Meridian Holdings Inc./NV (MRDN) FY 2025 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this Report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information on the forward-looking statements included below.

Summary of Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying audited financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

Results of Operations

Twelve months ended December 31, 2025, compared to the twelve months ended December 31, 2024.

The following table summarizes the consolidated results of operations for the changes between the periods. Effective on April 1, 2024, the Golden Matrix acquired 100% of the MeridianBet Group, which was accounted for as a reverse merger. As a result, the historical financial information below represents the accounts of MeridianBet Group. Golden Matrix’s operations before the MeridianBet Acquisition were excluded prior to April 1, 2024, the effective closing date of the MeridianBet Acquisition.

Revenue. Revenue increased by $31,747,841, or 21%, to $182,863,373 for the twelve months ended December 31, 2025, from $151,115,532 for the twelve months ended December 31, 2024.

Revenues from MeridianBet Group increased by $18,330,167, or 17%, to $124,560,589, for the twelve months ended December 31, 2025, from $106,230,422 for the twelve months ended December 31, 2024.

Revenues from online casinos increased by $11,318,728, or 27%, to $53,848,192, for the twelve months ended December 31, 2025, from $42,529,464 for the twelve months ended December 31, 2024, mainly due to the increase in the offer of online casino games from different providers to 2,500+, the integration of 10+ new providers (some of which are AIR Dice, Push Gaming, and EGT Digital), launching of the new game "Gates of Olympia" from the Company’s studio Expanse, which became a top 3 most popular game in the fourth quarter of 2025; revenues from online sports betting which increased by $4,619,540, or 12%, to $42,224,494, for the twelve months ended December 31, 2025, from $37,604,954 for the twelve months ended December 31, 2024, mainly due to the launch of our fifth-generation sports betting and online casino platform – ATLAS – in 2024, which includes three key new features, such as: Bet Boost – enhanced odds on selected bets, Auto Cashout – automatic cashout based on predefined conditions, and Early Payout – settlement of bets before the final result, as well as a complete redesign of the entire sports webpage, improvements to the live betting offered through the Watch & Bet feature, and an increase in live streams, especially for tennis.

Revenues from retail sports betting and retail casino increased by $1,885,894, or 8%, to $25,068,948 for the twelve months ended December 31, 2025, compared to $23,183,054 for the twelve months ended December 31, 2024. The increase was primarily driven by the deployment of an additional 100 new, latest-generation IMPERA slot machines, as well as the impact of betting shop promotions such as “happy hour” and slot promotions, the renovation of 50 premises, and the opening of 10 new locations.

Revenues from the GMAG segment, RKings and Classics For a Cause increased by $13,417,674, or 30%, to $58,302,784, for the twelve months ended December 31, 2025, from $44,885,110 for the twelve months ended December 31, 2024. The increase was primarily due to the acquisition of Golden Matrix becoming effective on April 1, 2024, and because, as a result, revenues generated by these segments for the period from January to March 2024 were not included in the prior-year comparative figures. In addition, the Classics Holdings acquisition became effective on August 1, 2024, and accordingly revenues generated by Classics For a Cause from January 1, 2024 through July 31, 2024 were not included in the prior-year comparative period.

COGS. Costs of goods sold increased by $16,863,246, or 27%, to $79,406,653 for the twelve months ended December 31, 2025, from $62,543,407 for the twelve months ended December 31, 2024. COGS from online casino, online sports betting, retail casino and retail sports betting increased by $7,828,887 in total, or 27%, to $36,970,553 for the twelve months ended December 31, 2025, from $29,141,666 for the twelve months ended December 31, 2024, mainly due to the increase in the variable amounts of gaming tax and software fee costs in line with the increase in income from online casinos, online sports betting, retail casinos and retail sports betting. COGS from the GMAG segment, RKings, and Classics For a Cause increased by $9,034,359, or 27%, compared to the same period in the prior year, primarily due to the acquisition of Golden Matrix becoming effective on April 1, 2024, and as a result, COGS generated by these segments for the period from January to March 2024, were not included in the prior-year comparative figures. In addition, the Classics Holdings acquisition became effective on August 1, 2024, and accordingly revenues generated by Classics For a Cause from January 1, 2024 through July 31, 2024 were not included in the prior-year comparative period.

Gross profit. Gross profit increased by $14,884,595, or 17%, to $103,456,720 for the twelve months ended December 31, 2025, from $88,572,125 for the twelve months ended December 31, 2024. Gross profit from online casino increased by $37,865,629 or 23%; gross profit from online sports betting increased by $29,691,935, or 9%; gross profit from retail sports betting and retail casino increased by $17,628,289 or 5%; gross profit from bars increased by $1,520,876 or 3%, and gross profit from franchise fee increased by $883,307 or 38%, for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024. Gross profit from the GMAG segment, RKings, and Classics For a Cause increased by $4,383,315, or 38%, compared to the same period in the prior year, primarily due to the acquisition of Golden Matrix becoming effective on April 1, 2024, and as a result, gross profits generated by these segments for the period from January to March 2024 were not included in the prior-year comparative figures.

General and administrative expenses (G&A). General and administrative expenses increased by $113,797,307, or 133%, to $199,625,728 for the twelve months ended December 31, 2025, from $85,828,421 for the twelve months ended December 31, 2024. General and administrative expenses consisted primarily of stock-based compensation, depreciation expenses, amortization expenses, salary and wages, professional fees, marketing expenses, bad debt expense, impairment losses, rents and utilities. The reasons for the increase in the G&A are discussed in greater detail below:

Stock-based compensation (within G&A) for the twelve months ended December 31, 2025, was $4,002,846, compared to $4,627,557, for the twelve months ended December 31, 2024, a $624,711, or 13% decrease from the prior period, which was due mainly to the reduced number of restricted stock units (RSUs) granted during the period.

Amortization expenses for the twelve months ended December 31, 2025, were $9,165,798, compared to $6,373,696, for the twelve months ended December 31, 2024, an increase of $2,792,102, or 44%. The amortization expenses from MeridianBet Group increased by $1,218,088, or 52%, which was primarily due to certain previously capitalized intangible assets being completed and placed into service and therefore beginning amortization during the period. The amortization expenses from Golden Matrix increased by $1,574,014, or 39%, which was primarily due to the amortization of newly recognized intangible assets resulting from the acquisitions of Golden Matrix and Classics Holdings.

Salaries and wages for the twelve months ended December 31, 2025, were $27,715,365, compared to $21,230,038, for the twelve months ended December 31, 2024, a $6,485,327, or 31% increase from the prior period. Salaries paid to employees of MeridianBet Group increased by $3,478,266, or 19%, which was due mainly to increased headcount to both support increased operations and to enable the entry into new markets. Salaries paid to employees of Golden Matrix increased by $3,007,061, or 120%, which was due to the acquisition of Golden Matrix becoming effective on April 1, 2024, and because as a result, salaries for the period from January to March 2024 were not included in the prior-year comparative figures. The increase was further driven by severance payments to Anthony Brian Goodman, the former Chief Executive Officer, in the amount of $848,542, as well as $423,750 of accrued cash bonuses to executives and directors.

Professional fees for the twelve months ended December 31, 2025, were $4,225,324, compared to $3,992,383, for the twelve months ended December 31, 2024, a $232,941, or 6% increase from the prior period. The increase was primarily due to the fact that professional fees incurred from January to March 2024 of Golden Matrix were not included in the prior-year comparative period, as the acquisition of Golden Matrix became effective on April 1, 2024.

Marketing expenses for the twelve months ended December 31, 2025, were $26,556,615, compared to $18,925,124, for the twelve months ended December 31, 2024, a $7,631,491, or 40% increase from the prior period, Marketing expenses from MeridianBet Group increased by  $5,088,707, or 34%, which was mainly due to increased advertising budgets across all Ads channels (including Google and Meta), as well as new sponsorship agreements with: FNC – Fight Nation Championship, BLS – the Basketball League of Serbia, the football club AEL from Cyprus, the women’s basketball club Red Star, the basketball club Vršac, the Basketball League of Serbia (KLS), the Sports Association of Serbia (implementation of handball courts), the Meridian Missions TV commercial, as well as TV commercials for EuroBasket on national television, accompanied by intensified PR activities during EuroBasket, new collaborations with influencers (TikTok creators), and the deployment of promotional teams across the countries. Marketing expenses at Golden Matrix increased by $2,542,784, or 62%. Of this increase, approximately $1.6 million related to higher marketing expenses at RKings, primarily due to increased advertising spend across Meta and Google, as well as sponsorships of sports events and teams. In addition, approximately $1.0 million of marketing expenses incurred by Classics For a Cause from January through July 2024 were not included in the prior-year comparative period, as the acquisition of the business became effective on August 1, 2024.

Rents and utilities for the twelve months ended December 31, 2025, were $7,978,790, compared to $6,845,588, for the twelve months ended December 31, 2024, a $1,133,202, or 17% increase from the prior period, which was mainly due to the opening of new betting shops, which contributed to the growth of rent and utility costs, as well as the general increase in heating, electricity, telephone and internet costs, due to inflationary trends.

Bad debt expense for the twelve months ended December 31, 2025 were $725,061, compared to $1,358,147 for the twelve months ended December 31, 2024, a $633,086, or 47% decrease from the prior period. The decrease was primarily attributable to reduced bad debt associated with the Company’s resale of gaming content business.

Impairment losses for the twelve months ended December 31, 2025 were $91,819,422, compared to $0 for the twelve months ended December 31, 2024. The significant increase in impairment losses during 2025 was primarily attributable to goodwill impairment charges associated with the acquisition of Classics Holdings and the accounting for the acquisition of MeridianBet Group, totaling $63,443,350. Management identified triggering events during the year, including a sustained decline in the Company’s share price and market capitalization and lower-than-expected operating performance. Based on a quantitative impairment assessment performed in accordance with ASC 350, the carrying value of the reporting units exceeded their estimated fair value, resulting in the recognition of goodwill impairment charges. The Company also performed a recoverability test in accordance with ASC 360 by comparing the total undiscounted future cash flows of the asset group to its carrying amount. As the undiscounted future cash flows were less than the carrying amount, the Company concluded that the asset group was not recoverable. The Company then measured the impairment loss as the excess of the carrying amount over the fair value of the asset group. Fair value was mainly determined using an income approach based on a discounted cash flow model, which incorporates significant unobservable inputs, including projected revenues, operating margins, and a discount rate. As a result, the Company recorded an impairment charge of $24,026,355. The impairment primarily related to intangible assets recognized in connection with the reverse acquisition of Golden Matrix, the Classics Holding acquisition, and certain intangible assets associated with Mexplay.

The remaining impairment losses in the amount of $4,349,717 primarily related to the full write-down of capitalized costs related to the Unity module, the key component of the Oracle Customer Experience (“Oracle CX”) platform, a cloud-based solution intended to support customer data management, marketing automation and analytics. A key component of this implementation was the Oracle Unity module, a Customer Data Platform (CDP) designed to integrate and unify customer data from multiple sources (e.g., transactional systems, data lake and marketing platforms) into a single customer view. As the Unity module was not successfully implemented and did not reach a functional state, management determined that the related intangible asset under development was not recoverable and was fully impaired as of December 31, 2025.

Interest expense. Interest expense increased by $1,057,556, or 30%, to $4,578,844 for the twelve months ended December 31, 2025, from $3,521,288 for the twelve months ended December 31, 2024. The increase was primarily attributable to $664,020 of non-cash amortization of previously accrued fees payable to Citigroup Global Markets Limited that are no longer expected to be utilized, as well as higher accrued interest on borrowings from commercial banks.

Interest earned. The interest earned increased by $22,578, or 10%, to $240,723 for the twelve months ended December 31, 2025, from $218,145 for the twelve months ended December 31, 2024. The increase was due to higher amounts of funds placed in term deposits with commercial banks.

Foreign exchange gain (loss). Foreign exchange results improved by $1,255,045, resulting in a gain of $760,220 for the twelve months ended December 31, 2025, compared to a loss of $494,825 for the same period in 2024. The improvement was primarily attributable to favorable movements in the EUR/RSD/USD/GBP exchange rates, which positively affected the revaluation of the Company’s monetary assets and liabilities denominated in EUR, GBP, and RSD.

Other income. Other income is related to income from marketing services for third-party advertising in Meridian betting shops, sale of fixed assets, value-added-tax (VAT) refunds, income from compensation for damages, and other income that is not directly related to the Company’s core activity.  For the twelve months ended December 31, 2025, and 2024, other income amounted to $2,558,579 and $2,262,782, respectively.  The increase of $295,797 for the twelve months ended December 31, 2025, versus the twelve months ended December 31, 2024, was primarily attributable to a higher operating income from franchise partners, including marketing services, customer support services, and staff training services.

Provision for income taxes. Our effective tax rate for the year ended December 31, 2025 was 5.4% ($5,206,194). The most significant impact on the difference between statutory U.S. federal income tax rate of 21% and our effective tax rate of 5.4% was attributable to the 16% ($15,508,622) decrease resulting from the impairment of goodwill in Australia, United Kingdom, United States, and other jurisdictions.

On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was enacted in the U.S. permanently extending many of the expiring provisions of the Tax Cuts and Jobs Act of 2017. Namely the OBBBA also restores Section 168 bonus depreciation, which is intended to encourage equipment purchases by allowing 100 percent of the cost of the equipment to be treated as an income tax deduction in the year of purchase rather than being amortized over its useful life. This new legislation has multiple effective dates, with certain provisions becoming effective in 2025 and others implemented through 2027. The enactment of the OBBBA did not have a significant impact on the Company's effective income tax rate in fiscal 2025.

As of December 31, 2025, no deferred tax liabilities were recorded for taxes that would be payable on the undistributed earnings of the Company's subsidiaries. It is the Company's intention to indefinitely reinvest the undistributed earnings of its foreign subsidiaries except in certain limited cases, which are not expected to have a material tax effect on the consolidated financial statements. The cash that is permanently reinvested is typically uses to expand operations.

Net income (loss) attributable to noncontrolling interest. Net income (loss) attributable to noncontrolling interest in the acquired entity is measured at their proportionate share of the acquired entity’s and for (a) Meridian Gaming Brazil SPE Ltda in the percentage of 30%; (b) Fair Champions Meridian Ltd. Cyprus in the percentage of 49%; and (c) Classics Holding Pty Ltd Australia in the percentage of 20%. For the twelve months ended December 31, 2025, and 2024, net income (loss) attributable to noncontrolling interest amounted to $(2,084,286) and $70,400, respectively. The increase in net loss was primarily driven by goodwill and intangible asset impairment charges associated with the acquisition of Classics Holdings, as well as higher general and administrative expenses related to the commencement of operations in Brazil.

Net loss attributable to MRDN. Net loss attributable to MRDN increased by $88,417,601, or 5,973%, to a net loss of $89,897,850 for the twelve months ended December 31, 2025, from net loss of $1,480,249 for the twelve months ended December 31, 2024. The increase was mainly due to an increase in the impairment loss as discussed above.

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable development stage companies.

Cash Requirements, Liquidity and Capital Resources

We had $18,078,300 cash on hand and a working capital deficit of $24,128,745 as of December 31, 2025. We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months. We will continue to evaluate our long-term operating performance and cash needs and we believe we are well positioned to continue to fund the long-term operations of our business. We may raise additional equity and debt funding in the future, including up to $16.9 million that is available to be sold under our November 22, 2024, Equity Distribution Agreement in at-the-market offerings, subject to potential limitations on such sales pursuant to the “baby shelf” Form S-3 rules, which prevent us from selling more than 1/3rd of our float every 12 months.

Our material cash requirements include the following contractual obligations:

Debt:

The Company currently has the following outstanding debts:

1. Unicredit Bank Facility;

2. Hipotekarna Bank Facility; and

3. Igor Salindrija Facility.

The outstanding balances of these debt facilities as of December 31, 2025 and December 31, 2024 are presented below:

See “Note 15 – Long-Term Liabilities” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, for more details on these debts.

Consideration payable to the former owners of MeridianBet Group:

As discussed in greater detail in “Note 22 – MeridianBet Group Purchase Agreement”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, the Company incurred the following payment obligations in connection with the MeridianBet Acquisition:

The Company has received confirmation from the former owners of MeridianBet Group that they will not demand repayment or conversion of the consideration until such time as the Company has the ability to repay.

Contingent obligation:

The Company is in a dispute with Mr. Paul Hardman, one of the sellers of the 80% interest in RKings, regarding a holdback amount of GBP 500,000 (approximately $672,550) that Mr. Hardman has alleged remains payable. The Company’s position is that Mr. Hardman breached certain terms of the RKings Purchase Agreement, which gave rise to the dispute. As of the date hereof, no formal legal proceedings have been initiated by either party. Based on a settlement proposal received from legal counsel, the Company expects to resolve the dispute for at most GBP 170,000 (approximately $230,000 as of December 31, 2025) and accordingly recorded a reduction to our contingent liability of GBP 330,000 (approximately $440,000 as of December 31, 2025).

Liquidity and capital resources

The Company had $18,078,300 cash on hand at December 31, 2025 and total assets of $118,078,800 ($35,438,153 of which were current assets) and a working capital deficit of $24,128,745 as of December 31, 2025. The working capital deficit was mainly due to $10,581,035 of current portion of long-term loans included in current liabilities, as well as $16,199,672 of current consideration payable to the Meridian Sellers. Included in total assets at December 31, 2025 was $8,450,955 of goodwill and $26,463,965 in net intangible assets, as discussed in greater detail above under “Note 8 – Intangible Assets – Software, Licenses, Trademarks, Developed Technology, Customer Relationships, and Non-Compete Agreements”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”.

The Company had $30,125,944 of cash on hand at December 31, 2024 and total assets of $213,717,593 ($45,066,481 of which were current assets) and a working capital deficit of $18,484,062 as of December 31, 2024. The working capital deficit was mainly due to $17,291,241 of current portion of long-term loans included in current liabilities as well as $19,870,460 current consideration payable to the Meridian Sellers. Included in total assets at December 31, 2024 was $71,249,119 of goodwill and $56,393,457 in net intangible assets, as discussed in greater detail under “Note 8 – Intangible Assets – Software, Licenses, Trademarks, Developed Technology, Customer Relationships, and Non-Compete Agreements”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”.

The decrease in cash of $12,047,644 between December 31, 2025, and December 31, 2024, was mainly due to the repayment of debt, cash used in investing activities, offset by cash provided by operating activities.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. We believe that the Company’s operations are highly scalable, and we plan to continuously add new products to our offerings with the anticipation that they will provide successful revenue growth.

In the future, we may be required to seek additional capital, including to pay amounts due pursuant to the terms of the MeridianBet Group Purchase Agreement, and to repay outstanding debt as discussed above, by selling additional debt or equity securities, which may include up to $16.9 million that is available to be sold under our November 22, 2024, Equity Distribution Agreement in at-the-market offerings, or may otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. Financing may not be available in amounts or on terms acceptable to us, or at all. In the event we are unable to raise additional funding and/or obtain revenues sufficient to support our expenses, we may be forced to scale down our operations, which could cause our securities to decline in value.

See “Note 15 – Long-Term Liabilities” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, for more details on the Company’s debts and lending facilities.

Cash flows

Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities. Non-cash expenses for the twelve months ended December 31, 2025, mainly include stock-based compensation, amortization expenses on intangible assets, depreciation on property plant and equipment, impairment losses on Goodwill and other intangible assets, and bad debt expense.

The Company generated cash from operating activities of $25,358,108 during the twelve months ended December 31, 2025, due primarily to $91,819,422 of impairment losses, a $7,690,470 increase in accounts payable and accrued liabilities, $4,091,449 of stock-based compensation, $2,765,453 of non-cash interest expense related to debt discount amortization, $9,165,798 of amortization expenses relating to intangible assets, and $5,984,384 of depreciation expenses, which was mainly offset by an $91,982,136 net loss, a $2,606,175 increase in accounts receivable, a $4,039,351 decrease in other liabilities mainly related to deferred tax liabilities, and a $1,278,092 increase in inventory.

The Company generated cash from operating activities of $23,916,426 during the twelve months ended December 31, 2024, due primarily to a $4,337,364 increase in accounts payable and accrued liabilities, a $5,618,901 increase in right of use liabilities, $4,707,313 of stock-based compensation, $2,157,607 of non-cash interest expense related to debt discount amortization, $6,373,696 of amortization expenses relating to intangible assets, and $4,416,495 of depreciation expenses, which was mainly offset by a $1,409,849 net loss, and a $958,112 increase in inventory.

During the twelve months ended December 31, 2025, cash used in investing activities was $22,003,252, which was primarily due to $1,824,971 of consideration paid to the former owners of MeridianBet Group in connection with the MeridianBet Acquisition, $7,464,849 spent on intangible assets, $6,184,530 spent on property, plant and equipment, and $5,431,507 spent on investment.

During the twelve months ended December 31, 2024, cash used in investing activities was $37,434,035, which was primarily due to $23,852,949 of consideration paid to the former owners of MeridianBet Group in connection with the MeridianBet Acquisition, $4,126,172 of consideration paid to acquire Classics Holdings, $14,827,206 spent on intangible assets, and the $7,164,733 spent on property, plant and equipment, which was partially offset by $17,355,360 in cash assumed from investment in Golden Matrix.

During the twelve months ended December 31, 2025, cash used in financing activities totaled $19,404,503. This was primarily driven by debt repayments of $21,502,312 and lease repayments of $2,750,092, partially offset by $2,154,564 in loan proceeds from borrowing, attributable to short-term credit line agreement in the amount of EUR 1,000,000 (approximately $1,155,000) from UniCredit Bank and long-term loan in amount of BRL 5,500,000 (approximately $999,564 as of December 31, 2025) from Makerplay Entretenimento&Marketing Limitada, and $2,960,897 in net proceeds after commissions, from the sale of common stock under the Distribution Agreement as part of at-the-market sales.

During the twelve months ended December 31, 2024, cash provided by financing activities was $27,712,266, which was primarily due to proceeds from loans of $25,972,500, attributable to the Unicredit Bank facility, Hipotekarna Bank facility and the Igor Salindrija borrowing, and proceeds from convertible note and warrant of $8,747,556, relating to the Secured Convertible Note and Lind Warrants sold to the Investor in July 2024, which was offset by repayment of lease of $2,474,864 and repayment of debt of $3,675,091.

The Company experienced a net decrease in cash of $12,047,644 for the twelve months ended December 31, 2025, primarily due to repayment of debt and cash used in investing activities as noted above. This was partially offset by cash provided by operating activities and a $4,002,003 increase in cash resulting from exchange rate fluctuations, driven by the depreciation of the U.S. Dollar against other currencies, including the Euro, Serbian Dinar, Peruvian Sol, Tanzanian Shilling, and Brazilian Real.

Distribution Agreement

On November 22, 2024, we entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC. Pursuant to the Distribution Agreement, the Company may sell, at its option, up to an aggregate of $20 million in shares of its common stock through Craig-Hallum, as sales agent. Sales of the common stock made pursuant to the Distribution Agreement, if any, will be made under a Registration Statement on Form S-3. Subject to the terms and conditions of the Distribution Agreement, Craig-Hallum may sell the shares, if any, only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act, including without limitation sales made directly through The Nasdaq Capital Market, by means of ordinary brokers’ transactions, in negotiated transactions, to or through a market maker other than on an exchange or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices and/or any other method permitted by law. The Company is not obligated to sell, and Craig-Hallum is not obligated to buy or sell, any shares of common stock under the Distribution Agreement.

The Company will pay Craig-Hallum a commission equal to 3.00% of any gross proceeds from the sale of shares of the Company’s common stock under the Distribution Agreement. Pursuant to the terms of the Distribution Agreement, the Company also provided Craig-Hallum with customary indemnification rights and has agreed to reimburse Craig-Hallum for certain specified expenses up to $50,000, plus up to $5,000 for each future quarterly period that the Distribution Agreement remains in place. The offering of common stock pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all of the common stock subject to the Distribution Agreement and (ii) the termination of the Distribution Agreement by the Company or Craig-Hallum. Either party may terminate the agreement in its sole discretion at any time upon written notice to the other party.

During the twelve months ended December 31, 2025, we sold an aggregate of 204,285 shares of our common stock under the ATM Program for net proceeds of approximately $2,960,897, after deducting commissions.

As of the date of this Report, we are eligible to sell up to an additional $16.9 million under the Distribution Agreement, subject to the terms thereof and subject to the limitations of Form S-3, which prohibit us, for so long as our non-affiliate market capitalization remains below $75 million, from selling securities valued at more than one-third of our non-affiliate float every 12 months.

Adjusted EBITDA – Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization

In addition to our results calculated under generally accepted accounting principles in the United States (“GAAP”), we also present EBITDA and Adjusted EBITDA below. EBITDA and Adjusted EBITDA are “non-GAAP financial measures” presented as a supplemental measure of the Company’s performance. They are not presented in accordance with GAAP. The Company uses EBITDA and Adjusted EBITDA as a metric of profits and successful operations management. In particular, we use Adjusted EBITDA as a milestone for the purposes of certain incentive compensation programs applicable to some of our officers and directors, in order to evaluate our company’s performance and determine whether certain restricted stock units and cash bonus will vest as of the end of December 31, 2025. EBITDA means net loss before interest, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA before stock-based compensation, severance costs related to the termination of executive officers and directors, impairment losses related to goodwill and other intangible assets, and restructuring costs which include charges or expenses attributable to acquisition related costs. EBITDA and Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for net income or loss calculated in accordance with GAAP.

EBITDA and Adjusted EBITDA are presented because management believes they provide useful supplemental information to investors regarding the Company’s operating performance by excluding certain non-cash items and non-recurring or one-time items, thereby facilitating period-to-period comparisons. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. EBITDA and Adjusted EBITDA are unaudited, and have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: EBITDA and Adjusted EBITDA do not reflect cash expenditures, or future or contractual commitments; EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, capital expenditures or working capital needs; EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments; although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. In addition, other companies in this industry may calculate EBITDA and Adjusted EBITDA differently than the Company does, limiting its usefulness as a comparative measure. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We compensate for these limitations by providing a reconciliation of such non-GAAP measures to the most comparable GAAP measure, below. We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view non-GAAP measures in conjunction with the most directly comparable GAAP financial measure.

Reconciliation of EBITDA and Adjusted EBITDA to Net loss:

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these audited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, goodwill and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. “Note 1 – Basis of Presentation and Accounting Policies” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

Recently adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this new guidance for the year ended December 31, 2025 on a prospective basis and it did not have a material effect on the Company's Consolidated Financial Statements.