Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Dollar amounts in this discussion are expressed in whole-dollars, except as otherwise noted. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Quarterly Report on Form 10-Q, particularly in Part I, Item 1A, Risk Factors. We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law.

Executive Overview

ConnectM (the "Company") is a Delaware corporation headquartered in Marlborough, Massachusetts. On July 12, 2024 (the "Closing Date"), Monterey Capital Acquisition Corporation ("MCAC") entered into an Agreement and Plan of Merger (the "Merger Agreement") with ConnectM Technology Solutions, Inc. ("Legacy ConnectM") in which MCAC acquired all of the issued and outstanding shares of common stock from Legacy ConnectM shareholders (the "Business Combination") in exchange for 14,500,000 shares of MCAC's common stock. On the Closing Date, MCAC changed its name to ConnectM Technology Solutions, Inc ("ConnectM") and we became a publicly listed company.

ConnectM is a constellation of companies connecting and powering next generation equipment, mobility and distributed energy-thus enabling a faster, smarter transition to a modern energy economy. We deliver an advanced, proprietary Energy Intelligence Network (EIN) platform designed to empower residential and commercial service providers and original equipment manufacturers, to optimize energy efficiency, enhance operational performance, and support sustainable innovation. Leveraging technology, data, artificial intelligence, and behavioral economics, the Company aims to lower energy costs and reduce carbon emissions globally. Our Service Provider-facing technology platform encompasses marketing to life cycle management, customer care to claims processing, finance to rebates/incentives. Our architecture combines artificial intelligence with human expertise, continuously learning from the data it generates. This enables us to refine and improve our technology solutions for B2B customers while maximizing customer lifetime value. In addition to digitizing electrification end-to-end, we also transform the underlying business model to minimize customer churn while maximizing trust and improving environmental impact.

Our OEM-facing technology platform provides essential hardware and software services for EV fleet management and battery diagnostics-helping to capture data, synthesize that data, and in turn monetizing that data on behalf of our enterprise customers. By empowering OEMs and mobility companies with connected operations, our portfolio companies directly contribute to their continued explosive growth.

We believe that our cocktail of enhanced user experience, aligned values, and competitive cost enjoys broad appeal. End user electrification consumption has grown over time to encompass higher value products such as heat pumps, highly efficient air conditioners, solar roof, battery storage, electric vehicles and weatherization. These progressions can generate increases in customer lifetime value. We anticipate sustained growth through predictable, recurring revenue streams and automation that reduces costs while meeting our B2B customer needs. Our data-driven architecture further enhances precision in pricing and implementing electrification solutions, creating additional value for our customers.

We derive revenue through the sale of hardware, software, and services across four different business segments: our Owned Service Network, Managed Solutions, Transportation, and Logistics. The key elements of our products and services are discussed in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2024, under the section titled "Business - Our Products and Services." Our expenses consist primarily of payroll and benefit costs, facility costs, leasehold improvement amortization, utility costs, repair and maintenance, advertising, insurance, equipment depreciation, and professional fees.

Recent Developments

On January 28, 2025, the Company entered into a settlement and stipulation agreement (the "Settlement Agreement") with Last Horizon, LLC ("Last Horizon"), pursuant to which the Company agreed to issue shares of the Company's common stock to Last Horizon in exchange for the settlement of an aggregate $8,908,000 (the "Claim") to resolve outstanding overdue liabilities with one of our lenders and certain of our vendors. The Company has issued 13,744,131 shares of the Company's common stock to Last Horizon as Settlement Shares between January 28, 2025 and the date this Form 10-Q was issued. The issuance of common stock to Last Horizon pursuant to the terms of the Settlement Agreement is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims.

On March 26, 2025, the Company was awarded its first Home and Building Electrification (HBE) project in India through a strategic partnership with Zenith Energy Services Pvt. Ltd.

During the six months ended June 30, 2025, 2,737,168 shares of our common stock were issued in connection with the share reset derivative liabilities.

During the three months ended March 31, 2025, the Company entered into twelve convertible note agreements in exchange for aggregate gross proceeds of $2,530,000 to eleven lenders (the "Q1 2025 Convertible Notes"). The Q1 2025 Convertible Notes bear interest at a rate of 20.0% per annum. The Q1 2025 Convertible Notes have maturity dates that range from 40-days to one year from the convertible note issuance date, optional conversion period that ranges from thirty to ninety days, and a conversion price that ranges from $1.00 to $1.15. The Company entered into convertible note agreements with two related-party investors holding beneficial ownership interests exceeding 5.0% of the Company's common stock. The aggregate principal amount of these convertible notes was $500,000.

On April 2, 2025, the forward purchase agreement with Meteora was terminated. There were 1,618,948 shares of our common stock held by Meteora which were deemed free and clear of obligations and $500,000 termination payment owed to us from Meteora.

On April 11, 2025, the Company held a special meeting of shareholders. The shareholders voted to approve a reverse stock split and issuance of up to 25,000,000 shares via a standby equity purchase agreement. The terms of the reverse stock split are not yet finalized as of the date of this filing.

On April 25, 2025, the Company completed its acquisition of Cambridge Energy Resources Pvt. Ltd. ("CER"), a privately held India- based Energy-Management-as-a-Service provider, following receipt of all necessary regulatory approvals. Under the terms of the transaction, the purchase price was approximately $1,135,000 out of which, the Company has paid approximately $381,000 (as discussed in Note 4). CER brings an established operating presence in India's rooftop solar and telecommunication energy - management sectors, complementing the Company's Owned Service Network segment and Energy Intelligence Network. Management expects the integration of CER to accelerate strategic growth across distributed energy and telecom infrastructure markets in India. With the acquisition, the Company projects India - based operations to expand from approximately 5% to 15% of global revenue (approximately $10,000,000 annualized) over the next twelve months.

On April 28, 2025, the Company entered into a stock purchase agreement with W4 Partners LLC (the "Seller"), for the purposes of acquiring from the Seller all of the issued and outstanding equity securities of Air Temp Service Co, Inc. ("ATS") and Solar Energy Systems of Brevard, Inc ("SESB") in exchange for the issuance of 2,200,000 shares of the Company's common stock. Per the terms of the stock purchase agreement, if the Company was delisted from the NASDAQ exchange within 90 days of closing, the Company was required to issue an additional 2,700,000 shares of the Company's common stock. The total fair value of the 4,900,000 shares of the Company's common stock issued as consideration to the Seller was approximately $3,141,000, as determined using the closing share price on the date of agreement on April 28, 2025.

On May 5, 2025, the Company's board of directors designated 100,000 shares of preferred stock as Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Stock") and 100,000 shares of preferred stock as Series B Convertible Preferred Stock, par value $0.0001 per share (the "Series B Stock"). The Series A Stock and the Series B Stock have an initial stated value of $100.00 per share, subject to adjustment in the event of a stock split, combination or other similar recapitalization. Further terms are detailed in the Subsequent Events section.

On May 6, 2025, the Company received a determination letter (the "Delisting Notification") from the Nasdaq Hearings Advisor stating that the Panel has determined to delist the Company's common stock, par value $0.0001 per share from the Nasdaq Capital Market, and Nasdaq suspended the trading of the Company's Common Stock on May 7, 2025 because the Company has not demonstrated compliance with the MVLS Rule, nor does it meet any of the alternative requirements under Nasdaq Listing Rule 5550 (b) and has failed to demonstrate that additional time to regain compliance is appropriate.

During April 2025 and May 2025, the Company entered into twenty five note exchange agreements with twelve of its lenders under which sixteen secured promissory notes totaling $4,435,000, nine convertible notes totaling $1,840,000, and accrued interest and fees totaling $1,189,939 were exchanged for 15,290,930 shares of the Company's common stock with a fair value of $8,224,386, as determined on the issuance date using the reported closing share price. Certain of these note exchanges involved related parties, including Arumilli LLC, SriSid LLC, Win - Light Global Co. Ltd., and W4 Partners LLC.

The Company entered into six promissory note agreements in exchange for aggregate gross proceeds of $735,000 during April 2025 and May 2025. Each of the notes bears interest at a rate of 20.0% per annum and matures 180 days from its respective issuance date. Five of the promissory notes were held by W4 Partners LLC, a related party due to its equity ownership in the Company.

During May 2025, we amended three of our business loan and security agreements, extending the maturity dates through November 2026 and December 2026 and reducing monthly payments from approximately $23,000 to $8,000.

During May 2025 and June 2025, we issued 585,000 shares of our common stock to certain advisers with a fair value of approximately $133,000, as determined on the issuance date using the reported closing share price.

During May 2025 and June 2025, we issued 1,622,222 shares of our common stock to its directors and employees as consideration for past services performed with a fair value of approximately $372,000, as determined on the issuance date using the reported closing share price.

During May 2025 and June 2025, we sold 3,658,333 shares of our common stock for gross proceeds of approximately $805,000 with a fair value of approximately $948,000, as determined on the issuance date using the reported closing share price.

The Company entered into six convertible note agreements in exchange for aggregate gross proceeds of $1,026,000 to six lenders during April 2025, May 2025, and June 2025 (the "Q2 2025 Convertible Notes"). The Q2 2025 Convertible Notes bear interest at a rate of 20.0% per annum. Five of the Q2 2025 Convertible Notes have maturity dates that range from 40 - days to one year, optional conversion periods that range from thirty to 180 days, and conversion prices that either range from $0.60 to $1.15 or is convertible at a conversion price equal to the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date. One of the Q2 Convertible Notes bears interest at a rate of 20.0% per annum, matures 210 days from the agreement date, and is convertible any time before the maturity date at the option of the holder into shares of the Company's common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date.

On July 10, 2025, the Company entered into the first amendment to the January 2025 Note (the "Amended January 2025 Note"), under which the Company is required to pay the lender approximately $26,000 towards the principal, approximately $14,000 of accrued interest, and the lender's legal fees of approximately $3,000. The Amended January 2025 Note extended the maturity date from June 30, 2025 to August 8, 2025 and increased the interest rate to 18.0% effective July 1, 2025.

On August 14 2025, the Company entered into a Second Amendment to the January 2025 Note (the "Second Amended January 2025 Note"), which extended the maturity date from August 8, 2025 to September 30, 2025 and required payment of an approximately $10,000 forbearance fee to the lender.

From July 1, 2025 to date of filing, the Company entered into five convertible note agreements in exchange for aggregate gross proceeds of $1,900,000 with four lenders (the "Q3 2025 Convertible Note"). The Q3 2025 Convertible Note bears interest at a rate of 20.0% per annum and matures 210 days from the agreement date. The Q3 2025 Convertible Note is convertible any time before the maturity date at the option of the holder into shares of the Company's common stock at a conversion price equal to the lower of (i) $0.25 or (ii) the quotient obtained by dividing (x) the sum of the principal and accrued by unpaid interest by (y) 90.0% of the VWAP on the primary trading market of the Company's common stock the three trading day period immediately preceding the measurement date. The number of shares issuable upon conversion is determined by dividing the sum of the outstanding principal and accrued interest by the conversion price.

As of the date of this filing, the Company has not made certain scheduled payments under the SEPA Convertible Note or made timely SEC filings and is therefore in default under the agreement. However, Yorkville has not issued a formal notice of default, and the Company remains in ongoing discussions with Yorkville regarding a potential resolution and restructuring of the outstanding obligations. The Company is required to maintain a minimum cash balance equal to the lesser of (a) $2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due. As of June 30, 2025, the minimum cash balance required was approximately $833,000.

Comparability of Financial Information

Our historical results operations and consolidated statements of assets and liabilities may not be comparable to our current results operations and statements of assets and liabilities as a result of the Business Combination and becoming a public company on July 12, 2024, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance and legal fees.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed in Item 1A "Risk Factors".

We expect to derive future revenue from (i) our existing high margin recurring revenue products, (ii) our expanded service offerings leveraging our existing customer and developer networks, (iii) expanding our existing software and AI capabilities through development of additional software tools aimed at solving pain points and increasing profitability for service providers, OEMs and other enterprise customers, (iv) an expanded customer base through client referrals and our customized, relationship-focused sales process, and (v) a continued focus on internation expansion for sales and distribution of our products and services.

Reportable Segments

Our reportable operating segments include:

Key Components of Our Results of Operations

Revenue

Our revenue is derived from customer contracts and consists of equipment and product sales, installation of equipment, service agreements associated with equipment sold to customers, service agreement associated with technology development for customers, provision of managed services, and delivery services. We fulfill obligations and recognize revenue under a contract with a customer by transferring products and services in exchange for consideration from the customer. Payments received or consideration billed in advance are recorded as deferred revenue. For projects expected to be completed within one-year, we have elected to recognize revenue in the amount billable to the end-consumer.

Under our contracts in the managed solutions segment, working capital adjustments may be processed quarterly, if year-to-date costs incurred by the customer exceed the percentage of the customer's revenue and are recorded as a reduction of selling, general and administrative expenses as it represents the customer's reimbursement of costs incurred by us.

We exclude from revenue the taxes collected from customers and remitted to government authorities related to sales of our inventory. Shipping and handling costs that are billed to customers are included in net sales.

Cost of Revenue

Cost of Revenue consists of personnel-related expenses, including salaries, benefits and stock-based compensation, and facility costs for our operations and manufacturing teams. Cost of Revenue also includes expenses for costs of equipment and professional services related to the maintenance or installation of equipment. The Company expects its operations costs to increase in the foreseeable future as it continues to invest in the expansion of its operations.

Selling, General and Administrative

Selling, general and administrative expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, depreciation and amortization, and allocated facility costs for our business development, marketing, corporate, executive, finance, legal, human resources, IT, and other administrative functions. General and administrative expenses also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, travel expenses and certain non-income taxes, insurance, and other administrative expenses.

We expect our selling, general and administrative expenses to increase for the foreseeable future as it scales headcount with the growth of its business, and because of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, increased insurance expenses, investor relations activities, and other administrative and professional services.

Other income (expense), net

Other income (expense), net consists primarily of interest expense incurred on our debt obligations, remeasurement gains or losses associated with the change in the fair value on our convertible notes payable and forward purchase agreement derivative liabilities, gains and losses on the extinguishment of liabilities, a gain on the modification of our forward purchase agreement, the bargain purchase gain from our CER acquisition, and other miscellaneous income or expenses incurred throughout the period.

Results of Operations

The following table summarizes our financial results for the period indicated:

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Revenues

Revenue increased $3,502,367, or 69.9%, to $8,551,491 for the three months ended June 30, 2025 from $5,009,124 for the three months ended June 30, 2024. This increase was primarily driven by the Company's new Logistics segment, established in connection with the Delivery Circle acquisition completed in July 2024, and expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion, which yielded an increase in revenues of approximately $2,875,000 for the three months ended June 30, 2025.

Revenue increased $7,116,803, or 68.5%, to $17,499,834 for the six months ended June 30, 2025 from $10,383,031 for the six months ended June 30, 2024. This increase was primarily driven by the Company's new Logistics segment established in connection with the Delivery Circle acquisition completed in July 2024, and expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion, which yielded an increase in revenues of approximately $5,412,000 and approximately $1,908,000 for the six months ended June 30, 2025 and 2024 respectively.

Expenses

Cost of Revenues increased approximately $2,499,000, or 82.2%, to approximately $5,538,000 for the three months ended June 30, 2025 from approximately $3,039,000 for the three months ended June 30, 2024. This increase was primarily driven by the introduction of our new Logistics segment established in connection with the Delivery Circle acquisition completed in July 2024, which added approximately $2,162,000 in cost of revenue, which was driven by the increase in revenues for this segment, as described above, for the three months ended June 30, 2025.

Cost of Revenues increased approximately $4,703,000, or 69.1%, to approximately $11,513,000 for the six months ended June 30, 2025 from approximately $6,810,000 for the six months ended June 30, 2024. This increase was primarily driven by the introduction of

our new Logistics segment established in connection with the Delivery Circle acquisition completed in July 2024, which added approximately $4,172,000 in cost of revenue, which was driven by the increase in revenues for this segment, as described above, for the six months ended June 30, 2025.

Selling, general and administrative expenses increased approximately $3,279,000 or 109% to approximately $6,292,000 for the three months ended June 30, 2025 from approximately $3,014,000 for the three months ended June 30, 2024. The increase was primarily driven by approximately $1,737,000 of increased operating costs associated with becoming a public company in July 2024 and our expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion. Approximately $589,000 of selling, general and administrative expenses from our new Logistics segment, and increased marketing costs in our Owned Service Network segment of approximately $400,000 for the three months ended June 30, 2025.

Selling, general and administrative expenses increased approximately $6,548,000 or 109% to approximately $12,579,000 for the six months ended June 30, 2025 from approximately $6,031,000 for the six months ended June 30, 2024. The increase was primarily driven by approximately $3,020,000 of increased operating costs associated with becoming a public company in July 2024 and our expanding Owned Service Network through the acquisitions of additional service providers and geographic market expansion. Approximately $942,000 of selling, general and administrative expenses from our new Logistics segment, and increased marketing costs in our Owned Service Network segment of approximately $1,746,000 for the six months ended June 30, 2025.

Other Income (Expense)

During the three and six months ended June 30, 2025, we extinguished certain liabilities with certain of our creditors. We accounted for these extinguishments of the outstanding obligations and recognized a loss of extinguishment of approximately $1,599,000 and $4,106,000 respectively, an increase of approximately $1,599,000 and $3,514,000 respectively from the loss on extinguishment that we recognized during the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2025, we also recognized expenses attributable to changes in fair value of our forward purchase agreement of nil and approximately $971,000 respectively, and changes in the fair value of convertible debt of approximately $511,000 and approximately 830,000 respectively, offset by the bargain purchase gain of approximately $2,487,000 (see Note 4) during the three and six months ended June 30, 2025 that did not occur during the three and six months ended June 30, 2024.

Interest expense decreased approximately by $539,000 and $557,000 to approximately $102,000 and $596,000 for the three and six months respectively ended June 30, 2025 from approximately $641,000 and $1,153,000 respectively for the three and six months ended June 30, 2024. This decrease was primarily driven by decrease in debt of approximately $3,149,000 from June 30, 2024 to June 30, 2025 as a result of the conversion of certain secured promissory notes and during the second half of 2024 outstanding that were outstanding as of June 30, 2024.

Employee Retention Tax Credit: In March 2025, the Company received approval from the Internal Revenue Service for ERC claims totaling $279,524. The Company recognized $0 and $279,524, net of service fees, within Other income (expense), net for the three and six months ended June 30, 2025, respectively. No ERC credits were received or recognized in the comparable three- and six-month periods ended June 30, 2024.

Liquidity and Capital Resources

Our consolidated financial statements for the six months ended June 30, 2025 and for the year ended December 31, 2024 identifies the existence of certain conditions that raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance of this report. Refer to Footnote 3 of the accompanying financial statements for more information.

We are required to maintain a minimum cash balance equal to the lesser of (a) $2,000,000 and (b) the sum of the next three Installment Payments, as defined in the promissory note, coming due by our standby equity purchase agreement. As of June 30, 2025, our minimum cash balance requirement was approximately $1,666,000.

Cash Flows

The following table summarizes the Company's cash flows for the period indicated:

Net cash used in operating activities

Net cash used in operating activities for the six months ended June 30, 2025 was approximately $4,204,000. Net cash used in operating activities consisted primarily of net loss of approximately $10,383,000 which stem from the increased operating expenses such as heightened legal and administrative costs due to ongoing debt restructuring efforts, alongside inflationary pressures on overhead, which have notably impacted our cash flow despite efforts to streamline operations. This was offset by approximately $4,350,000 of noncash items, primarily related to the loss on extinguishment of debt of approximately $4,106,000, change in fair value measurement of convertible debt of approximately $830,000, change in fair value of forward purchase agreement resulting in a loss of approximately $971,000, depreciation and amortization of long-lived assets and intangible assets of approximately $289,000, and amortization of the Company's debt discount recorded on its different debt facilities of approximately $105,000 offset by a bargain purchase gain of $2,487,000 and a change in fair value of our 3(a)(10) Settlement Agreement of approximately 618,000. In addition, for the six months ended June 30, 2025, net changes in operating assets and liabilities resulted in cash provided by operating activities of approximately $1,829,000.

Net cash used in operating activities for the six months ended June 30, 2024 was approximately $2,424,000. Net cash used in operating activities consisted primarily of net loss of approximately $4,821,000, offset by approximately $1,760,000 of noncash items, primarily related to the loss on extinguishment of debt of approximately $592,000, loss on impairment of intangible assets of approximately $406,000, unrealized loss on the fair value remeasurement of debt of approximately $249,000 the depreciation and amortization of long-lived assets and intangible assets of approximately $333,000, and amortization of the Company's debt discount recorded on its different debt facilities of approximately $19,000. In addition, for the six months ended June 30, 2024, net changes in operating assets and liabilities resulted in cash provided by operating activities of $636,000.

Net cash used in investing activities

Net cash received from investing activities for the six months ended June 30, 2025 was approximately $286,000. Investing activities primarily included the purchase of capitalized software development costs of approximately $292,000 and purchases of property and equipment of approximately $24,000, offset by cash receipt of non-controlling interest of $560,000.

Net cash used in investing activities for the six months ended June 30, 2024 was approximately $146,000. Investing activities primarily relating to the purchase of property and equipment and purchase of capitalized software development costs of approximately $10,000 and $76,000, respectively. Which also included the payment of non-controlling interest of $60,000.

Net cash provided by financing activities

Net cash provided by financing activities for the six months ended June 30, 2025 was approximately $4,205,000. Financing activities consisted primarily of proceeds from the issuance of convertible debt of approximately $3,556,000, issuance of debt of approximately $735,000 and proceeds from stocks subscription agreement of $805,000 offset by repayment of debt of approximately $1,267,000 and payments on convertible note and finance leases of approximately $124,000.

Net cash provided by financing activities for the six months ended June 30, 2024 was approximately $2,219,000. Financing activities consisted primarily of the proceeds from the issuance of debt facilities of $5,372,000, offset by the payment of extension fees into MCAC's trust account of approximately $1,933,000, payments on the Company's debt facilities of $1,322,000, payments of deferred offering costs of $213,000, payments of debt financing fees of approximately $690,000 and payments on finance leases of $50,000.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the SEC rules and regulations.

Commitments and Contractual Obligations

Refer to Note 5, Note 6, Note 7, and Note 8 in the accompanying notes to the financial statements for future contractual obligations and commitments. Future contractual obligations and commitments are based on the terms of the relevant agreements and appropriate classification of items under U.S. GAAP as currently in effect. Future events could cause actual payments to differ from these amounts.

We incur contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contracts, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related operating activities.

Critical Accounting Policies and Significant Management Estimates

In the notes to our consolidated financial statements and in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2024 Annual Report on Form 10-K, we have disclosed those accounting policies that we consider to be most significant in determining our results of operations and financial condition and involve a higher degree of judgment and complexity. There have been no changes to those policies that we consider to be material since the filing of our 2024 Annual Report on Form 10-K, except as disclosed below. The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects to U.S. GAAP.

3(a)(10) Settlement Agreement

Our 3(a)(10) Settlement Agreement is variable share settled obligations evaluated under ASC 480, "Distinguishing Liabilities from Equity" ("ASC 480"). Each period, the fair value of the 3(a)(10) Settlement Agreement is calculated and the resulting gains and losses from the change in fair value is recognized in income.

The fair value of the other payable was determined using a Monte Carlo simulation model which incorporates subjective assumptions based on the terms of the agreement and represents our best estimate at the valuation date. The 3(a)(10) Settlement Agreement is re-measured to fair value each reporting period with the most significant unobservable input used in the calculation the expected average volume weighted average price for a share of our common stock for the five-business day period preceding each settlement date for a tranche of the settlement shares. Any change in one of the significant assumptions detailed above would likely have an impact on the concluded fair value of the other payable. See Note 6 - Other Payable and Note 10 - Fair Value Measurements to our unaudited condensed consolidated financial statements for additional detail.