven by $1.0 million of costs associated with CEA equipment and system revenues, including $0.4
million increase in warranty costs. This increase was partially offset $0.5 million or 5% improvement in margin, resulting from the
discontinuation of one lower margin product.
*Total
operating expenses*
Total
operating expense was $166.1 million for the three months ended January 31, 2026, compared $0.8 million for the three months ended January
31, 2025, representing an increase of $165.3 million, or 20549%. The increase was primarily driven by an unrealized loss of $159.8 million
on the remeasurement of digital assets during the current quarter, and higher selling, general and administrative expenses (“SG&A”).
During the period from October 31, 2025 to
January 31, 2026, the Company’s BNB holdings increased modestly by 0.7%, while the market price of BNB declined by 28.3%, from
$1,089 per token to $781 per token, resulting in an unrealized loss of $159.8 million. As a result, the unrealized loss recognized
during the quarter was driven primarily by market price volatility, rather than changes in the quantity of digital assets held.
Management believes this performance reflects broader digital asset market conditions rather than any deterioration in BNC’s
underlying business or strategy.
30
SG&A expenses increased primarily due to
$2.0 million of asset management fees and a $4.7 million increase in professional and advisory fees, which was offset by $2.7
million net decrease in compensation expense. The increase in professional and advisory fees included $1.6 million related to
outsourced accounting integration support and other legal fees incurred in connection with ongoing legal matters. The increases were
partially offset by a net decrease of $2.7 million in compensation expense, which reflected $1.6 million increase in compensation
costs, offset by $4.6 million reversal of stock-based compensation expenses as described in *Note 2 – Correction of Error
– RUS Compensation*.
In addition, the Company incurred significant costs
as a direct result of the shareholder activism campaign initiated by YZi Labs during the quarter ended January 31, 2026. In connection
with YZi Labs’ filing of preliminary consent solicitation materials seeking to expand the size of the Board of Directors and elect
its own slate of director candidates, and its stated intent to nominate candidates at the Company’s next annual meeting of stockholders,
the Company engaged legal, strategic, and communications advisors across multiple disciplines, resulting in $3.1 million in incremental
professional and advisory fees during the period. These matters have required significant time and resources from the Board and management
and are expected to continue to do so, which could adversely affect the Company’s results of operations. The Company expects these
activism-related costs to remain elevated in the near term in connection with these matters. For a more detailed discussion of the risks
associated with YZi Labs’ activist campaign, including the potential impact on the Company’s business, operations, and stock price, see
Part II, Item 1A, *“Risk Factors — Shareholder activism has caused and will continue to cause us to incur substantial costs
and divert management’s attention and resources and could disrupt our operations and the trading price of our common stock”*.
*Other income (expense), net*
The Company recognized other income of $39.3 million for the
three months ended January 31, 2026, compared to $0 for the three months ended January 31, 2025. Other Income for the current period consisted
of gain on change in fair value of warrant liability of $38.1 million, currency translation and interest expense on promissory notes related
to the Acquisition and airdrop income.
The Company holds the majority of its BNB tokens with Ceffu, an institutional custodian operating within the Binance
ecosystem, which enables the Company to maintain eligibility for airdrops distributed within Binance ecosystem. During the three months
ended January 31, 2026, the Company recognized $1.3 million of airdrop income, compared to $5.8 million recognized during the three months
ended October 31, 2025. This decline reflects reduced airdrop activity within the Binance ecosystem during the current period, which contributed
to lower non-operating income. The Company cannot predict the timing or magnitude of future airdrops, and continued reduction in airdrop
frequency or size could have an adverse effect on our results of operations.
***Non-GAAP Combined Nine Months Ended January
31, 2026***
Our financial results for the periods from May 1,
2025 through June 6, 2025, and the nine months ended January 31, 2025 are referred to as those of the “Predecessor” period.
Our financial results for the period from June 7, 2025, through January 31, 2026 are referred to as those of the “Successor”
period. Our results of operations as reported in our Condensed Consolidated Financial Statements and Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) for these periods are prepared in accordance with U.S. GAAP. Although U.S. GAAP requires
that we report our results for the period from May 1, 2025 through June 6, 2025 and the period from June 7, 2025 through January 31, 2026
separately, management views our operating results for the nine months ended January 31, 2026 by combining the results of the applicable
Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to prior periods. We
believe we cannot adequately benchmark the operating results of the period from June 7, 2025 through January 31, 2026 against any of the
previous periods reported in our Condensed Consolidated Financial Statements and Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) without combining it with the period from May 1, 2025 through June 6, 2025, and do not believe that reviewing the results
of this period in isolation would be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
Management believes that the key performance metrics for the Successor period when combined with the Predecessor period provide more meaningful
comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results
of operations as reported in our Condensed Consolidated Financial Statements in accordance with U.S. GAAP, the tables and discussion below
also present the combined results for the nine months ended January 31, 2026. The combined results for the nine months ended January 31,
2026, represent the sum of the reported amounts for the Predecessor period from May 1, 2025 through June 6, 2025 and the Successor period
from June 7, 2025 through January 31, 2026. These combined results are not considered to be prepared in accordance with U.S. GAAP and
have not been prepared as pro forma results per applicable regulations. The combined operating results do not reflect the actual results
we would have achieved absent our acquisition of Fat Panda and are not necessarily indicative of future results. Accordingly, the results
for the combined nine months ended January 31, 2026 (prepared on a non-GAAP basis) and nine months ended January 31, 2025 (prepared on
a GAAP basis) may not be comparable.
31
***Comparison
of the Nine Months Ended January 31, 2026, and January 31, 2025***
| Line item | Successor / Period from June 7, 2025 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Non-GAAP Combined / Nine months ended January 31, 2026 | Predecessor / Nine months ended January 31, 2025 | Increase (Decrease) ($) | Percentage Change |
| --- | --- | --- | --- | --- | --- | --- |
| Revenue | $19,055,752 | $2,927,689 | $21,983,441 | $21,313,671 | $669,770 | 3% |
| Cost of revenue | 13,827,593 | 2,001,537 | 15,829,130 | 13,824,712 | (2,004,418) | -14% |
| Gross profit | 5,228,159 | 926,152 | 6,154,311 | 7,488,959 | (1,334,648) | -18% |
| - | | | | | | |
| Operating expenses | | | | | | |
| Advertising and marketing expenses | 5,010,953 | 63,202 | 5,074,155 | 490,008 | (4,584,147) | -936% |
| Unrealized loss on digital assets | 45,757,590 | - | 45,757,590 | - | (45,757,590) | 100% |
| Selling, general and administrative expenses | 34,599,188 | 842,348 | 35,441,536 | 4,798,756 | (30,642,780) | -639% |
| Total operating expenses | 85,367,731 | 905,550 | 86,273,281 | 5,288,764 | (80,984,517) | -1531% |
| Operating income (loss) | (80,139,572) | 20,602 | (80,118,970) | 2,200,195 | (82,319,165) | -3741% |
| - | | | | | | |
| Other income (expense), net | | | | | | |
| Airdrop income | 7,093,030 | - | 7,093,030 | - | 7,093,030 | 100% |
| Gain on change in fair value of warrant liability | 244,879,854 | - | 244,879,854 | - | 244,879,854 | 100% |
| Interest expense | (822,607) | - | (822,607) | - | (822,607) | 100% |
| Other income (expense), net | (80,223) | - | (80,223) | - | (80,223) | 100% |
| Total other income | 251,070,054 | - | 251,070,054 | - | 251,070,054 | 100% |
| - | | | | | | |
| Income/ (loss) before income tax expense (benefit) | 170,930,482 | 20,602 | 170,951,084 | 2,200,195 | 168,750,889 | 7670% |
| - | | | | | | |
| Income tax expense (benefit) | (291,754) | 1,589 | (290,165) | 426,838 | (717,003) | -168% |
| - | | | | | | |
| Net Income (Loss) | $171,222,236 | $19,013 | $171,241,249 | $1,773,357 | $169,467,892 | 9556% |
*Revenues
and Cost of revenue*
Revenue for the nine months ended January 31, 2026, was $22.0 million,
compared to $21.3 million for the nine months ended January 31, 2025, representing an increase of $0.7 million, or 3%. The increase was
primarily driven by $1.1 million of revenue from CEA equipment and systems. This increase was partially offset by $0.4 million decrease
in revenue resulting from the discontinuation of one product as well as pricing adjustments implemented to recover Canadian
excise tax.
Cost of revenue increased by $2.0
million or 14%, from $13.8 million for the nine months ended January 31, 2025 to $15.8 million for the nine months ended January 31,
2026. The increase was primarily driven by $1.4 million of costs associated with CEA equipment and systems revenue, which included
an additional $0.4 million in warranty costs and a net $0.6 million increase reflecting higher material costs resulting from
increased cost per unit following the enactment of new Canadian federal and provincial excise taxes, partially offset by a modest
improvement in margins from the discontinuation of one lower margin product.
*Total
operating expenses*
Total
operating expenses was $86.3 million for the nine months ended January 31, 2026, compared to operating expenses of $5.3 million for the
nine months ended January 31, 2025, an increase of $81.0 million, or 1531%. The increase was primarily driven by an unrealized loss of
$45.8 million on the remeasurement of digital assets during the nine months ended January 31, 2026, by higher selling, general and administrative
expenses, which increased by $30.6 million to $35.4 million.
As of January 31, 2026, the Company held 515,544 BNB tokens. During the
period, the market price of BNB experienced significant volatility, increasing by 32% from $825 per token in August 2025
to $1,089 per token as of October 31, 2025, before declining by 28.3% to $781 per token as of January 31, 2026. As a result,
the unrealized loss recognized during the period was driven primarily by fluctuations in market price, rather than changes in the quantity
of digital assets held.
32
The increase in SG&A was mainly attributable to a one-time warrant
issuance cost of $14.6 million, asset management fees of $3.8 million, an increase of $7.5 million in professional and contractor fees,
and $0.5 million in additional insurance costs associated with BNB treasury operations. Of the increase in professional and advisory fees,
$3.1 million is associated with our ongoing response to an activist shareholder campaign while $4.4 million is associated with accounting
and other legal fees incurred in connection with the Fat Panda Acquisition and PIPE Transaction. Advertising and marketing expenses also
increased by $4.6 million from $0.5 million during the nine months ended January 31, 2025 to $5.1 million during the nine months ended
January 31, 2026 as the Company incurred additional marketing costs in connection with PIPE Transaction and ATM sales during the current
quarter.
*Other
income (expense), net*
We
recognized other income of $251.1 million for the nine months ended January 31, 2026, compared to $0 for the nine months ended January
31, 2025. Other Income for the current period consisted of airdrop income, gain on change in fair value of warrant liability, and interest
and debt discount amortization on notes related to the Acquisition.
**Financial
Condition, Liquidity and Capital Resources**
Our
primary sources of liquidity include cash and cash equivalents, and, beginning in August 2025, digital assets held in our treasury. As
of January 31, 2026, we had cash and cash equivalents of $11.3 million and digital assets measured at fair value of $409.2 million, as
presented in our condensed consolidated unaudited balance sheets. We did not have any borrowings outstanding under a credit facility
as of January 31, 2026.
We
hold a significant portion of our liquid assets in digital assets, which are measured at fair value with changes recognized in earnings.
As further described in *Note 3 – Digital Assets* to our condensed consolidated financial statements, our digital assets consist
primarily of BNB.
Our
liquidity and capital resources are subject to volatility in the market price of BNB and other digital assets. A decline in the market
price of BNB or other digital assets would reduce the fair value of our digital assets and could adversely affect our ability to fund
operations, invest in growth, or meet obligations as they come due. We manage this risk by maintaining fiat liquidity; however, these
measures may not fully mitigate market, custodial or regulatory risks. A 10% decline in the price of BNB as of January 31, 2026, holding
all other factors constant, would have resulted in an additional unrealized loss of approximately $40.3 million. Conversely, a 10% increase
would have resulted in an additional unrealized gain of approximately $40.3 million. These potential fluctuations significantly exceed
the operating income or loss expected from our Retail and Industry segment.
A
substantial portion of the Company’s assets consists of digital assets, primarily BNB. Although digital assets may be traded on
various cryptocurrency exchanges, the liquidity of these assets may vary depending on market conditions. Periods of significant volatility
or market stress may reduce liquidity, widen bid-ask spreads, and limit the Company’s ability to sell digital assets at favorable
prices.
The
Company’s ability to generate liquidity may depend in part on its ability to sell digital assets in the market. If the Company
were required to liquidate a significant portion of its BNB holdings to meet liquidity needs, such sales could adversely affect the market
price of BNB and reduce the value of the Company’s remaining holdings. Management evaluates the Company’s liquidity requirements
on an ongoing basis and may determine to sell or otherwise utilize portions of its digital asset holdings to fund operations, pursue
strategic opportunities, or satisfy other capital requirements.
***Digital
Asset Treasury Risk Management***
The
Company has implemented policies and procedures designed to manage risks associated with holding digital assets. These measures include
the use of institutional custodial platforms, internal controls governing the authorization and execution of digital asset transactions,
and monitoring of market conditions affecting the Company’s digital asset holdings. Despite these measures, digital assets are
subject to risks that differ from traditional financial assets, including cybersecurity risks, technological risks associated with blockchain
networks, and the potential for rapid changes in market conditions. The Company continuously evaluates and updates its risk management
practices as its digital asset treasury strategy evolves.
33
***Summary
of Cash Flows***
The
following summarizes our approximate cash flows for the period from June 7, 2025 through January 31, 2026 (Successor), for the period
May 1, 2025 through June 6, 2025 (Predecessor) and for the nine months ended January 31, 2025 (Predecessor):
| Line item | Successor / Period from June 7 through January 31, 2026 | Predecessor / Period from May 1 through June 6, 2025 | Predecessor / For nine Months Ended January 31, 2025 |
| --- | --- | --- | --- |
| Net cash used in operating activities | $(32,107,342) | $(238,442) | $(306,009) |
| Net cash used in investing activities | (185,657,820) | - | (56,153) |
| Net cash provided by financing activities | 217,621,064 | - | - |
| Net decrease in Cash and Cash Equivalents | $(144,098) | $(238,442) | $(362,162) |
***Operating
Activities***
Cash
used in operating activities for the period from June 7, 2025 through January 31, 2026 (Successor) was $32.1 million, compared to $0.2
million used during the period from May 1, 2025 through June 6, 2025 (Predecessor) and $0.3 million used for the nine months ended January
31, 2025 (Predecessor). Operating cash flows for the Successor period were significantly affected by several non-cash items, including
an unrealized loss on digital assets of $45.8 million, a $244.9 million gain from changes in the fair value of warrant liabilities, and
$7.1 million of non-cash income from airdrops. Depreciation and amortization expense and non-cash fees paid in digital assets also impacted
cash used in operations.
Working-capital
movements of $0.5 million further contributed to the overall cash outflow. A $1.2 million utilization in prepaid expenses
represented the source of cash. Additional changes in accounts receivable, taxes payable inventory, and accounts payable and accrued
liabilities also affected cash used in operations.
***Investing
Activities***
Cash
used in investing activities for the period from June 7, 2025 through January 31, 2026 (Successor) was $185.7 million, compared with
no cash used during the period from May 1, 2025 through June 6, 2025 (Predecessor) and $56 thousand used during the nine months ended
January 31, 2025 (Predecessor).This outflow was primarily driven by $10.4 million of cash consideration paid in connection with the Fat
Panda Acquisition and the $175.3 million used to purchase digital assets.
***Financing
Activities***
Cash
provided by financing activities for the period from June 7, 2025 through January 31, 2026 (Successor) totaled $217.6 million, compared
to no financing cash flows during the periods from May 1, 2025 through June 6, 2025 (Predecessor) or the nine months ended January 31,
2025 (Predecessor). The primary source of cash was $217.5 million of net proceeds from the issuance of common stock and warrants in the
PIPE offering, which included $9.3 million of issuance costs related to common stock and warrants in the PIPE offering. In addition,
the Company generated $12.9 million of proceeds from sales under the ATM program. These inflows were partially offset by $12.7 million
in cash used for share repurchases during the period.
***Contractual
Payment Obligations***
As
of January 31, 2026, our contractual payment obligations consisted of a building lease. Refer to *Note 5* – *Leases* of the notes to the condensed consolidated financial statements, included as part of this Quarterly Report for a discussion of our building
lease.
**Commitments
and Contingencies**
Refer
to *Note 12 – Commitments and Contingencies* of the notes to the condensed consolidated financial statements, included as
part of this Quarterly Report for a discussion of commitments and contingencies.
**Off-Balance
Sheet Arrangements**
We
do not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our liquidity
or capital resources. As of January 31, 2026, we had no off-balance sheet arrangements. During the quarter ended January 31, 2026, we
did not engage in any off-balance sheet financing activities other than those included in the discussed above and those reflected in *Note 12 – Commitments and Contingencies* of our condensed consolidated financial statements.
34
**Known
Trends and Uncertainties Affecting Our Business**
Management
is aware of several trends and uncertainties that may affect the Company’s financial condition and results of operations, including:
continued volatility in digital asset markets; evolving regulatory frameworks governing digital assets and cryptocurrency exchanges;
technological developments affecting blockchain networks and decentralized applications; and macroeconomic conditions affecting investor
demand for digital assets. These trends may influence the market value and liquidity of BNB and other digital assets and may therefore
materially affect the Company’s financial condition and results of operations.
**Critical
Accounting Estimates**
This
discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements,
which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting
policies are particularly important to the understanding of our financial position and results of operations and require the application
of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions
that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, management
uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are
based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, observance
of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.
Actual results could materially differ from those estimates. Key estimates include allocation of transaction prices to performance obligations
under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations
under contracts with customers, valuation of intangible assets, valuation of equity- based compensation, valuation of deferred tax assets
and liabilities, warranty accruals, accounts receivable and inventory allowances, and legal contingencies.
**ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
We
are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, therefore are not required to provide the information
under this item.
**ITEM
4. CONTROLS AND PROCEDURES**
**Evaluation
of Disclosure Controls and Procedures**
Our
management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, both of which positions
have previously been held by the same person, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based
on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that as a result of material
weaknesses in our internal control over financial reporting as described in Item 9A of our Transitional Annual Report on Form 10-KT for
the four months ended April 30, 2025, our disclosure controls and procedures were not effective as of January 31, 2026. Our disclosure
controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer,
as appropriate, to allow timely decisions regarding required disclosure.
We
did not maintain effective controls over certain aspects of the financial reporting process because: (i) we lack a sufficient complement
of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial
reporting requirements, (ii) there is inadequate segregation of duties due to our limited number of accounting personnel, and (iii) we
have insufficient controls and processes in place to adequately verify the accuracy and completeness of spreadsheets that we use for
a variety of purposes including revenue, taxes, stock-based compensation and other areas, and place significant reliance on, for our
financial reporting.
We
intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies in the future when
our financial assets and our operations would support the requirements of additional personnel. We are committed to continuing to improve
our financial organization, when we are able, including, without limitation, expanding our accounting staff and improving our systems
and controls to reduce our reliance on the manual nature of our existing systems. However, due to our size and our financial resources,
remediating the several identified weaknesses has not been possible and may not be economically feasible now or in the future.
As
a significant step in the remediation of these deficiencies, effective March 9, 2026, the Company appointed Brent Miller as Chief Financial
Officer. Mr. Miller’s appointment separates the principal financial and accounting officer function from the Chief Executive Officer
role for future periods and is expected to strengthen the Company’s financial reporting capabilities, supervisory review structure,
and segregation of duties.
**Changes
in Internal Control over Financial Reporting**
There
were changes in our internal control over financial reporting during the quarter ended January 31, 2026 related to integration of new
digital asset treasury processes and valuation controls for warrant liabilities. These changes were part of our remediation plan and
did not materially affect, and are not reasonably likely to materially affect, our internal control over financial reporting, except
as noted above with respect to the identified material weakness.
Management
has implemented procedures designed to provide reasonable assurance regarding the safeguarding of the Company’s digital assets,
including controls governing access to private keys, authorization requirements for digital asset transfers, and oversight of custodial
arrangements with third-party service providers.
35
**PART
II — OTHER INFORMATION**
**Item
1. Legal Proceedings**
From time to time, in the normal course of business,
the Company is subject to claims and legal proceedings. Litigation is inherently unpredictable, and the Company’s assessments may
change as matters progress. The Company expenses legal fees as incurred and records a liability for contingent losses when it is both
probable that a loss has been incurred and the amount can be reasonable estimated. An unfavorable outcome to any matter, if material,
could adversely affect the Company’s financial condition, liquidity or results of operations.
On February 24, 2026, Abraham Gomez, an individual,
filed a civil complaint in the Superior Court of the State of California, County of Tulare, captioned Abraham Gomez v. CEA Industries,
Inc., et al., (Case No. VCU331863), against the Company and Hans Thomas, a director of the Company. The complaint asserts various claims
against the defendants, including claims for fraud, promissory estoppel, quantum meruit and unjust enrichment, arising from alleged investment-related
discussions and alleged services purportedly performed for the benefit of the Company. The plaintiff seeks damages, including compensatory
damages according to proof (which the complaint alleges exceed approximately $2.75 million), together with interest, attorneys’ fees,
costs and other relief. As of March 13, 2026, the Company has not yet filed its response to the complaint but intends to defend the action
vigorously. At this preliminary stage of the matter, the Company cannot reasonably estimate the possible loss or range of loss, if any,
that may result from the proceeding.
On or about April 17, 2024, Optima Consulting Services,
LLC (the “Claimant”), a client of the Company under an equipment and engineering contract, notified the Company of a potential
claim and demanded mediation. On or about October 28, 2024, Claimant asserted claims for negligent/defective design and breach of warranty,
alleging damages exceeding $2.0 million. The Company denied the claims, believing it satisfied all contractual obligations and that any
issues were attributable to Claimant and/or third parties. The matter was mediated under the AAA process. Effective May 9, 2025, the parties
entered into a settlement agreement under which all claims were resolved for a payment of $0.3 million by the Company. This settlement
payment was funded by the Company’s insurance coverage, except for $35 thousand representing the deductibles, which was paid by
the Company.
On October 20, 2023, Sweet Cut Grow, LLC and Green
Ice, LLC (collectively, “Claimant”), clients of the Company under an equipment contract and engineering contract, filed a
demand for arbitration asserting claims for breach of contract, breach of warranty, and unjust enrichment, and seeking $1.0 million in
damages, plus interest. The Company denies the claims and has asserted a counterclaim. The Company believes it fulfilled all its contractual
obligations and that any alleged issues related to the negligence of a third-party supplier.
The parties are required to arbitrate under the rules
of the American Arbitration Association (“AAA”). The arbitration is expected to be heard in Denver, Colorado, in 2026 unless
resolved earlier. The matter is currently in the discovery phase, and the parties are engaged in active settlement discussions. Legal
fees will be borne by each party. In light of ongoing negotiations and the likelihood of settlement, the Company has accrued an estimate
of $0.4 million to warranty expense.
***Canadian Payroll Taxes***
We have estimated approximately $0.2 million of potential
liability related to Canadian payroll tax matters for the period 2020-2025. Other than this matter, no additional losses or provisions
for loss contingency have been recorded to date. As discussed in *Note 11 Related Party Note Payable and Related Party Convertible Note
Payable* above*,* any tax liability assessed in connection with this matter will reduce, on a dollar for dollar basis, the repayment
amount of the related vendor note issued to the former owners of Fat Panda.
36
**ITEM
1A. RISK FACTORS**
In
addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed
in Part I, Item 1A of our Transitional Annual Report on Form 10-KT for the four months ended April 30, 2025. Those risk factors, together
with the risk factors set forth below, could materially affect our business, financial condition, operating results, or prospects. The
risks described in our Form 10-KT and below are not the only risks facing us. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, operating
results, or prospects.
**Risks
Related to Our Digital Asset Treasury Strategy**
***Our
financial condition is highly dependent on the market price of BNB, which has historically been subject to significant volatility.***
Our
financial condition is highly dependent on the market price of BNB, which has historically been subject to significant volatility. As
of January 31, 2026, we held 515,544 BNB tokens with a fair value of $402.8 million, representing the substantial majority
of our total assets. As a result, our financial condition, results of operations, and the market price of our common stock may be materially
affected by fluctuations in the market price of BNB. The price of BNB has historically experienced significant volatility and may continue
to fluctuate substantially in response to numerous factors, many of which are beyond our control. These factors include, among others:
overall cryptocurrency market conditions and investor sentiment; technological developments affecting blockchain networks; regulatory
developments in the United States or other jurisdictions; changes in trading volumes or liquidity in markets for BNB; macroeconomic factors,
including inflation, interest rates and financial market conditions; trading activity by large holders of BNB or other digital assets;
and market speculation, media coverage, or social media commentary relating to digital assets. Digital asset markets may be more volatile
and less regulated than traditional financial markets, and prices may fluctuate significantly over short periods of time. Because BNB
represents a substantial portion of our assets, even modest declines in the market price of BNB could materially reduce the value of
our assets and stockholders’ equity and may negatively affect our reported financial results. In addition, because changes in the
fair value of our digital assets are reflected in our statements of operations, fluctuations in the market price of BNB may cause significant
volatility in our reported earnings.
During
the three months ended January 31, 2026, we recognized an unrealized loss of $159.8 million on digital assets as a result of declines
in the price of BNB. Under our accounting policies, unrealized gains and losses from changes in the fair value of our digital asset holdings
are recorded in our consolidated statements of operations. Accordingly, our reported net income or loss will be significantly affected
by fluctuations in the market price of BNB, and these fluctuations could cause our financial results to vary substantially from period
to period, independent of the performance of our operating businesses. A significant decline in the market price of BNB could adversely
affect our ability to fund our operations, pursue strategic initiatives, pay dividends, service any indebtedness, or otherwise execute
our business strategy. In addition, our stock price may be correlated with the price of BNB and other digital assets, and declines in
the price of BNB could adversely affect the trading price of our common stock.
***Our
digital asset treasury strategy is concentrated in a single asset, which subjects us to risks specific to the Binance
ecosystem.***
Our digital asset treasury strategy currently focuses primarily on acquiring and holding BNB. As a result, our digital
asset holdings are concentrated in a single digital asset rather than diversified across multiple assets or asset classes. This concentration
increases our exposure to risks specific to BNB and the broader Binance ecosystem. The value and functionality of BNB are closely tied
to the continued development, operation and adoption of the BNB Chain blockchain and the broader Binance ecosystem. Negative developments
affecting BNB Chain, the Binance ecosystem, or entities associated with the development or promotion of BNB could adversely affect the
value, liquidity, or market perception of BNB. These developments could include technological failures, security vulnerabilities, regulatory
actions, reputational harm, or reduced developer or user adoption of BNB Chain. In addition, changes to the economic design, governance
structure, or technical features of BNB or the BNB Chain network, including changes to token supply mechanisms, validator governance,
or transaction fee structures, could negatively affect the value of BNB. Because we do not currently intend to diversify our digital asset
holdings, any adverse developments affecting BNB or the Binance ecosystem could have a disproportionately negative impact on our financial
condition and results of operations. Notwithstanding the foregoing, we may in the future diversify our digital asset holdings and reserve
all rights to do so at the direction of the Board of Directors. Any digital assets into which we diversify may expose the Company to risks
similar to those described above, as well as additional risks that may be specific to the particular digital asset or blockchain technology
ecosystem in which such asset operates.
37
***Failures,
vulnerabilities, or disruptions in the BNB Chain network could adversely affect the value of BNB and our digital asset holdings.***
BNB
operates on the BNB Chain blockchain network, which relies on complex software, cryptographic protocols, and a distributed network of
validators to process transactions and maintain the integrity of the blockchain. The BNB Chain network may be subject to technical failures,
software bugs, consensus failures, or other vulnerabilities that could compromise the network’s security or functionality. In addition,
blockchain networks have historically been targets of cyberattacks, including attempts to exploit vulnerabilities in network software
or associated applications. Any successful attack or exploit affecting the BNB Chain network could disrupt network operations, reduce
confidence in the network, or adversely affect the market price of BNB. Any such developments could materially and adversely affect the
value of our digital asset holdings.
***The
validator structure of the BNB Chain network may expose it to governance or operational risks.***
The
BNB Chain network relies on a limited number of validators to confirm transactions and maintain the network. Compared to some other blockchain
networks, the validator structure of BNB Chain may involve a relatively concentrated group of participants. Concentration among validators
could increase the risk of coordinated actions, governance disputes, or operational disruptions affecting the network. If validators
were to act in a manner that adversely affects the operation or perceived integrity of the network, confidence in the Binance ecosystem
could decline. Any such decline in confidence could negatively affect the market price of BNB and the value of our digital asset holdings.
***Certain
of our digital assets are held at third-party exchanges and are subject to custodial and counterparty risks.***
Certain
of our digital assets are held at third-party exchanges or custodial platforms. These assets may be recorded as receivables rather than
digital assets on our condensed consolidated balance sheet when they are held on such platforms. Digital asset exchanges and custodians
have historically been subject to cyberattacks, fraud, insolvency, operational failures, and regulatory enforcement actions.
Ownership and control of digital assets are
generally determined by possession of cryptographic private keys or other access credentials. We rely on third-party custodians to safeguard
control of our digital assets, including the management of private keys. If the private keys or access credentials associated with our
digital assets that are held by those third-party custodians were lost, destroyed, compromised, misused, or otherwise became inaccessible,
we could lose access to our digital assets permanently. Unlike traditional financial accounts, digital asset transactions are generally
irreversible, and there may be no central authority capable of restoring access to lost assets. Any loss or theft of our digital assets,
including as a result of the foregoing, could materially and adversely affect our financial condition.
If any exchange
or custodial platform that holds our digital assets were to become insolvent, experience a security breach, suspend withdrawals, or otherwise
fail to safeguard our assets, we could experience delays in accessing our digital assets or suffer a partial or total loss of those assets.
In the event of an insolvency of a custodial platform, we may be treated as an unsecured creditor and may not recover the full value
of our assets. In addition, exchanges and custodial platforms may impose withdrawal limits, suspend trading, or otherwise restrict transfers
of digital assets during periods of market volatility or regulatory uncertainty. Such restrictions could limit our ability to access
or liquidate our digital assets in a timely manner. These assets are not maintained in segregated wallets under our exclusive control
and may be pooled with assets of other customers of such exchanges. Unlike bank deposits, digital assets held at exchanges are generally
not insured by the Federal Deposit Insurance Corporation or any other governmental agency. We are exposed to counterparty risk if these
exchanges experience financial difficulty, security breaches, cyberattacks, operational failures, regulatory enforcement actions, or
become insolvent. The digital asset industry has experienced significant exchange failures and insolvencies, including the collapse of
FTX Trading Ltd. in November 2022, which resulted in substantial losses for customers and creditors. If an exchange at which we hold
digital assets were to fail, enter bankruptcy, or become subject to regulatory seizure, we may be unable to recover some or all of our
digital assets, and any recovery could be subject to significant delays and uncertainty. The loss of digital assets held at such exchanges
could materially and adversely affect our financial condition, results of operations, and the trading price of our common stock.
***Digital
assets, including BNB, are subject to an evolving and uncertain regulatory landscape.***
Digital
assets, including BNB, are subject to evolving and uncertain regulatory frameworks in the United States and internationally. The regulatory
status of digital assets and related activities is subject to significant uncertainty, and regulations may vary significantly among jurisdictions.
Changes in laws, regulations, or enforcement priorities by U.S. or foreign regulators, including the SEC, CFTC, FinCEN, state regulators,
or international bodies, could adversely affect our ability to acquire, hold, transact in, or derive value from our digital asset holdings.
In particular, if BNB or other digital assets we hold were to be classified as securities under U.S. federal or state laws, we could
become subject to registration requirements under the Securities Act of 1933 or the Investment Company Act of 1940, which could impose
significant compliance costs, restrict our ability to transact in such assets, or require us to dispose of our holdings. Anti-money laundering
and know-your-customer regulations applicable to digital assets may become more stringent and could increase our compliance costs or
limit our ability to transact in digital assets. Tax treatment of digital asset transactions is also subject to uncertainty and may change
in ways that adversely affect our financial results. Any regulatory developments that restrict or prohibit our digital asset activities
could have a material adverse effect on our business, financial condition, and results of operations.
38
***BNB
could be determined to be a security under U.S. federal securities laws, which could materially affect the value and tradability of our
digital assets.***
The
regulatory status of many digital assets, including BNB, remains uncertain. Regulatory authorities in the United States and other
jurisdictions have taken the position that certain digital assets may constitute securities under applicable law. If BNB were
determined to be a security under U.S. federal securities laws, trading platforms that currently list BNB may be required to
register as securities exchanges, broker-dealers or alternative trading systems, or they may cease offering trading in BNB. Any
determination that BNB constitutes a security, or any enforcement action by regulatory authorities relating to BNB or trading
platforms that support BNB trading, could significantly reduce the liquidity and market value of BNB. Such developments could make
it more difficult for us to buy or sell or value BNB, could result in delistings of BNB from trading platforms, and could materially
and adversely affect the value of our digital asset holdings and our financial condition.
***Adverse
publicity or developments involving the Binance ecosystem could negatively affect the value of BNB.***
The
market value of BNB may be influenced by the reputation and perceived stability of the broader Binance ecosystem, including entities
associated with the development, promotion, or operation of platforms that support BNB or the BNB Chain network. Negative media coverage,
regulatory actions, litigation, or other adverse developments involving such entities could negatively affect market sentiment toward
BNB. Any loss of confidence in the Binance ecosystem could reduce demand for BNB, impair liquidity in markets for BNB, and negatively
affect the value of our digital asset holdings.
***While
we report substantial digital asset holdings, the liquidity of these assets may be limited by market conditions.***
As
of January 31, 2026, we held digital assets with a fair value of $409.2 million. Although digital asset markets operate
continuously, the liquidity of BNB and other digital assets may be limited during periods of market stress or volatility. Order book
depth in digital asset markets may be insufficient to support large transactions without materially affecting market prices. Because
we hold a substantial quantity of BNB, any attempt by us to sell a significant portion of our holdings could exert downward pressure
on the market price of BNB. In addition, a significant portion of the outstanding supply of BNB may be held by a relatively small number
of market participants, and sales by large holders could also adversely affect market prices. If market liquidity were to decline, we
may be unable to liquidate our digital asset holdings at favorable prices or within desired timeframes. Large sales of BNB by us or other
significant holders could adversely affect the market price of BNB, and we may not be able to liquidate our holdings without significant
losses. We maintain fiat cash reserves of $11.3 million to support day-to-day operations, but these reserves represent a small fraction
of our total assets and may be insufficient to fund our operations, capital expenditures, or other obligations if we are unable to liquidate
our digital assets on acceptable terms. Any inability to convert our digital assets to fiat currency when needed could have a material
adverse effect on our liquidity, financial condition, and ability to continue as a going concern.
***Fair
value accounting for digital assets may cause significant volatility in our financial statements.***
Under
applicable accounting standards, including ASC 350-60, digital assets such as BNB are measured at fair value, with changes in fair value
recognized in earnings during each reporting period. As a result, fluctuations in the market price of BNB may result in significant unrealized
gains or losses in our financial statements. These fair value adjustments may cause substantial volatility in our reported earnings and
may not reflect the underlying performance of our operations. Investors may find it difficult to evaluate our financial performance because
our results may be significantly affected by changes in the market price of BNB that are unrelated to our operating activities.
39
**Risks
Related to Shareholder Rights Plan and Activist Investors**
***Shareholder
activism has caused and will continue to cause us to incur substantial costs and divert management’s attention and resources and
could disrupt our operations and the trading price of our common stock.***
A stockholder of the Company, YZi Labs
has launched a shareholder activism campaign against the Company . Among other public actions, YZi has filed preliminary consent
materials indicating its intent to solicit consents of our stockholders to expand the size of our Board of Directors (the “***Board***”)
and elect seven candidates identified by YZi Labs to fill the vacancies (the “***Consent Solicitation***”). In addition,
YZi Labs has indicated its intent to nominate candidates at the Company’s next annual meeting of stockholders.
On March 13, 2026, the Company received a letter from
YZi Labs Management Ltd. (“YZi Labs”) that requested that the Company fix a record date for determining the stockholders entitled
to consent to (1) repeal any provision of the Company’s Amended and Restated Bylaws (the “Bylaws”), in effect at the
time such proposal becomes effective, including any amendments thereto, which were not included in the Bylaws that were in effect and
were filed with the SEC on July 25, 2025, (2) increase the size of the Board by seven (7) directors to thirteen (13) directors in total
pursuant to Article II, Section .02 of the Bylaws, (3) amend Article II, Section .04 of the Bylaws to clarify and affirm stockholders’
ability to fill vacancies on the Board, including those resulting from an increase in the size of the Board by the vote or written consent
of the Company’s stockholders or by court order, and (4) elect YZi Labs’ seven (7) nominees: Max S. Baucus, David J. Chapman,
Teresa Marie Goody Guillén, Jiajin “Jane” He, Alex Odagiu, Matthew Roszak and Ling “Ella” Zhang, to serve
as directors of the Company. The Board will review YZi Labs’ letter to evaluate its validity under the Bylaws, and if such letter
is valid the Company will disclose the record date for determining the stockholders entitled to consent to YZi Labs’ proposals.
While
we welcome input from all our stockholders, including YZi Labs, and desire to have a constructive relationship with them as our largest
stockholder and a key business partner, YZi Labs’ campaign has adversely affected and may continue to adversely affect our business.
Our
business has been negatively affected and the trading price of our common stock could be negatively affected by YZi Labs’ campaign
because, among other things:
- responding to YZi Labs’ campaign has required and may continue to require substantial attention from our Board and management team that has distracted and may continue to distract their attention from our operations and strategic plans, which has disrupted and may continue to disrupt our operations;
- responding to YZi Labs’ campaign and managing the resulting impact on the Company has required us to engage legal, strategic and communications advisors, the costs of which have been and may continue to be significant and could negatively impact our financial results;
- YZi Labs’ campaign has created and may continue to create perceived uncertainties as to our future direction, strategy or leadership and may result in the loss of potential business opportunities, make it more difficult to attract and retain qualified directors, executives, other employees, investors and commercial and financial providers, and cause our stock price to experience periods of volatility or stagnation;
- claims made by YZi Labs have and may continue to harm our reputation, damage our relations with employees, investors and commercial and financial providers, or otherwise impair our business; and
- a deterioration in our relationship with YZi Labs, whose affiliates were involved in the creation of BNB and the BNB Chain, and who we believe continues to hold substantial amounts of BNB, could negatively impact our digital asset treasury strategy or damage our reputation and be an impediment to potential relationships or opportunities involving BNB.
In
addition, if YZi Labs is successful in expanding the size of the Board and electing YZi Labs’ nominees to a majority of the Board
seats, it may impact our business strategy and operations, and may result in a default, acceleration or result in other consequences
under certain of our debt instruments, equity plans, employment agreements, and other agreements, which could negatively affect our business
and the trading price of our common stock.
We
cannot assure you as to the outcome or timing of any matters relating to actions by YZi Labs and our responses thereto or the ultimate
impact on our business, results of operations or financial condition.
***Our
Stockholder Rights Plan could delay or prevent a change of control, which could limit the market price of our common stock.***
On
December 26, 2025, the Board of Directors adopted a stockholder rights plan (the “Rights Plan”), which is currently scheduled
to expire on December 26, 2026. While in force or if otherwise extended, the Rights Plan may have certain anti-takeover effects. Specifically,
the rights issued pursuant to the Rights Plan will cause substantial dilution to a person or group that acquires beneficial ownership
of more than a specified percentage of our outstanding common stock without the prior approval of our Board of Directors. The Rights
Plan is not intended to interfere with any merger or other business combination approved by the Board, but the Rights Plan may deter
certain parties from pursuing strategic transactions involving us, including potential acquisitions.
40
**Item
2. Unregistered Sales of Equity Securities and Use of Proceeds**
**Issuer
Purchases of Equity Securities**
The
following table presents information related to our repurchases of common stock during the three months ended January 31, 2026:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| --- | --- | --- | --- | --- |
| 11/1/2025 - 11/30/2025 | 1,278,064 | $5.38 | 1,278,064 | $238,741,797 |
| 12/1/2025 - 12/31/2025 | - | - | - | $238,741,797 |
| 1/1/2026 - 1/31/2026 | 368,983 | $5.45 | 368,983 | $236,730,476 |
| Total | 1,647,047 | $5.39 | 1,647,047 | $236,730,476 |
(1) On September 22, 2025, our Board of Directors authorized a stock repurchase plan authorizing us to repurchase, from time to time, up to $250 million of our outstanding common stock (the “Repurchase Plan”). As of the date of this filing, we had $236.7 million of authorization remaining under the Repurchase Plan. The Repurchase Plan has no expiration and will continue until otherwise modified or terminated by our Board of Directors at any time in its sole discretion.
**Item
5. Other Information**
**Annual
Meeting of Stockholders**
The
Company’s Board of Directors has not yet determined the date, time or location of the Company’s 2026 Annual Meeting of Stockholders
(the “2026 Annual Meeting”). The Company intends to announce the date, time and location of the 2026 Annual Meeting through
a press release and the filing of proxy materials with the SEC once such information has been determined.
Because
the date of the 2026 Annual Meeting has not yet been established, the deadlines for stockholder proposals or director nominations pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934 and the Company’s bylaws have not yet been determined. Once the Company
announces the date of the 2026 Annual Meeting, stockholders will be notified of the applicable deadlines for submission of stockholder
proposals and director nominations in accordance with applicable SEC rules and the Company’s governing documents.
**Transition
Agreement**
On
March 16, 2026, the Board approved a Transition Agreement (as defined below) with David Namdar, the Company’s current Chief Executive
Officer, and his affiliate, and determined that, in accordance with the Transition Agreement, Mr. Namdar’s service in such role
will conclude upon the earlier of (a) the Company’s next annual meeting of stockholders, (b) the appointment by the Board of a
new or interim chief executive officer of the Company, or (c) August 31, 2026 (the “Separation Date”). In connection with
Mr. Namdar’s transition out of his role as Chief Executive Officer, on March 16, 2026, the Company entered into a Transition Agreement
(the “Transition Agreement”) with Mr. Namdar and Abound LLC, a Puerto Rico limited liability company pursuant to which Mr.
Namdar performs services for the Company, which (i) acknowledges and provides for compensation with respect to the work performed by
Mr. Namdar for the Company since his appointment as Chief Executive Officer on August 5, 2025 (for which he has received no cash or equity
compensation to date), and (ii) provides for the provision of transitional services by Mr. Namdar until the Separation Date.
As
compensation for the work performed by Mr. Namdar from August 5, 2025 (the “Appointment Date”) to the date of the Transition
Agreement, Mr. Namdar will receive a make-up consulting fee of $375,000. As compensation for the work to be performed by Mr. Namdar commencing
on March 16, 2026 and through the Separation Date, Mr. Namdar will receive a base consulting fee of $50,000 per month. In addition, in
lieu of an equity incentive award for his service from the Appointment Date, and in exchange for execution and non-revocation of a release
of claims in favor of the Company, Mr. Namdar will receive a lump sum cash payment equal in amount to the product of 132,000 shares multiplied
by the greater of the 30-trading day average stock price of the Company’s common stock on (x) March 16, 2026 or (y) the Separation
Date. Under the Transition Agreement, in exchange for a release of claims and Mr. Namdar’s agreement to certain restrictive covenants,
including confidentiality, non-compete, non-solicitation, non-disparagement and non-assistance to litigants restrictions, Mr. Namdar
will receive a lump sum cash payment equal to eighteen months of the base consulting fee ($900,000), payable following the Separation
Date.
The
foregoing description of the Transition Agreement is not complete and is qualified in its entirety by reference to the full text of the
Transition Agreement, a copy of which is attached hereto as Exhibit 10.7 and incorporated herein by reference.
## Item 1A of this Quarterly Report on Form 10-Q, as updated from time to time in the Company’s filings with the U.S. Securities and
Exchange Commission (the “SEC”). You should not place undue reliance on these forward-looking statements, which apply only
as of the date of this Quarterly Report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to
revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, to reflect events
or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The forward-looking statements and projections contained
in this Quarterly Report on Form 10-Q are intended to be within the meaning of “forward-looking statements” in Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).
ii
**PART
I — FINANCIAL INFORMATION**
## Item 6. Exhibits
**EXHIBIT
INDEX**
| Exhibit / Number | Description of Exhibit |
| --- | --- |
| 3.1 | Amended and Restated Bylaws, dated December 26, 2025 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 29, 2025). |
| 10.6 | Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed December 12, 2025). |
| 10.7* | Transition Agreement, dated March 16, 2026, by and between CEA Industries Inc., Abound LLC, and David Namdar |
| 31.1* | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 * | Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1** | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2** | Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Schema |
| 101.CAL* | Inline XBRL Taxonomy Calculation Linkbase |
| 101.DEF* | Inline XBRL Taxonomy Definition Linkbase |
| 101.LAB* | Inline XBRL Taxonomy Label Linkbase |
| 101.PRE* | Inline XBRL Taxonomy Presentation Linkbase |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
\* Filed herewith.
\*\* Furnished herewith.
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**SIGNATURES**
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CEA INDUSTRIES INC.
(the “Registrant”)
Dated: March 16, 2026 By: */s/ David Namdar*
David Namdar
Chief Executive Officer
(Principal Executive Officer)
42