[Executive Summary & Highlights](index=1&type=section&id=1.%20Executive%20Summary%20%26%20Highlights) Vail Resorts reported increased fiscal 2025 net income and EBITDA despite lower skier visits, driven by pass revenue and efficiency, and outlined fiscal 2026 outlook [Fiscal 2025 Performance Highlights](index=1&type=section&id=1.1%20Fiscal%202025%20Performance%20Highlights) Vail Resorts reported increased net income and Resort Reported EBITDA for fiscal 2025, despite a decline in total skier visits. The company achieved growth through increased season pass revenue and ancillary spend, supported by cost discipline and the resource efficiency transformation plan | Metric | Fiscal 2025 | Fiscal 2024 | | :-------------------------------- | :---------- | :---------- | | Net income attributable to Vail Resorts, Inc. | $280.0 million | $231.1 million | | Resort Reported EBITDA | $844.1 million | $825.1 million | - Resort Reported EBITDA grew **2%** for fiscal 2025, despite a **3% decline** in total skier visits across North American destination mountain resorts and regional ski areas[4](index=4&type=chunk) - Resort net revenue increased **3%**, driven by a **4% increase** in season pass revenue and increased ancillary spend per guest[4](index=4&type=chunk) - The company achieved **$37 million** in savings from the resource efficiency transformation plan before one-time costs[4](index=4&type=chunk) - Pass product sales through September 19, 2025, for the upcoming 2025/2026 North American ski season decreased approximately **3% in units** and increased approximately **1% in sales dollars** compared to the prior year period[3](index=3&type=chunk) [Fiscal 2026 Outlook & Strategic Initiatives](index=2&type=section&id=1.2%20Fiscal%202026%20Outlook%20%26%20Strategic%20Initiatives) The company provided its fiscal 2026 outlook, expecting net income between $201 million and $276 million and Resort Reported EBITDA between $842 million and $898 million. Strategic initiatives include a quarterly cash dividend of $2.22 per share and share repurchases totaling $270 million for FY25. The company also completed a $500 million senior notes offering | Metric | Fiscal 2026 Outlook (Range) | | :-------------------------------- | :-------------------------- | | Net income attributable to Vail Resorts, Inc. | $201 million - $276 million | | Resort Reported EBITDA | $842 million - $898 million | - The Board of Directors declared a quarterly cash dividend of **$2.22 per share**, payable on October 27, 2025[5](index=5&type=chunk) - The company repurchased approximately **1.69 million shares** for a total of **$270 million** during fiscal year 2025, representing **4.5% of shares outstanding**[5](index=5&type=chunk) - Completed an offering of **$500 million** aggregate principal amount of **5.625% Senior Notes due 2030**, with proceeds used for revolving credit facility repayment, share repurchases, and future repayment of Convertible Senior Notes due 2026[5](index=5&type=chunk) [Operating Results Overview](index=3&type=section&id=2.%20Operating%20Results%20Overview) The Mountain segment saw revenue and EBITDA growth, while Lodging revenue remained flat with a slight EBITDA decrease. Real Estate EBITDA significantly increased due to property sales, contributing to overall resort revenue and EBITDA growth [Mountain Segment Performance](index=3&type=section&id=2.1%20Mountain%20Segment%20Performance) The Mountain segment saw a 3.4% increase in total net revenue for fiscal 2025, primarily driven by a 4.2% increase in lift revenue due to higher pass pricing and incremental revenue from Crans-Montana. Dining and other revenues also increased, while retail/rental revenue decreased. Mountain Reported EBITDA increased 2.4% | Metric | Fiscal 2025 | Fiscal 2024 | YoY Change | | :-------------------- | :---------- | :---------- | :--------- | | Total Mountain net revenue | $2,629.873 million | $2,544.370 million | +3.4% | | Lift revenue | $1,503.187 million | $1,442.784 million | +4.2% | | Ski school revenue | $309.863 million | $304.548 million | +1.7% | | Dining revenue | $240.900 million | $227.572 million | +5.9% | | Retail/rental revenue | $302.450 million | $317.196 million | -4.6% | | Mountain Reported EBITDA | $821.341 million | $802.072 million | +2.4% | | Total skier visits | 17,665 thousand | 17,564 thousand | +0.6% | - The increase in lift revenue was primarily due to an increase in pass product revenue of **4.2%**, driven by an increase in pass pricing for the 2024/2025 North American ski season[8](index=8&type=chunk) - Mountain segment results include one-time expenses of **$14.9 million** for resource efficiency transformation and **$6.8 million** for CEO transition in fiscal 2025[11](index=11&type=chunk) [Lodging Segment Performance](index=4&type=section&id=2.2%20Lodging%20Segment%20Performance) The Lodging segment's net revenue was approximately flat for fiscal 2025, with increased summer visitation and demand for summer lodging at North American resort properties offset by lower winter revenue from managed condominium rooms. Lodging Reported EBITDA decreased slightly by 1.0% | Metric | Fiscal 2025 | Fiscal 2024 | YoY Change | | :-------------------------- | :---------- | :---------- | :--------- | | Lodging net revenue (excluding payroll cost reimbursements) | $319.7 million | $319.830 million | ~0% | | Lodging Reported EBITDA | $22.795 million | $23.018 million | -1.0% | | Owned hotel RevPAR | $170.70 | $161.82 | +5.5% | | Managed condominium RevPAR | $116.70 | $118.91 | -1.9% | - The flat revenue was primarily due to increased summer visitation and demand, offset by lower revenue during winter at managed condominium rooms due to lower ADR during peak holiday periods and a net reduction in inventory[11](index=11&type=chunk) [Real Estate Segment Performance](index=5&type=section&id=2.3%20Real%20Estate%20Segment%20Performance) The Real Estate segment experienced a significant increase in Reported EBITDA for fiscal 2025, primarily due to gains on the sale of real properties in East Vail and Breckenridge | Metric | Fiscal 2025 | Fiscal 2024 | | :----------------------- | :---------- | :---------- | | Real Estate Reported EBITDA | $18.626 million | $1.475 million | - The increase in Real Estate Reported EBITDA includes a gain on sale of real property for **$16.5 million** related to the East Vail property and **$8.5 million** related to the sale of three real estate parcels in Breckenridge, Colorado[13](index=13&type=chunk) [Total Resort Performance](index=4&type=section&id=2.4%20Total%20Resort%20Performance) Total Resort net revenue increased by 2.9% to $2,964.3 million for fiscal 2025. Resort Reported EBITDA increased by 2.3% to $844.1 million, despite one-time costs related to the resource efficiency transformation plan, CEO transition, and acquisition expenses | Metric | Fiscal 2025 | Fiscal 2024 | YoY Change | | :-------------------- | :---------- | :---------- | :--------- | | Total net revenue | $2,964.3 million | $2,885.191 million | +2.7% | | Resort net revenue | $2,963.9 million | $2,880.5 million | +2.9% | | Resort Reported EBITDA | $844.1 million | $825.090 million | +2.3% | - Resort Reported EBITDA for fiscal 2025 included **$15.2 million** of one-time costs for the resource efficiency transformation plan, **$8.1 million** for the CEO transition, and **$1.2 million** for acquisition and integration related expenses[11](index=11&type=chunk)[12](index=12&type=chunk) [Strategic Initiatives & Future Outlook](index=5&type=section&id=3.%20Strategic%20Initiatives%20%26%20Future%20Outlook) The company is implementing a multi-year strategy to enhance guest engagement and pass programs, addressing below-expectation performance and limited pass sales growth, while also progressing on its resource efficiency plan and providing fiscal 2026 guidance [Overall Business Performance & Strategy](index=5&type=section&id=3.1%20Overall%20Business%20Performance%20%26%20Strategy) The CEO acknowledged that fiscal 2025 results were below expectations and pass sales growth was limited, attributing this to outdated guest engagement strategies and insufficient focus on lift ticket marketing. The company is committed to a multi-year strategy to leverage its competitive advantages, including enhancing lift ticket offerings, modernizing guest engagement through digital platforms, and optimizing the pass program for long-term loyalty and conversion - Performance for the past season was **below expectations**, and season-to-date pass sales growth has been limited, with projected guidance for fiscal year 2026 also reflecting this[14](index=14&type=chunk) - The company's guest engagement approach has not kept pace with shifting consumer behaviors, leading to a decline in email impact and a slow shift to new marketing channels[15](index=15&type=chunk) - New strategic priorities include rebuilding lift ticket visitation, evolving guest engagement to better reach and convert guests, and reaccelerating growth of the pass program[19](index=19&type=chunk) - Introduced **Epic Friend Tickets** for 2025/2026 Epic Pass holders to drive lift ticket sales for new guests and serve as a tool for future pass conversion[20](index=20&type=chunk)[24](index=24&type=chunk)

[Part I — Financial Information](index=2&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section presents MillerKnoll's unaudited condensed consolidated financial statements and detailed notes for Q1 FY26 and Q1 FY25 [Item 1 Financial Statements (Unaudited)](index=2&type=section&id=Item%201%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements, offering a snapshot of interim financial performance and position [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29%20%E2%80%94%20Three%20Months%20ended%20August%2030%2C%202025%2C%20and%20August%2031%2C%202024) This statement details MillerKnoll's revenues, expenses, and net earnings (loss) for the three months ended August 30, 2025, and August 31, 2024 Financial Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | YoY Change | | :------------------------------------------ | :-------------- | :-------------- | :--------- | | Net sales | $955.7M | $861.5M | +10.9% | | Gross margin | $368.1M | $336.3M | +9.5% | | Operating earnings | $53.5M | $15.2M | +252.0% | | Net earnings (loss) attributable to MillerKnoll, Inc. | $20.2M | $(1.2)M | N/A | | Earnings (loss) per share - diluted | $0.29 | $(0.02) | N/A | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%94%20August%2030%2C%202025%2C%20and%20May%2031%2C%202025) This statement presents MillerKnoll's assets, liabilities, and equity as of August 30, 2025, and May 31, 2025 Financial Position (As of) | Metric | August 30, 2025 | May 31, 2025 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Cash and cash equivalents | $167.2M | $193.7M | -13.7% | | Total current assets | $1,089.8M | $1,108.7M | -1.7% | | Total Assets | $3,941.0M | $3,950.2M | -0.2% | | Total current liabilities | $652.0M | $703.8M | -7.4% | | Long-term debt | $1,327.5M | $1,310.6M | +1.3% | | Total Liabilities | $2,578.6M | $2,615.1M | -1.4% | | Total Stockholders' Equity | $1,299.5M | $1,275.8M | +1.9% | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%94%20Three%20Months%20Ended%20August%2030%2C%202025%2C%20and%20August%2031%2C%202024) This statement summarizes MillerKnoll's cash inflows and outflows from operating, investing, and financing activities for Q1 FY26 and Q1 FY25 Cash Flow Summary (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Net Cash Provided by Operating Activities | $9.4M | $21.1M | -55.5% | | Net Cash Used in Investing Activities | $(30.5)M | $(22.3)M | +36.8% | | Net Cash Used in Financing Activities | $(9.2)M | $(20.3)M | -54.7% | | Net Decrease in Cash and Cash Equivalents | $(26.5)M | $(20.7)M | +28.0% | | Cash and Cash Equivalents, End of Period | $167.2M | $209.7M | -20.3% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%E2%80%94%20Three%20Months%20Ended%20August%2030%2C%202025%2C%20and%20August%2031%2C%202024) This statement details changes in MillerKnoll's stockholders' equity, including net earnings, other comprehensive income, and dividends, for Q1 FY26 and Q1 FY25 Stockholders' Equity Changes (Three Months Ended August 30, 2025) | Metric | May 31, 2025 Balance | Net Earnings | Other Comprehensive Loss | Stock-Based Comp. | Repurchase/Withholding | Dividends Declared | August 30, 2025 Balance | | :-------------------------------- | :------------------ | :----------- | :----------------------- | :------------------ | :---------------------- | :----------------- | :---------------------- | | Total Stockholders' Equity | $1,275.8M | $20.2M | $12.7M | $9.3M | $(7.2)M | $(13.1)M | $1,299.5M | Stockholders' Equity Changes (Three Months Ended August 31, 2024) | Metric | June 1, 2024 Balance | Net (Loss) | Other Comprehensive Income | Stock-Based Comp. | Repurchase/Withholding | Dividends Declared | August 31, 2024 Balance | | :-------------------------------- | :----------------- | :--------- | :----------------------- | :------------------ | :---------------------- | :----------------- | :---------------------- | | Total Stockholders' Equity | $1,385.1M | $(1.2)M | $(5.8)M | $9.1M | $(44.0)M | $(13.2)M | $1,332.5M | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering key accounting policies and financial line items [Note 1 - Description of Business and Basis of Presentation](index=7&type=section&id=Note%201%20-%20Description%20of%20Business%20and%20Basis%20of%20Presentation) MillerKnoll designs and distributes interior furnishings globally through diverse channels, with financial statements prepared under U.S. GAAP - MillerKnoll researches, designs, manufactures, and distributes interior furnishings for residential, office, healthcare, and educational settings globally[12](index=12&type=chunk) - The company operates a collective of globally recognized design brands including Herman Miller®, Knoll®, Design Within Reach®, HAY®, and Muuto®[13](index=13&type=chunk) - Products are sold through independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and eCommerce platforms[12](index=12&type=chunk) [Note 2 - Recently Issued Accounting Standards](index=9&type=section&id=Note%202%20-%20Recently%20Issued%20Accounting%20Standards) The company adopted ASU 2023-07, modifying disclosures without material financial impact, and anticipates similar effects from future ASU adoptions - ASU 2023-07 (Segment Reporting) was adopted for fiscal year ended May 31, 2025, retrospectively, modifying disclosures but not materially affecting financial position, results, or cash flows[20](index=20&type=chunk) - ASU 2023-09 (Income Taxes) will be effective for annual periods beginning after December 15, 2024, and is expected to modify disclosures without material financial impact[21](index=21&type=chunk) - ASU 2024-03 (Expense Disaggregation) will be effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with no expected material financial impact[22](index=22&type=chunk) [Note 3 - Revenue from Contracts with Customers](index=9&type=section&id=Note%203%20-%20Revenue%20from%20Contracts%20with%20Customers) Revenue is disaggregated by product type and segment, with **total net sales increasing to $955.7 million** in Q1 FY26 Revenue by Product Type and Segment (Three Months Ended August 30, 2025 vs August 31, 2024) | Category | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------------- | :---------------------- | :---------------------- | :--------- | | **North America Contract:** | | | | | Workplace | $327.1M | $279.0M | +17.2% | | Performance Seating | $103.4M | $94.0M | +10.0% | | Lifestyle | $56.1M | $55.6M | +0.9% | | Other | $47.3M | $47.6M | -0.6% | | *Total North America Contract* | *$533.9M* | *$476.2M* | *+12.1%* | | **International Contract:** | | | | | Workplace | $44.5M | $35.0M | +27.1% | | Performance Seating | $73.1M | $67.4M | +8.5% | | Lifestyle | $41.9M | $38.9M | +7.7% | | Other | $8.0M | $5.1M | +56.9% | | *Total International Contract* | *$167.5M* | *$146.4M* | *+14.4%* | | **Global Retail:** | | | | | Workplace | $2.0M | $2.6M | -23.1% | | Performance Seating | $45.6M | $43.8M | +4.1% | | Lifestyle | $206.1M | $192.2M | +7.2% | | Other | $0.6M | $0.3M | +100.0% | | *Total Global Retail* | *$254.3M* | *$238.9M* | *+6.4%* | | **Total MillerKnoll, Inc.** | *$955.7M* | *$861.5M* | *+10.9%* | Net Sales by Geographic Area (Three Months Ended August 30, 2025 vs August 31, 2024) | Geographic Area | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------- | :---------------------- | :---------------------- | :--------- | | United States | $694.4M | $618.2M | +12.3% | | International | $261.3M | $243.3M | +7.4% | | **Total** | **$955.7M** | **$861.5M** | **+10.9%** | - The company recognized net sales of **$64.6 million** (FY26 Q1) and **$72.8 million** (FY25 Q1) related to customer deposits from prior periods[31](index=31&type=chunk) [Note 4 - Inventories](index=11&type=section&id=Note%204%20-%20Inventories) Inventories, primarily valued by FIFO, **increased to $465.8 million** as of August 30, 2025, driven by finished goods and WIP Inventory Composition (In millions) | Category | August 30, 2025 | May 31, 2025 | Change | | :-------------------------- | :-------------- | :-------------- | :----- | | Finished goods and work in process | $346.7M | $329.5M | +5.2% | | Raw materials | $119.1M | $118.0M | +0.9% | | **Total** | **$465.8M** | **$447.5M** | **+4.1%** | [Note 5 - Goodwill and Indefinite-Lived Intangibles](index=11&type=section&id=Note%205%20-%20Goodwill%20and%20Indefinite-Lived%20Intangibles) Goodwill **increased to $1,161.9 million** due to currency adjustments, with Q3 FY25 impairment charges for goodwill and intangibles Goodwill Carrying Amount by Segment (In millions) | Segment | May 31, 2025 | Foreign Currency Translation Adjustments | August 30, 2025 | | :-------------------- | :------------- | :------------------------------------- | :-------------- | | North America Contract | $590.8M | $3.2M | $594.0M | | International Contract | $159.1M | $2.0M | $161.1M | | Global Retail | $402.5M | $4.3M | $406.8M | | **Total** | **$1,152.4M** | **$9.5M** | **$1,161.9M** | - Goodwill impairment charges of **$30.1 million** (Global Retail) and **$62.2 million** (Holly Hunt) were recognized in Q3 FY25 due to reduced sales/profitability projections and increased discount rates[38](index=38&type=chunk) - Indefinite-lived intangible assets **increased to $435.7 million** as of August 30, 2025, with **$37.7 million** in non-cash impairment charges related to Knoll and Muuto trade names recognized in Q3 FY25[34](index=34&type=chunk)[45](index=45&type=chunk) [Note 6 - Earnings Per Share](index=13&type=section&id=Note%206%20-%20Earnings%20Per%20Share) Diluted EPS for Q1 FY26 was **$0.29**, a significant improvement from a **$0.02 loss per share** in the prior year EPS Calculation (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :---------------------------------------------------------------- | :-------------- | :-------------- | | Numerator for basic and diluted EPS, Net earnings (loss) attributable to MillerKnoll, Inc. (in millions) | $20.2M | $(1.2)M | | Weighted-average common shares outstanding - basic | 68,519,141 | 70,206,373 | | Potentially dilutive shares resulting from stock plans | 675,365 | — | | Weighted-average common shares outstanding - diluted | 69,194,506 | 70,206,373 | | Earnings (loss) per share attributable to MillerKnoll, Inc. - diluted | $0.29 | $(0.02) | [Note 7 - Stock-Based Compensation](index=14&type=section&id=Note%207%20-%20Stock-Based%20Compensation) Stock-based compensation expense was **$9.3 million** in Q1 FY26, slightly up from **$9.1 million** in the prior year Stock-Based Compensation Expense (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :-------------------------- | :-------------- | :-------------- | | Stock-based compensation expense | $9.3M | $9.1M | | Related income tax effect | $2.3M | $2.2M | [Note 8 - Income Taxes](index=14&type=section&id=Note%208%20-%20Income%20Taxes) The effective tax rate was **26.5%** in Q1 FY26, a significant decrease from **66.2%** in the prior year, driven by pre-tax income Effective Tax Rates (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------ | :-------------- | :-------------- | | Effective tax rate | 26.5% | 66.2% | - The year-over-year change in the effective tax rate resulted from the current quarter reflecting pre-tax income along with unfavorable discrete impacts from stock compensation vesting, compared to the prior year's pre-tax loss with favorable discrete impacts[51](index=51&type=chunk)[52](index=52&type=chunk) [Note 9 - Fair Value Measurements](index=14&type=section&id=Note%209%20-%20Fair%20Value%20Measurements) Financial instruments are recorded at fair value, with **long-term debt at $1,340.9 million**; foreign currency and interest rate risks are hedged Long-Term Debt Fair Value (In millions) | Metric | August 30, 2025 | May 31, 2025 | | :------------- | :-------------- | :-------------- | | Carrying value | $1,352.7M | $1,337.0M | | Fair value | $1,340.9M | $1,330.7M | Financial Assets and Liabilities Measured at Fair Value (August 30, 2025, In millions) | Category | NAV | Level 1 | Level 2 | | :-------------------------------- | :---- | :------ | :------ | | Money market funds | $2.2M | — | — | | Foreign currency forward contracts (assets) | — | — | $1.0M | | Deferred compensation plan | — | $24.5M | — | | Foreign currency forward contracts (liabilities) | — | — | $0.4M | - The company uses interest rate swap agreements with a total notional amount of **$950.0 million** to convert variable interest rates to fixed rates, designated as cash flow hedges[65](index=65&type=chunk)[71](index=71&type=chunk) [Note 10 - Commitments and Contingencies](index=18&type=section&id=Note%2010%20-%20Commitments%20and%20Contingencies) The company maintains a **$69.8 million warranty reserve** and has performance bonds and letters of credit with no material expected impact Warranty Reserve (In millions) | Metric | August 30, 2025 | August 31, 2024 | | :-------------------------- | :-------------- | :-------------- | | Accrual Balance — beginning | $69.7M | $70.4M | | Accrual for warranty matters | $7.2M | $4.8M | | Settlements and adjustments | $(7.1)M | $(5.5)M | | Accrual Balance — ending | $69.8M | $69.7M | - Maximum financial exposure related to performance bonds was approximately **$11.7 million** as of August 30, 2025, with no history of claims[76](index=76&type=chunk) - Maximum financial exposure from standby letters of credit was approximately **$12.0 million** as of August 30, 2025, with no history of claims[77](index=77&type=chunk) [Note 11 - Short-Term Borrowings and Long-Term Debt](index=19&type=section&id=Note%2011%20-%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Total debt **increased to $1,352.7 million**; credit agreements were amended, extending maturities and resulting in a **$7.8 million debt extinguishment loss** Debt Composition (In millions) | Debt Type | August 30, 2025 | May 31, 2025 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Syndicated revolving line of credit | $399.7M | $330.8M | +20.8% | | Term Loan A, 6.0660%, due April 2030 | $400.0M | $400.0M | 0.0% | | Term Loan B, 6.5660%, due August 2032 | $550.0M | $603.1M | -8.7% | | **Total debt** | **$1,352.7M** | **$1,337.0M** | **+1.2%** | - In April 2025, the company amended its credit agreement, extending the Revolver and Term Loan A maturity to April 2030 and increasing Term Loan A to **$400.0 million**[81](index=81&type=chunk) - In August 2025, Term Loan B maturity was extended to August 2032, and the amount borrowed was reduced to **$550.0 million**, resulting in a **$7.8 million debt extinguishment loss**[82](index=82&type=chunk) [Note 12 - Accumulated Other Comprehensive Loss](index=20&type=section&id=Note%2012%20-%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss **improved to $(69.3) million**, driven by positive foreign currency translation and interest rate swap reclassifications Changes in Accumulated Other Comprehensive Loss (In millions) | Component | May 31, 2025 Balance | Net Current Period OCI (Loss) | August 30, 2025 Balance | | :-------------------------------- | :------------------- | :-------------------------- | :-------------------- | | Cumulative Translation Adjustments | $(70.6)M | $18.4M | $(52.2)M | | Pension and Other Post Retirement Benefit Plans | $(30.9)M | $0.1M | $(30.8)M | | Interest Rate Swap Agreement | $19.5M | $(5.8)M | $13.7M | | **Total Accumulated Other Comprehensive Loss** | **$(82.0)M** | **$12.7M** | **$(69.3)M** | [Note 13 - Operating Segments](index=21&type=section&id=Note%2013%20-%20Operating%20Segments) MillerKnoll reorganized into three segments; North America Contract, International Contract, and Global Retail, with performance assessed by Adjusted Operating Earnings - Effective March 1, 2025, the company reorganized into three reportable segments: North America Contract, International Contract, and Global Retail[87](index=87&type=chunk) - The Chief Executive Officer (CODM) uses Adjusted Operating Earnings (Loss) as the key metric to measure segment profit or loss and evaluate performance[93](index=93&type=chunk) Net Sales by Segment (Three Months Ended August 30, 2025 vs August 31, 2024) | Segment | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------------- | :---------------------- | :---------------------- | :--------- | | North America Contract | $533.9M | $476.2M | +12.1% | | International Contract | $167.5M | $146.4M | +14.4% | | Global Retail | $254.3M | $238.9M | +6.4% | | **Total** | **$955.7M** | **$861.5M** | **+10.9%** | [Note 14 - Restructuring and Integration Expense](index=24&type=section&id=Note%2014%20-%20Restructuring%20and%20Integration%20Expense) The company incurred **$0.5 million in Q1 FY26 restructuring charges**; Knoll Integration is complete, with prior year charges of **$28.3 million** - No costs were incurred for the Knoll Integration in Q1 FY26; **$28.3 million** was incurred in Q1 FY25, primarily for asset impairment and facility consolidation. The integration plan is complete[103](index=103&type=chunk)[104](index=104&type=chunk) - The company incurred **$0.5 million** in restructuring charges for the 2026 restructuring plan in Q1 FY26, related to facilities consolidation and accelerated depreciation[106](index=106&type=chunk) Restructuring Cost Reserve (2025 Plan, In millions) | Metric | May 31, 2025 | Amounts Paid | August 30, 2025 | | :-------------------------- | :----------- | :----------- | :-------------- | | Severance and Employee Related | $7.0M | $(4.9)M | $2.1M | [Note 15 - Variable Interest Entities](index=26&type=section&id=Note%2015%20-%20Variable%20Interest%20Entities) The company holds **$12.9 million in notes receivable** from variable interest entities, with no primary beneficiary status due to dealer control - The carrying value of notes receivable with independently owned dealers (variable interest entities) was **$12.9 million** as of August 30, 2025, representing the company's maximum exposure to loss[113](index=113&type=chunk) - The company is not deemed the primary beneficiary for these variable interest entities, as the independent dealers control the activities that most significantly impact their economic performance[113](index=113&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses MillerKnoll's financial performance, condition, and cash flows for Q1 FY26, including non-GAAP reconciliations and segment analysis [Business Overview](index=27&type=section&id=Business%20Overview) MillerKnoll designs and distributes furnishings globally; Q1 FY26 saw **10.9% net sales growth** but a **5.4% decrease in orders** - The company researches, designs, manufactures, sells, and distributes interior furnishings for residential, office, healthcare, and educational settings globally[115](index=115&type=chunk) - Products are sold through independent contract office furniture dealers, direct customer sales, owned and independent retailers, and eCommerce platforms[115](index=115&type=chunk) Q1 FY26 Performance Summary (Three Months Ended August 30, 2025) | Metric | Value (Millions) | YoY Change | Organic YoY Change | | :---------------- | :--------------- | :--------- | :----------------- | | Net sales | $955.7M | +10.9% | +10.0% | | Orders | $885.4M | -5.4% | -6.2% | [Reconciliation of Non-GAAP Financial Measures](index=28&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP measures like Adjusted EPS and Organic Growth to GAAP, excluding specific items for comparative performance - Non-GAAP measures include Adjusted Earnings per Share and Organic Growth (Decline), which are used to provide financial information on a more comparative basis[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - Adjusted EPS excludes amortization of Knoll purchased intangibles, integration charges, restructuring expenses, Knoll pension plan termination charges, debt extinguishment charges, and related tax effects[120](index=120&type=chunk)[123](index=123&type=chunk) Adjusted Diluted EPS (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Earnings (loss) per share - diluted | $0.29 | $(0.02) | | Add: Amortization of Knoll purchased intangibles | $0.09 | $0.08 | | Add: Integration charges | — | $0.40 | | Add: Restructuring charges | $0.01 | — | | Add: Debt extinguishment charges | $0.11 | — | | Add: Knoll pension plan termination charges | — | $0.01 | | Tax impact on adjustments | $(0.05) | $(0.11) | | **Adjusted earnings per share - diluted** | **$0.45** | **$0.36** | [Key Highlights](index=31&type=section&id=Key%20Highlights) Q1 FY26 highlights include **10.9% net sales growth to $955.7 million**, **252.0% operating earnings increase**, and **diluted EPS of $0.29** Financial Highlights (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | % Change | | :------------------------------------------ | :-------------- | :-------------- | :------- | | Net sales | $955.7M | $861.5M | 10.9% | | Gross margin | $368.1M | $336.3M | 9.5% | | Operating earnings | $53.5M | $15.2M | 252.0% | | Net earnings (loss) attributable to MillerKnoll, Inc. | $20.2M | $(1.2)M | N/A | | Earnings (loss) per share - basic | $0.29 | $(0.02) | N/A | | Orders | $885.4M | $935.9M | (5.4)% | | Backlog | $690.9M | $758.0M | (8.9)% | Key Ratios (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Gross margin % | 38.5% | 39.0% | | Operating earnings % | 5.6% | 1.8% | | Net earnings (loss) attributable to MillerKnoll, Inc. % | 2.1% | (0.1)% | [Net Sales](index=32&type=section&id=Net%20Sales) Net sales **increased by $94.2 million (10.9%)** in Q1 FY26, driven by higher volumes, favorable currency, and price increases - Net sales increased by **$94.2 million** or **10.9%** in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025[130](index=130&type=chunk) - The increase was primarily driven by higher sales volumes in North America Contract (approx. **$54 million**), International Contract (approx. **$21 million**), and Global Retail (approx. **$9 million**)[130](index=130&type=chunk) - Favorable foreign currency translation increased net sales by approximately **$8 million**, and price increases (net of discounting) positively impacted net sales by approximately **$2 million**[130](index=130&type=chunk) [Gross Margin](index=32&type=section&id=Gross%20Margin) Gross margin **decreased by 50 basis points to 38.5%** in Q1 FY26, primarily due to increased net tariff-related costs - Gross margin was **38.5%** in Q1 FY26, a decrease of **50 basis points** from **39.0%** in Q1 FY25[130](index=130&type=chunk) - The year-over-year change was primarily driven by tariff-related costs (net of pricing actions), which adversely impacted gross margin by approximately **110 basis points**[130](index=130&type=chunk) - These impacts were partially offset by favorable leverage on fixed costs due to higher sales volumes[130](index=130&type=chunk) [Operating Expenses](index=33&type=section&id=Operating%20Expenses) Operating expenses **decreased by $6.5 million (2.0%)** in Q1 FY26, mainly due to reduced integration charges, partially offset by higher compensation and selling costs - Operating expenses decreased by **$6.5 million** or **2.0%** in Q1 FY26 compared to the prior year period[134](index=134&type=chunk) - The decrease was primarily driven by a reduction in acquisition-related integration charges, totaling approximately **$28 million**[136](index=136&type=chunk) - This benefit was partially offset by increased fixed and variable compensation costs (approx. **$9 million**), variable selling costs (approx. **$8 million**), incremental costs for retail store expansion (**$3 million**), and unfavorable foreign currency translation (approx. **$2 million**)[136](index=136&type=chunk) [Other Income/Expense](index=33&type=section&id=Other%20Income%2FExpense) Net Other expense **increased by $7.9 million to $24.8 million** in Q1 FY26, primarily due to a **$7.8 million debt extinguishment loss** - Net Other expense was **$24.8 million** in Q1 FY26, an increase of **$7.9 million** compared to the prior year period[134](index=134&type=chunk) - The change was primarily driven by a **$7.8 million loss on extinguishment of debt** incurred in connection with the refinancing of term loan debt[134](index=134&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) The effective tax rate was **26.5%** in Q1 FY26, a significant change from **66.2%** in Q1 FY25, driven by pre-tax income - The effective tax rate was **26.5%** for the three months ended August 30, 2025, compared to **66.2%** for the same period in the prior year[51](index=51&type=chunk)[117](index=117&type=chunk) - The change resulted primarily from the current quarter reflecting pre-tax income along with unfavorable discrete impacts from stock compensation, versus the prior year's pre-tax loss with favorable discrete impacts[51](index=51&type=chunk)[52](index=52&type=chunk) [Operating Segment Results](index=34&type=section&id=Operating%20Segment%20Results) MillerKnoll operates three segments; North America Contract showed strong growth, while Global Retail faced profitability challenges despite sales growth - Effective March 1, 2025, the company implemented an organizational change resulting in three reportable segments: North America Contract, International Contract, and Global Retail[138](index=138&type=chunk) - North America Contract represented **56% of net sales** and **85% of operating earnings** in Q1 FY26[144](index=144&type=chunk)[146](index=146&type=chunk) - Global Retail represented **27% of net sales** but only **2% of operating earnings** in Q1 FY26, indicating profitability challenges despite sales growth[144](index=144&type=chunk)[146](index=146&type=chunk) [North America Contract](index=35&type=section&id=North%20America%20Contract) This segment's net sales **increased 12.1%** and operating earnings **increased 253.4%** in Q1 FY26, driven by higher volumes and reduced integration charges North America Contract Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $533.9M | $476.2M | +$57.7M | | Gross margin | $196.0M | $171.7M | +$24.3M | | Gross margin % | 36.7% | 36.1% | +0.6% | | Operating earnings | $56.9M | $16.1M | +$40.8M | | Operating earnings % | 10.7% | 3.4% | +7.3% | - Net sales increased **12.1%** (reported and organic) driven by higher sales volumes (approx. **$54 million**) and price increases (approx. **$4 million**)[148](index=148&type=chunk)[149](index=149&type=chunk) - Operating earnings increased **253.4%** due to increased gross margin from higher sales volumes and a **60 basis point increase** in gross margin percentage, along with a **$16.5 million decrease** in operating expenses, primarily from reduced integration charges[148](index=148&type=chunk)[149](index=149&type=chunk) [International Contract](index=36&type=section&id=International%20Contract) This segment's net sales **increased 14.4%** and operating earnings **increased 42.1%** in Q1 FY26, driven by higher volumes and favorable currency International Contract Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $167.5M | $146.4M | +$21.1M | | Gross margin | $59.2M | $53.9M | +$5.3M | | Gross margin % | 35.3% | 36.8% | (1.5)% | | Operating earnings | $13.5M | $9.5M | +$4.0M | | Operating earnings % | 8.1% | 6.5% | +1.6% | - Net sales increased **14.4%** (**11.3% organic**) driven by higher sales volumes (approx. **$21 million**) and favorable foreign currency translation (approx. **$5 million**), partially offset by incremental discounting (approx. **$5 million**)[150](index=150&type=chunk)[152](index=152&type=chunk) - Operating earnings increased **42.1%** due to increased gross margin from higher sales volumes, despite a **150 basis point decline** in gross margin percentage, and a **$1.3 million increase** in operating expenses[150](index=150&type=chunk)[152](index=152&type=chunk) [Global Retail](index=36&type=section&id=Global%20Retail) This segment's net sales **increased 6.4%**, but operating earnings **decreased 73.6%** in Q1 FY26 due to lower gross margin and higher expenses Global Retail Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $254.3M | $238.9M | +$15.4M | | Gross margin | $112.9M | $110.7M | +$2.2M | | Gross margin % | 44.4% | 46.3% | (1.9)% | | Operating earnings | $1.4M | $5.3M | $(3.9)M | | Operating earnings % | 0.6% | 2.2% | (1.6)% | - Net sales increased **6.4%** (**4.9% organic**) driven by higher sales volumes (approx. **$9 million**), favorable foreign currency translation (approx. **$3 million**), and price increases (approx. **$3 million**)[153](index=153&type=chunk)[156](index=156&type=chunk) - Operating earnings decreased **73.6%** due to a **190 basis point decline** in gross margin percentage (impacted by increased freight costs, tariffs, and unfavorable currency) and a **$6.1 million increase** in operating expenses (from higher compensation and retail store expansion)[153](index=153&type=chunk)[156](index=156&type=chunk) [Corporate](index=37&type=section&id=Corporate) Corporate unallocated expenses **increased to $18.3 million** in Q1 FY26, primarily due to higher fixed and variable compensation costs - Corporate unallocated expenses totaled **$18.3 million** for Q1 FY26, an increase of **$2.6 million** from Q1 FY25, primarily due to higher fixed and variable compensation expense[153](index=153&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash and cash equivalents **decreased by $26.5 million** to **$167.2 million** at the end of Q1 FY26, with changes in operating, investing, and financing cash flows Net Change in Cash and Cash Equivalents (In millions) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Operating activities | $9.4M | $21.1M | | Investing activities | $(30.5)M | $(22.3)M | | Financing activities | $(9.2)M | $(20.3)M | | **Net change in Cash and cash equivalents** | **$(26.5)M** | **$(20.7)M** | [Cash Flows - Operating Activities](index=37&type=section&id=Cash%20Flows%20-%20Operating%20Activities) Net cash provided by operating activities **decreased to $9.4 million** in Q1 FY26, primarily due to a net increase in working capital - Net cash provided by operating activities decreased to **$9.4 million** in Q1 FY26 from **$21.1 million** in Q1 FY25[157](index=157&type=chunk) - The decrease was primarily due to a net increase in working capital, influenced by fluctuations in inventory levels, timing of receivables collection, and changes in accruals related to variable compensation[157](index=157&type=chunk)[163](index=163&type=chunk) [Cash Flows - Investing Activities](index=38&type=section&id=Cash%20Flows%20-%20Investing%20Activities) Cash used in investing activities **increased to $30.5 million** in Q1 FY26, primarily driven by higher capital expenditures - Cash used in investing activities increased to **$30.5 million** in Q1 FY26 from **$22.3 million** in Q1 FY25, primarily driven by higher capital expenditures[158](index=158&type=chunk)[159](index=159&type=chunk) - The company expects full-year capital purchases for fiscal 2026 to be between **$120 million** and **$130 million**, mainly for facilities, equipment, and sustainability goals[159](index=159&type=chunk) [Cash Flows - Financing Activities](index=38&type=section&id=Cash%20Flows%20-%20Financing%20Activities) Cash used in financing activities **decreased to $9.2 million** in Q1 FY26, due to fewer share repurchases and higher net borrowings - Cash used in financing activities decreased to **$9.2 million** in Q1 FY26 from **$20.3 million** in Q1 FY25[160](index=160&type=chunk) - This decrease was primarily due to fewer share repurchases (**$7.2 million** vs. **$43.7 million**) and higher net borrowings on the credit agreement (**$68.9 million** vs. **$43.1 million**)[164](index=164&type=chunk) - These positive impacts were partially offset by a net cash outflow of **$58.7 million** from the refinancing of Term Loan B[164](index=164&type=chunk) [Sources of Liquidity](index=38&type=section&id=Sources%20of%20Liquidity) Total liquidity was **$480.5 million** as of August 30, 2025, comprising cash and available credit, deemed adequate for future operations Total Liquidity (In millions) | Metric | August 30, 2025 | May 31, 2025 | | :------------------------------------------ | :-------------- | :-------------- | | Cash and cash equivalents | $167.2M | $193.7M | | Availability under syndicated revolving line of credit | $313.3M | $382.2M | | **Total liquidity** | **$480.5M** | **$575.9M** | - The company had **$158.6 million** of cash and cash equivalents held outside the United States at the end of Q1 FY26[162](index=162&type=chunk) - Management believes current liquidity sources (cash on hand, operating cash flows, borrowing capacity) are adequate to fund near-term and foreseeable future business operations, capital needs, debt maturities, dividends, and share repurchases[168](index=168&type=chunk) - The company intends to repatriate **$137.3 million** of undistributed foreign earnings, with a **$3.5 million** deferred tax liability for foreign withholding taxes[167](index=167&type=chunk) [Contractual Obligations](index=39&type=section&id=Contractual%20Obligations) There have been no material changes in the company's contractual obligations since the May 31, 2025, Annual Report on Form 10-K - There have been no material changes in contractual obligations since the Company's Annual Report on Form 10-K for the year ended May 31, 2025[169](index=169&type=chunk) [Guarantees](index=39&type=section&id=Guarantees) The company's guarantees have not materially changed from those disclosed in Note 10 of the Condensed Consolidated Financial Statements - Refer to Note 10 to the Condensed Consolidated Financial Statements for information on guarantees[170](index=170&type=chunk) [Variable Interest Entities](index=39&type=section&id=Variable%20Interest%20Entities) The company's variable interest entities disclosures have not materially changed from those disclosed in Note 15 of the Condensed Consolidated Financial Statements - Refer to Note 15 to the Condensed Consolidated Financial Statements for information on variable interest entities[171](index=171&type=chunk) [Contingencies](index=39&type=section&id=Contingencies) The company's contingencies have not materially changed from those disclosed in Note 10 of the Condensed Consolidated Financial Statements - Refer to Note 10 to the Condensed Consolidated Financial Statements for information on contingencies[172](index=172&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies remain consistent with those outlined in its Annual Report on Form 10-K for the year ended May 31, 2025 - A summary of significant accounting policies requiring estimates and judgments is provided in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[173](index=173&type=chunk) [New Accounting Standards](index=39&type=section&id=New%20Accounting%20Standards) The company's new accounting standards disclosures are consistent with those provided in Note 2 of the Condensed Consolidated Financial Statements - Refer to Note 2 to the Condensed Consolidated Financial Statements for information on new accounting standards[174](index=174&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=39&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - The report includes forward-looking statements that involve certain risks and uncertainties beyond the company's control[175](index=175&type=chunk) - Key risks include changes to U.S. and international trade policies (tariffs), challenges in implementing growth strategy, consumer spending levels, global and national economic conditions (inflation, interest rates, geopolitical tensions), cybersecurity threats, and public health crises[180](index=180&type=chunk) - Additional risks relate to debt incurred from the Knoll acquisition, availability and pricing of raw materials, financial strength of dealers and customers, government procurement, and outcomes of legal proceedings[180](index=180&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The nature of market risks from interest rates and commodity prices has not materially changed since the last annual report; foreign exchange risk is mitigated by forward contracts - The nature of market risks from interest rates and commodity prices has not materially changed during the first three months of fiscal 2026[177](index=177&type=chunk) - The company is exposed to foreign exchange risk due to sales and production in various foreign currencies[178](index=178&type=chunk) - Foreign currency forward contracts are utilized to offset risks associated with foreign currency exposures and mitigate volatility[179](index=179&type=chunk) [Foreign Exchange Risk](index=40&type=section&id=Foreign%20Exchange%20Risk) The company is exposed to foreign exchange risk from international operations, using forward contracts to offset currency exposures - The company's production costs and profit margins are affected by currency exchange rates between countries where sales occur and where products are sourced or manufactured[178](index=178&type=chunk) - Principal foreign currencies include the British pound sterling, Euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and Danish krone[179](index=179&type=chunk) - Foreign currency forward contracts, generally settling within 30 days, are used to offset foreign currency exposures and are not designated as hedging instruments[179](index=179&type=chunk) [Item 4 Controls and Procedures](index=41&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures were effective as of August 30, 2025[181](index=181&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarterly period ended August 30, 2025, that materially affected or are reasonably likely to materially affect it[182](index=182&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 30, 2025 - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of August 30, 2025[181](index=181&type=chunk) [Changes in Internal Control Over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes occurred in the company's internal control over financial reporting during the quarter ended August 30, 2025 - There were no changes in the Company's internal control over financial reporting during the quarterly period ended August 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[182](index=182&type=chunk) [Part II — Other Information](index=42&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section covers legal proceedings, risk factors, unregistered sales of equity securities, and exhibits, noting no material changes in legal or risk items since the last annual report [Item 1 Legal Proceedings](index=42&type=section&id=Item%201%20Legal%20Proceedings) There have been no material changes in the company's legal proceedings from those reported in its Annual Report on Form 10-K for the year ended May 31, 2025 - There have been no material changes in the Company's legal proceedings from those set forth in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[183](index=183&type=chunk) [Item 1A Risk Factors](index=42&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes in the company's risk factors from those reported in its Annual Report on Form 10-K for the year ended May 31, 2025 - There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[184](index=184&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's share repurchase plan was increased by **$200 million**, with **$174.2 million** remaining available as of August 30, 2025 - The Board of Directors approved an increase of **$200 million** to the existing share repurchase plan on July 16, 2024[185](index=185&type=chunk) - The approximate dollar value of shares available for purchase under the plan was **$174.2 million** as of August 30, 2025[185](index=185&type=chunk) Share Repurchase Activity (Quarter Ended August 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------- | :----------------------------- | :--------------------------- | | 6/1/2025 - 6/28/2025 | — | $— | | 6/29/2025 - 7/26/2025 | 235,056 | $19.50 | | 7/27/2025 - 8/30/2025 | 142,939 | $18.21 | | **Total** | **377,995** | | [Issuer Purchases of Equity Securities](index=42&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) The company repurchased **377,995 shares** for **$7.2 million** in Q1 FY26, primarily for tax withholding on restricted stock vesting - The Company has a share repurchase plan authorized for **$250.0 million**, with an additional **$200 million** approved on July 16, 2024[185](index=185&type=chunk) - As of August 30, 2025, approximately **$174.2 million** was available for purchase under the plan[185](index=185&type=chunk) - During the quarter, **377,995 shares** were repurchased at a cost of **$7.2 million**, primarily to satisfy tax withholding obligations upon the vesting of restricted stock[187](index=187&type=chunk) [Item 5 Other Information](index=42&type=section&id=Item%205%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or Non-Rule 10b5-1 Trading Arrangement during the reporting period - No director or officer of the Company adopted or terminated a "Rule 10b5-1 Trading Arrangement" or "Non-Rule 10b5-1 Trading Arrangement" during the period covered by this Quarterly Report on Form 10-Q[191](index=191&type=chunk) [Item 6 Exhibits](index=42&type=section&id=Item%206%20Exhibits) This section lists exhibits filed with the Form 10-Q, including credit agreement amendments, CEO/CFO certifications, and XBRL taxonomy documents - Exhibits include Amendment No. 4 to Credit Agreement, dated August 7, 2025[193](index=193&type=chunk) - Certificates of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are filed[193](index=193&type=chunk) - XBRL Taxonomy Extension Schema, Calculation Linkbase, Label Linkbase, Presentation Linkbase, and Definition Linkbase Documents are included[193](index=193&type=chunk) [Signatures](index=44&type=section&id=Signatures) The report was signed on September 29, 2025, by Andrea R. Owen, President and CEO, and Kevin J. Veltman, Interim CFO - The report was signed on September 29, 2025[194](index=194&type=chunk) - Signatories include Andrea R. Owen, President and Chief Executive Officer, and Kevin J. Veltman, Interim Chief Financial Officer[194](index=194&type=chunk)

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion, market risk, and controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section provides unaudited condensed consolidated financial statements and detailed notes on accounting policies, assets, liabilities, and operations [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | (in thousands) | August 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Total current assets | $335,545 | $368,813 | | Total assets | $2,421,711 | $2,526,966 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $769,809 | $455,145 | | Total liabilities and stockholders' equity | $2,421,711 | $2,526,966 | | Total stockholders' equity | $477,682 | $438,788 | - Total assets decreased by **$105.255 million** from November 30, 2024, to August 31, 2025, primarily driven by a decrease in intangible assets and cash and cash equivalents. Total current liabilities significantly increased by **$314.664 million**, mainly due to the current portion of convertible senior notes[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income over specific reporting periods Three Months Ended August 31, 2025 vs 2024 | (in thousands, except per share data) | August 31, 2025 | August 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | $249,795 | $178,686 | 40% | | Gross profit | $202,259 | $149,622 | 35% | | Income from operations | $43,874 | $40,349 | 9% | | Net income | $19,413 | $28,464 | (32)% | | Basic EPS | $0.45 | $0.66 | (32)% | | Diluted EPS | $0.44 | $0.65 | (32)% | Nine Months Ended August 31, 2025 vs 2024 | (in thousands, except per share data) | August 31, 2025 | August 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | $725,165 | $538,448 | 35% | | Gross profit | $584,110 | $444,504 | 31% | | Income from operations | $114,916 | $102,503 | 12% | | Net income | $47,388 | $67,291 | (30)% | | Basic EPS | $1.10 | $1.55 | (29)% | | Diluted EPS | $1.07 | $1.52 | (30)% | - Revenue growth for both the three and nine months ended August 31, 2025, was primarily driven by the acquisition of ShareFile. However, net income and EPS decreased significantly due to increased interest expense and amortization of acquired intangibles[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income items, reflecting total changes in equity from non-owner sources Comprehensive Income (in thousands) | Period | Net Income | Foreign Currency Translation Adjustments | Total Other Comprehensive Income (Loss) | Comprehensive Income | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Aug 31, 2025 | $19,413 | $654 | $654 | $20,067 | | Three Months Ended Aug 31, 2024 | $28,464 | $2,084 | $2,084 | $30,548 | | Nine Months Ended Aug 31, 2025 | $47,388 | $3,788 | $3,788 | $51,176 | | Nine Months Ended Aug 31, 2024 | $67,291 | $643 | $(492) | $66,799 | - Comprehensive income for the nine months ended August 31, 2025, was **$51.176 million**, a decrease from **$66.799 million** in the prior year, primarily reflecting the decrease in net income, despite a positive foreign currency translation adjustment[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement outlines changes in the company's equity accounts, including net income, stock transactions, and other comprehensive income Stockholders' Equity Changes (Nine Months Ended August 31, 2025) | (in thousands) | Balance, Dec 1, 2024 | Issuance of stock | Exercise of stock options | Withholding tax payments | Stock-based compensation | Treasury stock repurchases | Net income | Other comprehensive income | Balance, Aug 31, 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $438,788 | $11,004 | $4,589 | $(10,101) | $47,394 | $(65,168) | $47,388 | $3,788 | $477,682 | - Total stockholders' equity increased from **$438.788 million** at December 1, 2024, to **$477.682 million** at August 31, 2025. Key drivers included net income of **$47.388 million** and stock-based compensation of **$47.394 million**, partially offset by treasury stock repurchases of **$65.168 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities Cash Flows (Nine Months Ended August 31, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash flows from operating activities | $172,389 | $191,843 | | Net cash flows used in investing activities | $(23,493) | $(2,328) | | Net cash flows used in financing activities | $(175,784) | $(85,275) | | Net (decrease) increase in cash and cash equivalents | $(19,069) | $105,755 | | Cash and cash equivalents, end of period | $99,008 | $232,713 | - Net cash from operating activities decreased by **$19.454 million** YoY, primarily due to increased interest expense. Investing activities saw a significant increase in cash used, mainly due to payments for acquisitions (**$20.653 million** in 2025 vs. none in 2024). Financing activities used substantially more cash in 2025 (**$175.784 million** vs. **$85.275 million**), driven by repayment of revolving credit facility and common stock repurchases, contrasting with proceeds from senior convertible notes in 2024[16](index=16&type=chunk)[120](index=120&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1: Basis of Presentation](index=11&type=section&id=Note%201:%20Basis%20of%20Presentation) This note describes the company's business, accounting principles, and the basis for preparing the financial statements - Progress Software Corporation provides software products for AI-powered applications and digital experiences, utilizing perpetual, term, and SaaS licensing models. The company operates globally through direct sales and indirect channel partners (ISVs, OEMs, VARs)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules for interim reporting and GAAP, with no material changes in significant accounting policies since the 2024 Annual Report[21](index=21&type=chunk)[22](index=22&type=chunk) - New accounting pronouncements include ASU 2023-07 (Segment Reporting, effective FY2025), ASU 2023-09 (Income Tax Disclosures, effective FY2026), ASU 2024-03/2025-01 (Expense Disaggregation, effective FY2028/2029), and ASU 2025-06 (Internal-Use Software, effective FY2029). The company is evaluating their impact[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2: Fair Value Measurements](index=12&type=section&id=Note%202:%20Fair%20Value%20Measurements) This note details the valuation methods and classifications for assets and liabilities measured at fair value Fair Value Measurements (August 31, 2025, in thousands) | (in thousands) | Total Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | **Assets** | | | | | | Money market funds | $1,175 | $1,175 | — | — | | Foreign exchange derivatives | $112 | — | $112 | — | | **Liabilities** | | | | | | Contingent consideration | $(1,080) | — | — | $(1,080) | - Contingent consideration related to the Nuclia acquisition (Q3 2025) is classified as Level 3, valued at **$1.080 million** using a Monte Carlo simulation due to unobservable inputs. This liability will be remeasured each period[29](index=29&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) Convertible Senior Notes Fair Value (in thousands) | (in thousands) | August 31, 2025 Carrying Value | August 31, 2025 Fair Value | November 30, 2024 Carrying Value | November 30, 2024 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Convertible senior notes due 2026 | $358,619 | $362,778 | $356,946 | $449,094 | | Convertible senior notes due 2030 | $440,713 | $460,752 | $439,321 | $550,827 | | Total | $799,332 | $823,530 | $796,267 | $999,921 | [Note 3: Intangible Assets and Goodwill](index=14&type=section&id=Note%203:%20Intangible%20Assets%20and%20Goodwill) This note provides information on the company's intangible assets and goodwill, including changes and amortization Intangible Assets (in thousands) | (in thousands) | August 31, 2025 Net Book Value | November 30, 2024 Net Book Value | | :--- | :--- | :--- | | Purchased technology | $161,228 | $188,736 | | Customer-related | $424,689 | $495,224 | | Trademarks and trade names | $33,446 | $39,611 | | Total | $619,363 | $723,571 | - Net book value of intangible assets decreased by **$104.208 million** from November 30, 2024, to August 31, 2025. Amortization expense for intangible assets was **$37.2 million** for the three months and **$110.0 million** for the nine months ended August 31, 2025, significantly higher than the prior year due to recent acquisitions[37](index=37&type=chunk) Goodwill Changes (Nine Months Ended August 31, 2025, in thousands) | (in thousands) | Amount | | :--- | :--- | | Balance, December 1, 2024 | $1,292,177 | | Additions from business combinations | $15,397 | | Measurement period adjustments | $1,632 | | Translation adjustments | $46 | | Balance, August 31, 2025 | $1,309,252 | - Goodwill increased by **$17.075 million** to **$1,309.252 million**, primarily due to the acquisition of Nuclia and measurement period adjustments related to ShareFile[39](index=39&type=chunk) [Note 4: Business Combinations](index=15&type=section&id=Note%204:%20Business%20Combinations) This note details recent acquisitions, including purchase prices, allocation of assets, and pro forma financial impacts - On June 30, 2025, Progress acquired Nuclia, an AI solutions innovator, for **$21.4 million**, including **$20.3 million** cash and **$1.1 million** contingent consideration. The acquisition primarily allocated to purchased technology and goodwill[40](index=40&type=chunk)[41](index=41&type=chunk) - The ShareFile acquisition (October 31, 2024) for **$875.0 million** was funded by a revolving credit facility and cash. Measurement period adjustments in Q1 FY2025 increased goodwill by **$1.6 million**[43](index=43&type=chunk)[44](index=44&type=chunk) ShareFile Acquisition Pro Forma Financial Information (Nine Months Ended August 31, 2024, in thousands) | (in thousands, except per share data) | Pro Forma Nine Months Ended August 31, 2024 | | :--- | :--- | | Revenue | $722,032 | | Net income | $39,886 | | Net income per basic share | $0.92 | | Net income per diluted share | $0.90 | - ShareFile contributed **$64.6 million** in revenue for the three months and **$194.1 million** for the nine months ended August 31, 2025[48](index=48&type=chunk) [Note 5: Debt](index=17&type=section&id=Note%205:%20Debt) This note outlines the company's debt obligations, including convertible senior notes and revolving credit facilities Debt Obligations (in thousands) | (in thousands) | August 31, 2025 Net Carrying Amount | November 30, 2024 Net Carrying Amount | | :--- | :--- | :--- | | 3.5% convertible senior notes due 2030 | $440,713 | $439,321 | | Revolving credit facility | $620,000 | $730,000 | | 1.0% convertible senior notes due 2026 (current portion) | $358,619 | — | | Total debt | $1,419,332 | $1,526,267 | - Total debt decreased by **$106.935 million** from November 30, 2024, to August 31, 2025, primarily due to a **$110.0 million** repayment on the revolving credit facility. The company entered into an amended **$1.5 billion** secured revolving credit facility on July 21, 2025, maturing July 21, 2030, with **$620.0 million** outstanding as of August 31, 2025[53](index=53&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - The credit agreement includes customary affirmative and negative covenants, including maintaining compliance with consolidated interest charge coverage and senior secured net leverage ratios[58](index=58&type=chunk)[59](index=59&type=chunk) [Note 6: Common Stock Repurchases](index=18&type=section&id=Note%206:%20Common%20Stock%20Repurchases) This note details the company's common stock repurchase activities and remaining authorization Common Stock Repurchases (in thousands, except shares) | Period | Shares Repurchased | Value (in millions) | | :--- | :--- | :--- | | Three Months Ended Aug 31, 2025 | 0.3 million | $15.0 | | Three Months Ended Aug 31, 2024 | 0.3 million | $14.3 | | Nine Months Ended Aug 31, 2025 | 1.2 million | $65.1 | | Nine Months Ended Aug 31, 2024 | 1.6 million | $86.8 | - As of August 31, 2025, **$42.2 million** remained under the share repurchase authorization. On September 23, 2025, the Board increased the authorization by **$200.0 million** to an aggregate of **$242.2 million**[60](index=60&type=chunk) [Note 7: Stock-Based Compensation](index=18&type=section&id=Note%207:%20Stock-Based%20Compensation) This note describes the company's stock-based compensation plans and related expenses - Stock-based compensation expense is recognized over the service period, generally four or five years for options and three or four years for restricted stock units. Performance stock units and employee stock purchase plans use accelerated attribution[61](index=61&type=chunk) Stock-Based Compensation Expense (in thousands) | (in thousands) | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Cost of maintenance, SaaS, and professional services | $1,486 | $834 | $4,241 | $2,732 | | Sales and marketing | $3,275 | $2,169 | $9,970 | $6,939 | | Product development | $4,709 | $3,199 | $14,103 | $10,255 | | General and administrative | $6,500 | $4,356 | $19,080 | $15,085 | | Total stock-based compensation | $15,970 | $10,558 | $47,394 | $35,011 | [Note 8: Revenue Recognition](index=19&type=section&id=Note%208:%20Revenue%20Recognition) This note explains the company's policies for recognizing revenue from various sources and geographic regions Revenue by Type (in thousands) | (in thousands) | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Software licenses | $63,437 | $57,850 | $172,677 | $175,929 | | Maintenance | $104,849 | $103,088 | $307,875 | $307,616 | | SaaS | $71,512 | $6,082 | $213,027 | $17,641 | | Professional services | $9,997 | $11,666 | $31,586 | $37,262 | | Total revenue | $249,795 | $178,686 | $725,165 | $538,448 | Geographic Revenue (in thousands) | (in thousands) | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | North America | $163,404 | $104,369 | $465,376 | $314,553 | | EMEA | $68,339 | $57,031 | $208,321 | $177,656 | | Latin America | $6,221 | $5,363 | $16,126 | $14,630 | | Asia Pacific | $11,831 | $11,923 | $35,342 | $31,609 | | Total revenue | $249,795 | $178,686 | $725,165 | $538,448 | - SaaS revenue experienced significant growth, increasing by **1,076%** for the three months and **1,108%** for the nine months ended August 31, 2025, primarily due to the ShareFile acquisition. North America revenue also saw substantial growth (**57%** for three months, **48%** for nine months) driven by the same acquisition[64](index=64&type=chunk)[65](index=65&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - As of August 31, 2025, transaction price allocated to remaining performance obligations was **$592.3 million**, with approximately **74%** expected to be recognized within the next year[68](index=68&type=chunk) [Note 9: Restructuring](index=20&type=section&id=Note%209:%20Restructuring) This note details the company's restructuring activities, including costs incurred and expected cash disbursements Restructuring Activity (Nine Months Ended August 31, 2025, in thousands) | (in thousands) | Excess Facilities and Other Costs | Employee Severance and Related Benefits | Total | | :--- | :--- | :--- | :--- | | Balance, December 1, 2024 | $4,339 | $5,695 | $10,034 | | Costs incurred | $2,466 | $6,513 | $8,979 | | Cash disbursements | $(3,604) | $(11,554) | $(15,158) | | Balance, August 31, 2025 | $3,201 | $679 | $3,880 | - Restructuring costs incurred during the nine months ended August 31, 2025, totaled **$8.979 million**, primarily related to the integration of the ShareFile business. Cash disbursements for these expenses are expected through Q4 fiscal year 2025, with no additional material expenses anticipated[70](index=70&type=chunk) [Note 10: Earnings Per Share](index=21&type=section&id=Note%2010:%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings per share Earnings Per Share Calculation (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $19,413 | $28,464 | $47,388 | $67,291 | | Weighted average shares outstanding (basic) | 42,988 | 42,872 | 43,099 | 43,296 | | Diluted weighted average shares outstanding | 43,717 | 43,711 | 44,253 | 44,167 | | Basic EPS | $0.45 | $0.66 | $1.10 | $1.55 | | Diluted EPS | $0.44 | $0.65 | $1.07 | $1.52 | - Stock awards representing approximately **844,000 shares** (three months) and **978,000 shares** (nine months) were excluded from diluted EPS calculation for August 31, 2025, as they were anti-dilutive. The convertible notes were out of the money for the three months ended August 31, 2025, and for both periods in 2024, thus not included in diluted EPS calculation for those periods, but the 2026 Notes were included for the nine months ended August 31, 2025[71](index=71&type=chunk)[72](index=72&type=chunk) [Note 11: Segment Information](index=21&type=section&id=Note%2011:%20Segment%20Information) This note states that the company operates as a single operating segment - The company operates as a single operating segment: software products for the development, deployment, and management of responsible, AI-powered applications and digital experiences. The Chief Executive Officer, as the CODM, evaluates financial information on a consolidated basis[73](index=73&type=chunk)[74](index=74&type=chunk) [Note 12: Cyber Related Matters](index=22&type=section&id=Note%2012:%20Cyber%20Related%20Matters) This note discusses ongoing legal and financial impacts related to the MOVEit Vulnerability - The company continues to address the MOVEit Vulnerability, with class action lawsuits centralized in multi-district litigation (MDL). Motions to dismiss were partially granted in July 2025, dismissing about half of the claims. The MDL is not expected to conclude this fiscal year[75](index=75&type=chunk) Cyber Vulnerability Response Expenses, Net (in thousands) | (in thousands) | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net costs incurred | $659 | $927 | $2,126 | $4,950 | | Insurance recoveries | $400 | $600 | $1,700 | $2,500 | - The company expects to incur ongoing investigation, legal, and professional services expenses. While a loss is reasonably possible, a range of possible losses cannot be reasonably estimated due to the early stage of litigation and uncertainties regarding class certification and damages. No loss contingency liability has been recorded as of August 31, 2025[77](index=77&type=chunk) - The company maintained **$15.0 million** in cybersecurity insurance coverage, with approximately **$5.0 million** remaining as of August 31, 2025[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, liquidity, and critical accounting policies [Overview](index=23&type=section&id=Overview) This section introduces the company's business, critical accounting policies, and use of constant currency reporting - Progress provides software products for developing, deploying, and managing AI-powered applications and digital experiences[80](index=80&type=chunk) - Critical accounting policies, including revenue recognition, loss contingencies (MOVEit Vulnerability), and business combinations, remain unchanged from the 2024 Annual Report[81](index=81&type=chunk) - The company uses constant currency reporting to enhance understanding of revenue results, translating current period results using prior period weighted average foreign currency exchange rates[82](index=82&type=chunk)[83](index=83&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section analyzes the key drivers of changes in revenue, gross profit, operating expenses, and net income - Total revenue increased by **40%** (**38%** constant currency) for the three months and **35%** (**34%** constant currency) for the nine months ended August 31, 2025, primarily due to the ShareFile acquisition, which contributed **$64.6 million** and **$194.1 million**, respectively[85](index=85&type=chunk) Revenue Growth by Type (YoY % Change) | Revenue Type | 3 Months Ended Aug 31, 2025 | 9 Months Ended Aug 31, 2025 | | :--- | :--- | :--- | | Software licenses | 10% | (2)% | | Maintenance | 2% | 0% | | SaaS | 1,076% | 1,108% | | Professional services | (14)% | (15)% | - SaaS revenue growth was overwhelmingly driven by ShareFile. North America revenue increased by **57%** (three months) and **48%** (nine months) due to the ShareFile acquisition, while revenue outside North America increased by **$12.1 million** and **$35.9 million** over the same periods[87](index=87&type=chunk)[88](index=88&type=chunk) - Gross profit increased by **35%** (three months) and **31%** (nine months) but decreased as a percentage of total revenue (**81%** vs. **84%** and **81%** vs. **83%** respectively) due to higher hosting costs from ShareFile[93](index=93&type=chunk) - Operating expenses (Sales & Marketing, Product Development, General & Administrative, Amortization of Acquired Intangibles) all increased significantly year-over-year, primarily due to increased personnel, marketing, and hosting costs associated with the ShareFile acquisition[94](index=94&type=chunk)[95](index=95&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - Net income decreased by **32%** for the three months and **30%** for the nine months ended August 31, 2025, primarily due to a substantial increase in interest expense (**162%** and **157%** respectively) resulting from debt incurred for the ShareFile acquisition[103](index=103&type=chunk)[106](index=106&type=chunk) [Select Performance Metrics](index=31&type=section&id=Select%20Performance%20Metrics) This section presents key operational metrics such as Annualized Recurring Revenue and Net Retention Rate - Annualized Recurring Revenue (ARR) was **$849.0 million** as of August 31, 2025, an increase of **47%** year-over-year from **$576.0 million**, primarily driven by the ShareFile acquisition[114](index=114&type=chunk) - Net retention rates have generally ranged between **100%** and **102%** for all periods presented, indicating strong customer retention and expansion[116](index=116&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, debt, and ability to meet future financial obligations - Cash and cash equivalents decreased by **$19.1 million** from November 30, 2024, to August 31, 2025, primarily due to debt repayments (**$110.0 million**), common stock repurchases (**$65.1 million**), and acquisitions (**$20.7 million**), partially offset by cash from operations (**$172.4 million**)[117](index=117&type=chunk) - The company suspended its quarterly dividend as of September 9, 2024, to redirect capital towards debt repayment and increase liquidity for future M&A and share repurchases[125](index=125&type=chunk) - Management believes existing cash balances, funds from operations, and the revolving credit facility will be sufficient to meet foreseeable cash requirements for at least the next twelve months, including capital expenditures, acquisitions, and debt repayments[128](index=128&type=chunk) [Legal and Other Regulatory Matters](index=35&type=section&id=Legal%20and%20Other%20Regulatory%20Matters) This section provides updates on ongoing legal proceedings and regulatory issues - The company continues to face class action lawsuits and governmental investigations related to the MOVEit Vulnerability. While some claims have been dismissed, the litigation is ongoing, and future costs are expected to be reduced by insurance coverage[130](index=130&type=chunk)[131](index=131&type=chunk) [Recent Accounting Pronouncements](index=35&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1 for details on recently issued accounting pronouncements - Refer to Note 1: Basis of Presentation for details on recently issued accounting pronouncements and their potential impact[132](index=132&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there were no significant changes to the company's quantitative and qualitative disclosures about market risk during the first nine months of fiscal year 2025, apart from repayments on the revolving credit facility and other debt changes - No significant changes to market risk disclosures were reported for the first nine months of fiscal year 2025, except for revolving credit facility repayments and debt changes[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures as of August 31, 2025, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of August 31, 2025[134](index=134&type=chunk)[135](index=135&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended August 31, 2025[136](index=136&type=chunk) [PART II OTHER INFORMATION](index=37&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, other information, and exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 12 for details on legal proceedings related to the MOVEit Vulnerability and states that other ordinary course legal matters are not expected to have a material effect on the company's financial position - Legal proceedings related to the MOVEit Vulnerability are discussed in Note 12. Other ordinary course legal matters are not expected to materially affect financial position, results of operations, or cash flows[137](index=137&type=chunk)[138](index=138&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the company's 2024 Annual Report for a comprehensive discussion of risk factors that could materially affect the business - For a complete discussion of risk factors, refer to Part I, Item 1A. Risk Factors in the 2024 Annual Report[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common stock repurchase activities during the third quarter of fiscal year 2025 and updates on the share repurchase authorization Common Stock Repurchases (Third Quarter Fiscal Year 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | June 2025 | — | $— | — | $57,220 | | July 2025 | 283,412 | $52.91 | 283,412 | $42,220 | | August 2025 | — | — | — | $42,220 | | Total | 283,412 | $52.91 | 283,412 | $42,220 | - As of August 31, 2025, **$42.2 million** remained under the current share repurchase authorization. On September 23, 2025, the Board increased the authorization by **$200.0 million**, bringing the aggregate to **$242.2 million**[140](index=140&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) This section reports on the adoption of a new Form of Notice of Grant of Stock Options and Grant Agreement and confirms no insider adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - A new Form of Notice of Grant of Stock Options and Grant Agreement was adopted under the Progress Software Corporation 2008 Stock Option and Incentive Plan for administrative updates[141](index=141&type=chunk) - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of fiscal year 2025[142](index=142&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including the Fifth Amended and Restated Credit Agreement, Form of Notice of Grant of Stock Options, CEO/CFO certifications, and iXBRL financial statements - Key exhibits include the Fifth Amended and Restated Credit Agreement (Exhibit 10.1), Form of Notice of Grant of Stock Options and Grant Agreement (Exhibit 10.2), CEO and CFO certifications (Exhibits 31.1, 31.2), and iXBRL formatted financial statements (Exhibit 101)[144](index=144&type=chunk) [Signatures](index=40&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Senior Vice President and Chief Accounting Officer, certifying the report - The report is signed by Yogesh K. Gupta (President and CEO), Anthony Folger (EVP and CFO), and Domenic LoCoco (SVP and Chief Accounting Officer) on September 29, 2025[147](index=147&type=chunk)

[Executive Summary & Q3 2025 Highlights](index=1&type=section&id=1.%20Executive%20Summary%20%26%20Q3%202025%20Highlights) Progress Software delivered strong Q3 2025 results, highlighting strategic execution, ShareFile integration, and AI investments [Overall Performance and Strategic Commentary](index=1&type=section&id=1.1.%20Overall%20Performance%20and%20Strategic%20Commentary) Progress Software reported exceptional Q3 2025 results, driven by strong financials, successful ShareFile integration, and AI innovation - Progress CEO Yogesh Gupta described Q3 performance as **\"truly exceptional\"** with solid revenue, earnings, cash flow, and execution[3](index=3&type=chunk) - **Net retention remains strong at 100%**, and **ARR continues to grow steadily**[3](index=3&type=chunk)[5](index=5&type=chunk) - ShareFile is **meaningfully contributing to top and bottom-line results**, with all major integration milestones successfully passed[3](index=3&type=chunk)[5](index=5&type=chunk) - Continued investment and innovation in **AI capabilities**, including agentic RAG technology, embedded across the product portfolio to empower customers[3](index=3&type=chunk) - The company **aggressively paid down debt** and **repurchased $15 million of shares**, while increasing liquidity with a new **$1.5 billion revolving credit facility**[5](index=5&type=chunk) [Key Financial Highlights (Q3 2025)](index=1&type=section&id=1.2.%20Key%20Financial%20Highlights%20(Q3%202025)) Progress Software reported Q3 2025 revenue up 40% to $250M, ARR up 47% to $849M, and non-GAAP EPS up 19% to $1.50 Q3 2025 Financial Highlights (YoY Growth, in thousands, except per share amounts) | Metric | Q3 2025 (GAAP) | Q3 2024 (GAAP) | % Change (GAAP) | Q3 2025 (Non-GAAP) | Q3 2024 (Non-GAAP) | % Change (Non-GAAP) | | :-------------------------------- | :------------- | :------------- | :-------------- | :----------------- | :----------------- | :------------------ | | Revenue | $249,795 | $178,686 | 40 % | $249,795 | $178,686 | 40 % | | Income from operations | $43,874 | $40,349 | 9 % | $99,423 | $74,123 | 34 % | | Operating margin | 18 % | 23 % | (500) bps | 40 % | 41 % | (100) bps | | Net income | $19,413 | $28,464 | (32)% | $65,723 | $55,216 | 19 % | | Diluted earnings per share | $0.44 | $0.65 | (32)% | $1.50 | $1.26 | 19 % | | Cash from operations (GAAP) | $73,446 | $57,658 | 27 % | - | - | - | | Adjusted free cash flow (non-GAAP) | - | - | - | $74,428 | $57,525 | 29 % | | Unlevered free cash flow (non-GAAP) | - | - | - | $88,617 | $63,149 | 40 % | - **Annualized Recurring Revenue (ARR)** of **$849 million** increased **47% year-over-year** on a constant currency basis[2](index=2&type=chunk)[6](index=6&type=chunk) - **Cash and cash equivalents** were **$99.0 million** at the end of the quarter[7](index=7&type=chunk) - **Days sales outstanding** was **55 days**, compared to 45 days in Q3 2024 and 53 days in Q2 2025[7](index=7&type=chunk) - The Board of Directors increased the **share repurchase authorization by $200.0 million to $242.2 million** on September 23, 2025[7](index=7&type=chunk) [Condensed Consolidated Financial Statements (GAAP)](index=3&type=section&id=2.%20Condensed%20Consolidated%20Financial%20Statements%20(GAAP)) This section presents the company's GAAP statements of operations, balance sheets, and cash flows [Statements of Operations](index=3&type=section&id=2.1.%20Statements%20of%20Operations) Q3 2025 total revenue rose 40% to $249.8M, but GAAP net income fell 32% to $19.4M due to higher expenses Revenue Breakdown (Three Months Ended August 31) | Revenue Category | 2025 (in thousands) | 2024 (in thousands) | % Change | | :----------------------- | :------------------ | :------------------ | :------- | | Software licenses | $63,437 | $57,850 | 10 % | | Maintenance, SaaS, and professional services | $186,358 | $120,836 | 54 % | | **Total revenue** | **$249,795** | **$178,686** | **40 %** | Key P&L Items (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Gross profit | $202,259 | $149,622 | 35 % | | Income from operations | $43,874 | $40,349 | 9 % | | Other expense, net | $(17,668) | $(6,070) | 191 % | | Income before income taxes | $26,206 | $34,279 | (24)% | | Provision for income taxes | $6,793 | $5,815 | 17 % | | **Net income** | **$19,413** | **$28,464** | **(32)%** | | Diluted earnings per share | $0.44 | $0.65 | (32)% | - **Total operating expenses increased by 45% YoY**, driven by significant increases in **amortization of acquired intangibles (91%)**, **product development (42%)**, and **sales and marketing (40%)**[12](index=12&type=chunk) - **Cash dividends declared per common share decreased from $0.175 in Q3 2024 to $0 in Q3 2025**[12](index=12&type=chunk) [Balance Sheets](index=4&type=section&id=2.2.%20Balance%20Sheets) Total assets decreased to $2.42B, while liabilities increased due to convertible senior notes, despite lower long-term debt Key Balance Sheet Items (in thousands) | Item | August 31, 2025 (in thousands) | November 30, 2024 (in thousands) | | :---------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $99,008 | $118,077 | | Total current assets | $335,545 | $368,813 | | Goodwill and intangible assets, net | $1,928,615 | $2,015,748 | | **Total assets** | **$2,421,711** | **$2,526,966** | | Convertible senior notes, current portion, net | $358,619 | — | | Total current liabilities | $769,809 | $455,145 | | Long-term debt, net | $620,000 | $730,000 | | Convertible senior notes, non-current portion, net | $440,713 | $796,267 | | **Total liabilities and stockholders' equity** | **$2,421,711** | **$2,526,966** | - **Total stockholders' equity increased to $477.7 million from $438.8 million**[13](index=13&type=chunk) [Statements of Cash Flows](index=5&type=section&id=2.3.%20Statements%20of%20Cash%20Flows) Q3 2025 operating cash flow rose 27% to $73.4M, but nine-month operating cash flow decreased 10% to $172.4M Net Cash Flows from Operating Activities | Period | August 31, 2025 (in thousands) | August 31, 2024 (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Three Months Ended | $73,446 | $57,658 | 27 % | | Nine Months Ended | $172,389 | $191,843 | (10)% | - Key cash flow activities for the three months ended August 31, 2025, included **repurchases of common stock ($11.7 million)**, **payments for acquisitions ($19.5 million)**, and **repayment of revolving line of credit and term loan ($40.0 million)**[14](index=14&type=chunk) - **Net change in cash and cash equivalents for Q3 2025 was a decrease of $3.0 million**, compared to an increase of $42.3 million in Q3 2024[14](index=14&type=chunk) [Non-GAAP Financial Measures (Q3 2025)](index=6&type=section&id=3.%20Non-GAAP%20Financial%20Measures%20(Q3%202025)) This section details the company's Q3 2025 non-GAAP financial measures, including adjusted income, EPS, and free cash flow [Adjusted Income from Operations](index=6&type=section&id=3.1.%20Adjusted%20Income%20from%20Operations) Non-GAAP income from operations for Q3 2025 increased 34% to $99.4M, with a 40% operating margin Adjusted Income from Operations (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | GAAP income from operations | $43,874 | $40,349 | 9 % | | Amortization of acquired intangibles | $37,199 | $20,117 | 85 % | | Stock-based compensation | $15,970 | $10,558 | 51 % | | Restructuring expenses | $907 | $308 | 194 % | | Acquisition-related expenses | $814 | $1,864 | (56)% | | Cyber vulnerability response expenses, net | $659 | $927 | (29)% | | **Non-GAAP income from operations** | **$99,423** | **$74,123** | **34 %** | - **Non-GAAP operating margin was 40% in Q3 2025**, compared to 41% in Q3 2024[4](index=4&type=chunk) [Adjusted Net Income and Diluted EPS](index=6&type=section&id=3.2.%20Adjusted%20Net%20Income%20and%20Diluted%20EPS) Non-GAAP net income grew 19% to $65.7M, and diluted EPS increased 19% to $1.50, after tax adjustments Adjusted Net Income (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | GAAP net income | $19,413 | $28,464 | (32)% | | Amortization of acquired intangibles | $37,199 | $20,117 | 85 % | | Stock-based compensation | $15,970 | $10,558 | 51 % | | Restructuring expenses | $907 | $308 | 194 % | | Acquisition-related expenses | $814 | $1,864 | (56)% | | Cyber vulnerability response expenses, net | $659 | $927 | (29)% | | Provision for income taxes | $(9,239) | $(7,022) | 32 % | | **Non-GAAP net income** | **$65,723** | **$55,216** | **19 %** | Adjusted Diluted Earnings per Share (Three Months Ended August 31) | Item | 2025 (per share) | 2024 (per share) | % Change | | :------------------------------------------ | :--------------- | :--------------- | :------- | | GAAP diluted earnings per share | $0.44 | $0.65 | (32)% | | **Non-GAAP diluted earnings per share** | **$1.50** | **$1.26** | **19 %** | [Adjusted and Unlevered Free Cash Flow](index=7&type=section&id=3.3.%20Adjusted%20and%20Unlevered%20Free%20Cash%20Flow) Adjusted free cash flow rose 29% to $74.4M, and unlevered free cash flow increased 40% to $88.6M in Q3 2025 Adjusted Free Cash Flow (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | Cash flows from operations | $73,446 | $57,658 | 27 % | | Purchases of property and equipment | $(1,055) | $(1,064) | (1)% | | Free cash flow | $72,391 | $56,594 | 28 % | | Add back: restructuring payments | $2,037 | $931 | 119 % | | **Adjusted free cash flow** | **$74,428** | **$57,525** | **29 %** | Unlevered Free Cash Flow (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | Adjusted free cash flow | $74,428 | $57,525 | 29 % | | Add back: tax-effected interest expense | $14,189 | $5,624 | 152 % | | **Unlevered free cash flow** | **$88,617** | **$63,149** | **40 %** | [Fiscal Year 2025 Business Outlook and Guidance](index=2&type=section&id=4.%20Fiscal%20Year%202025%20Business%20Outlook%20and%20Guidance) This section outlines the company's updated full-year and Q4 2025 financial guidance, including non-GAAP reconciliations [Updated Full Year 2025 Guidance](index=2&type=section&id=4.1.%20Updated%20Full%20Year%202025%20Guidance) Progress Software raised FY 2025 guidance, projecting revenue of $975M-$981M and non-GAAP diluted EPS of $5.50-$5.56 Updated FY 2025 Guidance (vs. Prior Guidance, in millions, except per share amounts) | Metric | Updated FY 2025 Guidance (GAAP) | Prior FY 2025 Guidance (GAAP) | Updated FY 2025 Guidance (Non-GAAP) | Prior FY 2025 Guidance (Non-GAAP) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :--------------------------------- | :--------------------------------- | | Revenue (in millions) | $975 - $981 | $962 - $974 | $975 - $981 | $962 - $974 | | Diluted earnings per share | $1.38 - $1.45 | $1.27 - $1.43 | $5.50 - $5.56 | $5.28 - $5.40 | | Operating margin | 15% | 15% | 38% - 39% | 38% - 39% | | Cash from operations (GAAP) | $221 - $231 | $218 - $230 | - | - | | Adjusted free cash flow (non-GAAP) | - | - | $232 - $242 | $228 - $240 | | Unlevered free cash flow (non-GAAP) | - | - | $289 - $299 | $285 - $296 | | Effective tax rate | 19 % | 17 % | 20 % | 20 % | - The expected positive currency translation impact on **FY 2025 revenue is approximately $4.0 million** and on GAAP and non-GAAP diluted EPS is approximately **$0.03**[11](index=11&type=chunk) [Fourth Quarter 2025 Guidance](index=2&type=section&id=4.2.%20Fourth%20Quarter%202025%20Guidance) Q4 2025 guidance projects revenue between $250M-$256M, with GAAP diluted EPS of $0.31-$0.37 and non-GAAP EPS of $1.29-$1.35 Q4 2025 Guidance (in millions, except per share amounts) | Metric | GAAP | Non-GAAP | | :-------------------------- | :----------- | :----------- | | Revenue | $250 - $256 | $250 - $256 | | Diluted earnings per share | $0.31 - $0.37 | $1.29 - $1.35 | - The expected positive currency translation impact on **Q4 2025 revenue is approximately $2.5 million** and on GAAP and non-GAAP diluted EPS is approximately **$0.01**[11](index=11&type=chunk) [Non-GAAP Guidance Reconciliations (FY 2025)](index=8&type=section&id=4.3.%20Non-GAAP%20Guidance%20Reconciliations%20(FY%202025)) This section provides detailed reconciliations for the company's non-GAAP financial guidance for fiscal year 2025 [Non-GAAP Operating Margin Guidance](index=8&type=section&id=4.3.1.%20Non-GAAP%20Operating%20Margin%20Guidance) The company projects a non-GAAP operating margin of 38%-39% for FY 2025, consistent with prior guidance after adjustments FY 2025 Non-GAAP Operating Margin Guidance (in millions) | Item | Low (in millions) | High (in millions) | | :------------------------------------------ | :---------------- | :---------------- | | GAAP income from operations | $146.9 | $151.2 | | GAAP operating margins | 15 % | 15 % | | Total adjustments | $228.4 | $228.4 | | **Non-GAAP income from operations** | **$375.3** | **$379.6** | | **Non-GAAP operating margin** | **38 %** | **39 %** | [Non-GAAP Earnings per Share and Effective Tax Rate Guidance](index=8&type=section&id=4.3.2.%20Non-GAAP%20Earnings%20per%20Share%20and%20Effective%20Tax%20Rate%20Guidance) FY 2025 non-GAAP diluted EPS is guided between $5.50-$5.56, based on a 20% non-GAAP effective tax rate FY 2025 Non-GAAP Diluted EPS Guidance (in millions, except per share data) | Item | Low | High | | :------------------------------------------ | :---- | :---- | | GAAP net income | $60.8 | $64.3 | | Adjustments (from previous table) | $228.4 | $228.4 | | Income tax adjustment | $(46.5) | $(46.5) | | **Non-GAAP net income** | **$242.7** | **$246.2** | | GAAP diluted earnings per share | $1.38 | $1.45 | | **Non-GAAP diluted earnings per share** | **$5.50** | **$5.56** | - The **non-GAAP effective tax rate for FY 2025 is approximately 20%**[20](index=20&type=chunk) [Adjusted and Unlevered Free Cash Flow Guidance](index=9&type=section&id=4.3.3.%20Adjusted%20and%20Unlevered%20Free%20Cash%20Flow%20Guidance) FY 2025 adjusted free cash flow is expected to be $232M-$242M, and unlevered free cash flow $289M-$299M FY 2025 Adjusted and Unlevered Free Cash Flow Guidance (in millions) | Item | Low (in millions) | High (in millions) | | :------------------------------------------ | :---------------- | :---------------- | | Cash flows from operations (GAAP) | $221 | $231 | | Purchases of property and equipment | $(6) | $(6) | | Add back: restructuring payments | $17 | $17 | | **Adjusted free cash flow (non-GAAP)** | **$232** | **$242** | | Add back: tax-effected interest expense | $57 | $57 | | **Unlevered free cash flow (non-GAAP)** | **$289** | **$299** | [Non-GAAP Guidance Reconciliations (Q4 2025)](index=9&type=section&id=4.4.%20Non-GAAP%20Guidance%20Reconciliations%20(Q4%202025)) This section provides detailed reconciliations for the company's non-GAAP financial guidance for Q4 2025 [Non-GAAP Earnings per Share Guidance](index=9&type=section&id=4.4.1.%20Non-GAAP%20Earnings%20per%20Share%20Guidance) Q4 2025 non-GAAP diluted EPS is projected at $1.29-$1.35, after accounting for various non-GAAP adjustments Q4 2025 Non-GAAP Diluted EPS Guidance | Item | Low (per share) | High (per share) | | :------------------------------------------ | :-------------- | :-------------- | | GAAP diluted earnings per share | $0.31 | $0.37 | | Total adjustments | $1.25 | $1.25 | | Income tax adjustment | $(0.27) | $(0.27) | | **Non-GAAP diluted earnings per share** | **$1.29** | **$1.35** | [Supplemental Information](index=2&type=section&id=5.%20Supplemental%20Information) This section provides additional context, including company information, conference call details, and explanations of key metrics [About Progress Software](index=2&type=section&id=5.1.%20About%20Progress%20Software) Progress Software provides AI-powered digital experience and infrastructure software, serving over 4 million developers and technologists - Progress Software empowers organizations to achieve transformational success by enabling them to develop, deploy, and manage **responsible AI-powered applications and digital experiences**[10](index=10&type=chunk) - **Over 4 million developers and technologists** at hundreds of thousands of enterprises depend on Progress[10](index=10&type=chunk) [Conference Call Information](index=2&type=section&id=5.2.%20Conference%20Call%20Information) Progress Software will host a conference call on September 29, 2025, at 5:00 p.m. ET to discuss Q3 2025 results - A conference call to review fiscal third quarter 2025 financial results will be held at **5:00 p.m. ET on Monday, September 29, 2025**[9](index=9&type=chunk) - Participants must register for the conference call via the provided link: `https://register-conf.media-server.com/register/BI3c81d17f962244a88dfaf9ee6925ed85`[9](index=9&type=chunk) - The webcast can be accessed at: `https://edge.media-server.com/mmc/p/axecrzfw/`[9](index=9&type=chunk) [Important Information Regarding Non-GAAP Financial Measures, Liquidity Measures and Select Performance Metrics](index=10&type=section&id=5.3.%20Important%20Information%20Regarding%20Non-GAAP%20Financial%20Measures,%20Liquidity%20Measures%20and%20Select%20Performance%20Metrics) This section explains non-GAAP financial measures, liquidity measures, and performance metrics used by management for evaluation and investor understanding - **Non-GAAP financial measures** are used by management to evaluate period-over-period operating performance, illustrate underlying business trends, and provide a more comparable measure of continuing business[24](index=24&type=chunk) - These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in conjunction with GAAP results, as excluded items may **materially impact financial results**[24](index=24&type=chunk) [Non-GAAP Adjustments Explained](index=10&type=section&id=5.3.1.%20Non-GAAP%20Adjustments%20Explained) Progress Software adjusts GAAP results for items like amortization, stock-based compensation, and restructuring to provide a clearer view of core performance - **Amortization of acquired intangibles** is excluded because these expenses are unrelated to core operating performance and vary significantly based on acquisition timing and magnitude[25](index=25&type=chunk) - **Stock-based compensation** is excluded to align with management and financial community evaluation, as it is generally not controllable short-term and varies significantly[25](index=25&type=chunk) - **Restructuring expenses, acquisition-related expenses, and cyber vulnerability response expenses (net)** are excluded as they distort trends, are unpredictable, or are not part of normal business operations[25](index=25&type=chunk) - The **provision for income taxes** is adjusted by excluding the tax impact of the other non-GAAP adjustments[25](index=25&type=chunk) - **Revenue growth rates** are presented on a constant currency basis to mitigate fluctuations from foreign currency exchange rates and improve period-to-period comparisons[25](index=25&type=chunk)[26](index=26&type=chunk) [Liquidity Measures Explained](index=11&type=section&id=5.3.2.%20Liquidity%20Measures%20Explained) AFCF is cash from operations less capital expenditures plus restructuring payments; Unlevered FCF adds tax-effected interest expense - **Adjusted Free Cash Flow (AFCF)** is defined as cash flows from operating activities less purchases of property and equipment, plus restructuring payments[27](index=27&type=chunk) - **Unlevered Free Cash Flow (Unlevered FCF)** is AFCF plus tax-effected interest expense on outstanding debt[27](index=27&type=chunk) [Select Performance Metrics Explained (ARR, NRR)](index=11&type=section&id=5.3.3.%20Select%20Performance%20Metrics%20Explained%20(ARR,%20NRR)) Progress Software uses ARR (annualized recurring revenue from contracts) and NRR (revenue growth from existing customers) as key performance metrics - **Annualized Recurring Revenue (ARR)** is the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time, used to understand customer trends and business health[27](index=27&type=chunk) - **ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services**, calculated at constant currency[27](index=27&type=chunk)[30](index=30&type=chunk) - **Net Retention Rate (NRR)** is calculated by comparing the ARR from a cohort of customers 12 months prior to their ARR at the current period end, including expansion and net of contraction/attrition, but excluding new customers[31](index=31&type=chunk) [Note Regarding Forward-Looking Statements](index=12&type=section&id=5.4.%20Note%20Regarding%20Forward-Looking%20Statements) Forward-looking statements are subject to risks including economic conditions, international operations, cybersecurity, and acquisition integration challenges - Statements regarding Progress' business outlook and financial guidance are considered **\"forward-looking statements\"** subject to various risks and uncertainties[32](index=32&type=chunk) - Key risk factors include **adverse economic, geopolitical, and market conditions**; **international sales and operations risks** (e.g., foreign currency gains and losses); and potential failure to achieve financial forecasts due to various factors[32](index=32&type=chunk) - Other risks include **cybersecurity compromises** (such as the MOVEit Vulnerability), **unsuccessful future acquisitions or unanticipated integration costs**, and the possibility that expected synergies and benefits from the ShareFile acquisition may not be realized[32](index=32&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-41279 5E ADVANCED MATERIALS, INC. (Exact name of Registrant as specified in its Charter) Delaware 87-3426517 (State or other jurisdiction of incorpo ...

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, which expanded its market presence and lending capabilities through a 2023 conversion and merger - SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, primarily owning the Bank's **outstanding common stock**[9](index=9&type=chunk) Key Financial Metrics (June 30, 2025) | Metric | June 30, 2025 (in millions) | | :----------------------- | :-------------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Stockholders' Equity | $193.8 | - The Company completed its mutual-to-stock conversion and stock offering on September 19, 2023, selling **9,055,172 shares at $10.00 per share**, and merged with Regal Bancorp, Inc. for approximately **$69.5 million**[13](index=13&type=chunk)[14](index=14&type=chunk) - The merger expanded the Bank's market presence into Essex, Morris, and Union Counties, New Jersey, enhancing its **commercial and residential lending expertise**[14](index=14&type=chunk)[15](index=15&type=chunk) [General Company Overview](index=3&type=section&id=General%20Company%20Overview) SR Bancorp, Inc. serves as the holding company for Somerset Regal Bank, with its primary business being the ownership of the Bank's common stock - SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, primarily owning the Bank's **outstanding common stock**[9](index=9&type=chunk) Key Financial Metrics (June 30, 2025) | Metric | June 30, 2025 (in millions) | | :----------------------- | :-------------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Stockholders' Equity | $193.8 | [Somerset Regal Bank Operations](index=3&type=section&id=Somerset%20Regal%20Bank%20Operations) Somerset Regal Bank, formed in September 2023 from a merger, operates 14 branches in New Jersey, offering diverse deposit and loan products - Somerset Regal Bank was formed on **September 19, 2023**, through the combination of Somerset Bank and Regal Bank, operating from **14 branches** in northern and central New Jersey[12](index=12&type=chunk) - The Bank offers a variety of **deposit and loan products** to individuals and small businesses, primarily within its market[12](index=12&type=chunk) [Stock Offering and Merger Details](index=3&type=section&id=Stock%20Offering%20and%20Merger%20Details) SR Bancorp completed its stock offering and acquired Regal Bancorp in September 2023, expanding its market presence and lending expertise - On **September 19, 2023**, SR Bancorp completed its stock offering, selling **9,055,172 shares at $10.00 per share**, including shares to its Employee Stock Ownership Plan[13](index=13&type=chunk) - The Company contributed **452,758 shares and $905,517 in cash** to the Somerset Regal Charitable Foundation, Inc. in connection with the conversion[13](index=13&type=chunk) - SR Bancorp acquired Regal Bancorp, Inc. for approximately **$69.5 million**, leading to the merger of Regal Bank into Somerset Savings Bank, renamed Somerset Regal Bank[14](index=14&type=chunk) - The merger expanded market presence and enhanced **commercial and residential lending expertise** for the combined entity[14](index=14&type=chunk)[15](index=15&type=chunk) [Market Area and Competition](index=4&type=section&id=Market%20Area%20and%20Competition) The Bank serves diverse, affluent markets in central and northern New Jersey, facing intense competition from various financial institutions - The Bank serves a broad geographic area in central and northern New Jersey, including Essex, Hunterdon, Middlesex, Morris, Somerset, and Union counties, characterized by **diverse economies**[16](index=16&type=chunk)[17](index=17&type=chunk) - Hunterdon, Morris, and Somerset counties are relatively affluent markets with **higher household and per capita incomes** compared to the U.S. and New Jersey averages[19](index=19&type=chunk)[20](index=20&type=chunk) - As of June 30, 2025, Somerset Regal Bank held **$364.6 million in deposits** in Somerset County, representing a **2.1% market share** among 20 financial institutions[21](index=21&type=chunk) - The Company faces **intense competition** for deposits and loans from various financial institutions and non-depository financial service providers, with larger competitors having significantly greater resources[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) [Lending Activities](index=5&type=section&id=Lending%20Activities) The Company offers diverse loan products, with commercial loans, particularly multi-family, significantly expanding post-merger and comprising 45.0% of the total portfolio - The Company offers a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial, and consumer loans, with a historical concentration in **residential loans**[25](index=25&type=chunk) - The merger with Regal Bank significantly expanded the commercial loan portfolio, with commercial loans comprising **45.0% of the total loan portfolio** at June 30, 2025, largely multi-family loans[25](index=25&type=chunk) Loan Portfolio Composition (June 30, 2025 vs. 2024) | Loan Type | June 30, 2025 (Amount in thousands) | June 30, 2025 (Percent) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Percent) | | :------------------------------- | :---------------------------------- | :---------------------- | :---------------------------------- | :---------------------- | | Owner occupied commercial real estate loans | $55,127 | 6.89% | $59,968 | 8.16% | | Other commercial real estate loans | $72,542 | 9.07% | $75,782 | 10.31% | | Multi-family loans | $219,934 | 27.48% | $180,364 | 24.54% | | Commercial and industrial loans | $12,253 | 1.53% | $12,522 | 1.70% | | **Total commercial loans** | **$359,856** | **44.97%** | **$328,636** | **44.71%** | | Residential mortgage loans | $427,345 | 53.40% | $394,723 | 53.70% | | Consumer and other loans | $13,038 | 1.63% | $11,658 | 1.59% | | **Total loans** | **$800,239** | **100.00%** | **$735,017** | **100.00%** | - The Bank's loan policy limits loans to one borrower to **$15.0 million** and to related borrowers to **$20.0 million**, well within the regulatory limit of **$28.9 million** at June 30, 2025[51](index=51&type=chunk) [Non-Performing and Problem Assets](index=9&type=section&id=Non-Performing%20and%20Problem%20Assets) The Company generally places loans on non-accrual status after 90 days of delinquency, reporting no non-performing assets as of June 30, 2025 - Loans are generally placed on **non-accrual status** when payments are **90 days or more delinquent**, unless well-secured and in the process of collection[54](index=54&type=chunk) Loan Delinquencies (June 30, 2025 vs. 2024) | Loan Type | June 30, 2025 (Total Past Due in thousands) | June 30, 2024 (Total Past Due in thousands) | | :------------------------------- | :------------------------------------------ | :------------------------------------------ | | Owner occupied commercial real estate | $0 | $0 | | Other commercial real estate | $0 | $0 | | Multi-family | $0 | $0 | | Commercial and industrial | $0 | $50 | | Residential mortgage | $1,945 | $572 | | Consumer and other | $67 | $40 | | **Total** | **$2,012** | **$662** | Non-Performing Assets (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Total non-accrual loans | $0 | $50 | | Total non-performing loans | $0 | $50 | | Total non-performing assets | $0 | $50 | | Total non-performing loans to total loans | —% | 0.01% | | Total non-performing assets to total assets | —% | 0.00% | - As of June 30, 2025, the Company had **no assets classified as special mention, substandard, doubtful, or loss**, indicating strong asset quality[60](index=60&type=chunk)[61](index=61&type=chunk) [Allowance for Credit Losses](index=12&type=section&id=Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses (ACL) is maintained to absorb expected credit losses, with its balance increasing to $5.36 million in FY2025 - The Allowance for Credit Losses (ACL) is maintained to absorb current expected credit losses, determined by management's subjective estimates considering loan portfolio characteristics, economic conditions, and regulatory reviews[62](index=62&type=chunk)[63](index=63&type=chunk) Allowance for Credit Losses Activity (Years Ended June 30, 2025 and 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | | :----------------- | :-------------------------------------- | :-------------------------------------- | | Beginning balance | $5,229 | $1,116 | | Provisions (credits) | $133 | $4,066 | | Ending balance | $5,362 | $5,229 | Allocation of Allowance for Credit Losses (June 30, 2025 vs. 2024) | Loan Category | June 30, 2025 (ACL in thousands) | June 30, 2025 (ACL to Total Loans) | June 30, 2024 (ACL in thousands) | June 30, 2024 (ACL to Total Loans) | | :--------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | :--------------------------------- | | Owner occupied commercial real estate loans | $675 | 0.08% | $1,331 | 0.81% | | Other commercial real estate loans | $179 | 0.02% | $502 | 0.07% | | Multi-family loans | $1,830 | 0.23% | $1,998 | 0.27% | | Commercial and industrial loans | $135 | 0.02% | $146 | 0.02% | | Residential mortgage loans | $2,308 | 0.29% | $1,175 | 0.16% | | Consumer and other loans | $235 | 0.03% | $77 | 0.01% | | **Total allocated allowance** | **$5,362** | **0.67%** | **$5,229** | **0.71%** | [Investment Activities](index=13&type=section&id=Investment%20Activities) The Company's investment policy focuses on maximizing yield while managing risk, with its portfolio consisting solely of held-to-maturity securities at June 30, 2025 - The Company's investment policy aims to maximize portfolio yield while minimizing risk, meeting liquidity needs, and managing **asset/liability and interest rate risks**[68](index=68&type=chunk)[71](index=71&type=chunk) - At June 30, 2025, the investment portfolio consisted solely of **held-to-maturity securities**, primarily U.S. government-sponsored enterprise obligations (**$131.9 million**), subordinated debentures (**$7.8 million**), and collateralized mortgage obligations (**$2.0 million**)[72](index=72&type=chunk) - During the year ended June 30, 2024, the Company sold **$35.4 million of lower-yielding available-for-sale securities** for a pre-tax loss of **$4.4 million**, redeploying proceeds into higher-yielding residential and commercial real estate mortgages[73](index=73&type=chunk) Investment Securities Portfolio Maturity Distribution and Weighted Average Yields (June 30, 2025) | Maturity Period | Amortized Cost (in thousands) | Fair Value (in thousands) | Weighted Average Yield | | :------------------------------ | :---------------------------- | :------------------------ | :--------------------- | | Due within one year | $200 | $200 | 4.40% | | Due after one through five years | $0 | $0 | — | | Due after five through ten years | $7,750 | $7,141 | 3.10% | | Residential mortgage-backed securities | $131,666 | $110,745 | 1.65% | | CMO | $2,011 | $1,890 | 2.50% | | **Total** | **$141,845** | **$120,195** | **1.75%** | [Deposit Activities and Other Sources of Funds](index=16&type=section&id=Deposit%20Activities%20and%20Other%20Sources%20of%20Funds) Deposits and loan repayments are the primary funding sources, with the Bank offering diverse deposit products and managing uninsured deposits and FHLB advances - Deposits and loan repayments are the primary sources of funds, with deposit inflows and outflows significantly influenced by **interest rates and market conditions**[81](index=81&type=chunk) - The Bank attracts deposits through a broad selection of instruments, including noninterest-bearing demand, interest-bearing demand, savings, money market, and certificates of deposit, with **no brokered deposits**[82](index=82&type=chunk) Distribution of Total Deposits by Account Type (June 30, 2025 vs. 2024) | Account Type | June 30, 2025 (Amount in thousands) | June 30, 2025 (Percent) | June 30, 2025 (Average Rate) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Percent) | June 30, 2024 (Average Rate) | | :------------------------------ | :---------------------------------- | :---------------------- | :--------------------------- | :---------------------------------- | :---------------------- | :--------------------------- | | Non-interest-bearing demand deposits | $114,107 | 13.49% | —% | $108,026 | 13.39% | —% | | Interest-bearing deposits | $319,829 | 37.80% | 1.88% | $252,880 | 31.33% | 1.13% | | Savings and club accounts | $143,881 | 17.01% | 0.07% | $173,375 | 21.48% | 0.07% | | Time deposits | $268,205 | 31.70% | 3.52% | $272,819 | 33.80% | 3.81% | | **Total** | **$846,022** | **100.00%** | | **$807,100** | **100.00%** | | - Uninsured deposits (over **$250,000**) totaled **$145.3 million** at June 30, 2025, up from **$109.7 million** at June 30, 2024[86](index=86&type=chunk) - The Company had a **$30.0 million advance** from the Federal Home Loan Bank of New York at a fixed rate of **4.42%** at June 30, 2025, with access to up to **$100.0 million** in advances[88](index=88&type=chunk) [Human Capital Resources](index=18&type=section&id=Human%20Capital%20Resources) The Company employs 119 full-time and two part-time non-unionized staff, fostering a discrimination-free workplace with competitive benefits and training - As of June 30, 2025, the Company had **119 full-time and two part-time employees**, none of whom are unionized, and maintains a good relationship with its employees[90](index=90&type=chunk) - The Company is committed to a discrimination-free workplace, with a code of conduct and annual training, offering **competitive pay, comprehensive benefits, a 401(k) plan, and an Employee Stock Ownership Plan (ESOP)**[91](index=91&type=chunk)[92](index=92&type=chunk) [Subsidiaries](index=18&type=section&id=Subsidiaries) SR Bancorp's sole subsidiary is Somerset Regal Bank, which in turn holds three inactive or investment-focused subsidiaries - SR Bancorp's only subsidiary is Somerset Regal Bank, which in turn has three subsidiaries: RB Properties, LLC (inactive), Somerset Investment Company (for investment securities), and Somerset Consumer Service Corporation (inactive)[94](index=94&type=chunk) [Regulation and Supervision](index=18&type=section&id=Regulation%20and%20Supervision) Somerset Regal Bank is regulated by NJDBI and FDIC, while SR Bancorp is a Federal Reserve and SEC-regulated bank holding company, both subject to capital requirements - Somerset Regal Bank is a New Jersey-chartered commercial bank, regulated by the **NJDBI and FDIC**, while SR Bancorp is a bank holding company regulated by the **Federal Reserve and SEC**[95](index=95&type=chunk)[96](index=96&type=chunk)[131](index=131&type=chunk) - The Bank is subject to minimum capital requirements, including a **common equity Tier 1 capital ratio of 4.5%**, Tier 1 capital ratio of **6.0%**, total capital ratio of **8%**, and a Tier 1 leverage ratio of **4%**[107](index=107&type=chunk) - Somerset Regal Bank has opted into the community bank leverage ratio framework, requiring a leverage ratio greater than **9%** to satisfy regulatory capital requirements, and was classified as **'well capitalized'** at June 30, 2025[112](index=112&type=chunk)[114](index=114&type=chunk)[120](index=120&type=chunk) - SR Bancorp, as a bank holding company, is subject to Federal Reserve regulation, including restrictions on non-banking activities and requirements to act as a **source of financial and managerial strength** to its subsidiary[131](index=131&type=chunk)[132](index=132&type=chunk)[136](index=136&type=chunk) [Federal Taxation](index=25&type=section&id=Federal%20Taxation) SR Bancorp and Somerset Regal Bank are subject to federal income taxation, reporting on an accrual basis, with the Bank holding $3.0 million in federal net operating loss carryovers - SR Bancorp and Somerset Regal Bank are subject to federal income taxation, reporting income and expenses on the **accrual method** with a tax year ending June 30[148](index=148&type=chunk)[149](index=149&type=chunk) - At June 30, 2025, Somerset Regal Bank had approximately **$3.0 million in federal net operating loss carryovers** (limited to 80% of future taxable income) and **$2.5 million in capital loss carryovers**[150](index=150&type=chunk)[151](index=151&type=chunk) [State Taxation](index=26&type=section&id=State%20Taxation) New Jersey taxes banks based on apportioned taxable income at a 9% rate, while SR Bancorp pays franchise taxes to Maryland - New Jersey state taxation for banks is based on apportioned taxable income, with a Corporation Business Tax rate of **9%** (lower for smaller incomes)[153](index=153&type=chunk) - As a Maryland business corporation, SR Bancorp files an annual report and pays **franchise taxes** to the State of Maryland[154](index=154&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) The Company faces diverse risks from economic conditions, interest rate fluctuations, operational challenges, regulatory compliance, and accounting changes, which could impact its financial performance and stock value - A worsening of local economic conditions, including inflation and recession, could reduce demand for products, increase non-performing loans, and decrease collateral values, disproportionately affecting the Company due to its **geographic concentration**[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk) - Changes in interest rates or an inverted yield curve can adversely affect profitability by impacting the **net interest spread**, loan origination, borrower repayment ability, and creating reinvestment risk[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - The Company's strategy for moderate growth carries risks, including the ability to attract and retain experienced bankers, competitive responses, and effective management of **expansion costs**[166](index=166&type=chunk) - Significant operational risks stem from high transaction volumes, potential fraud, system errors, security breaches, and reliance on third-party data processing, which could lead to **financial loss, regulatory action, or reputational damage**[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - Non-compliance with regulations like the USA PATRIOT Act and Bank Secrecy Act could result in **fines or sanctions**, while extensive banking regulations and changes in accounting standards can increase operational costs and impact financial reporting[195](index=195&type=chunk)[196](index=196&type=chunk)[201](index=201&type=chunk) [Risks Related to Economic Conditions](index=26&type=section&id=Risks%20Related%20to%20Economic%20Conditions) Economic downturns, inflation, and trade policy changes can negatively impact demand for services, loan performance, collateral values, and operating costs - A downturn in local economic conditions could reduce demand for services, increase non-performing loans, and decrease collateral values, negatively impacting **operations and earnings**[156](index=156&type=chunk)[157](index=157&type=chunk) - Inflation increases operating costs and can negatively affect customers' ability to repay loans, while sustained higher interest rates could **weaken economic activity**[158](index=158&type=chunk) - Changes in trade policies and tariffs could lead to higher costs, reduced demand, and supply chain disruptions for customers, potentially impairing their financial obligations and increasing **loan delinquencies**[159](index=159&type=chunk) [Risks Related to Interest Rates](index=28&type=section&id=Risks%20Related%20to%20Interest%20Rates) Profitability is highly sensitive to interest rate changes, which can affect net interest margin, loan origination, borrower repayment, and reinvestment risk - Profitability is highly sensitive to changes in interest rates, as the spread between interest earned on assets and interest paid on liabilities can fluctuate, affecting **income**[163](index=163&type=chunk) - An imbalance where liabilities have shorter maturities than assets creates earnings volatility; rising rates can hinder loan origination and borrower repayment, while declining rates can lead to **reinvestment risk**[164](index=164&type=chunk) - An inverted yield curve, where short-term rates exceed long-term rates, can reduce **net interest margin** and pose financial risk for institutions with fixed-rate loans[165](index=165&type=chunk) [Risks Related to Strategy and Growth](index=28&type=section&id=Risks%20Related%20to%20Strategy%20and%20Growth) Challenges in managing growth, introducing new products, and reliance on real estate-backed loans increase lending risk and the potential for insufficient credit loss allowance - Failure to effectively manage moderate growth, including attracting new customers and expanding market share, could negatively impact financial condition and operating results due to **considerable expansion costs**[166](index=166&type=chunk) - Introducing new lines of business or products involves substantial risks, including significant time and resource investment, potential failure to meet profitability targets, and increased burden on **management and IT systems**[167](index=167&type=chunk) - A significant portion (**98.5%**) of the loan portfolio is secured by real estate, making the Company vulnerable to a downturn in the local real estate market, which could impair collateral values and necessitate increased allowance for credit losses[168](index=168&type=chunk)[169](index=169&type=chunk) - Increased multi-family, commercial real estate, and commercial loan originations will heighten lending risk due to larger loan balances, dependence on borrower property management, and potentially **less liquid collateral**[171](index=171&type=chunk)[172](index=172&type=chunk) - If the allowance for credit losses is insufficient to cover actual credit losses, earnings and capital could decrease, especially with the implementation of the **CECL accounting standard** requiring earlier recognition of expected losses[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) [Risks Related to Our Funding](index=30&type=section&id=Risks%20Related%20to%20Our%20Funding) Inability to generate core deposits may force reliance on more expensive wholesale funding, adversely affecting net interest margin and profitability - Inability to generate core deposits may force reliance on more expensive wholesale funding, adversely affecting **net interest margin and profitability**[176](index=176&type=chunk) - Certificates of deposit comprised **31.7% of total deposits** at June 30, 2025, with **28.3% maturing within one year**, posing reinvestment risk if higher rates are required to retain them[176](index=176&type=chunk) [Risks Related to Competition](index=31&type=section&id=Risks%20Related%20to%20Competition) Intense competition from larger financial institutions and non-banks, exacerbated by technological advances, may limit the Company's growth and profitability - Intense competition from larger financial institutions and non-banks in the market area may limit growth and profitability, as competitors often have **greater resources, name recognition, and can offer more aggressive pricing**[177](index=177&type=chunk) - Technological advances and industry consolidation further intensify competition, allowing non-banks to offer traditional banking services and larger entities to achieve **economies of scale**[177](index=177&type=chunk) [Risks Related to Operations and Security](index=31&type=section&id=Risks%20Related%20to%20Operations%20and%20Security) High transaction volumes, cyber-attacks, third-party reliance, and loss of key personnel pose significant operational and security risks, potentially leading to financial and reputational damage - The financial services business involves high transaction volumes, leading to significant operational risks such as **fraud, unauthorized transactions, system errors, and internal control breaches**, which may not be fully covered by insurance[178](index=178&type=chunk) - Cyber-attacks, security breaches, or employee errors can compromise confidential information, damage reputation, increase costs, and lead to **regulatory consequences or litigation**[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - Reliance on third-party data processing providers introduces risks; their difficulties or communication issues could adversely affect **transaction processing and business operations**[185](index=185&type=chunk) - The Company's success depends on retaining key personnel, and the loss of experienced senior management could negatively impact major revenue-generating functions and increase **recruiting expenses**[187](index=187&type=chunk) [Risks Related to Regulatory Matters](index=34&type=section&id=Risks%20Related%20to%20Regulatory%20Matters) Extensive regulation, supervision, and potential non-compliance with laws like the USA PATRIOT Act can increase costs, impact financial reporting, and lead to sanctions - Extensive regulation, supervision, and examination by banking regulators, along with changes in laws and accounting standards, can significantly increase **operational costs and impact financial reporting**[195](index=195&type=chunk)[201](index=201&type=chunk) - Non-compliance with laws like the USA PATRIOT Act and Bank Secrecy Act could result in **fines, sanctions, or restrictions on business activities**[196](index=196&type=chunk) - Monetary policies and regulations of the Federal Reserve directly affect earnings and growth by influencing **money supply, credit conditions, and interest rates**[197](index=197&type=chunk)[198](index=198&type=chunk) - As an **'emerging growth company'** and **'smaller reporting company,'** the Company may use reduced reporting and disclosure requirements, which could make its common stock less attractive to investors[199](index=199&type=chunk)[200](index=200&type=chunk) [Risks Related to Accounting Matters](index=35&type=section&id=Risks%20Related%20to%20Accounting%20Matters) Changes in accounting standards and subjective management estimates for credit losses, goodwill, and deferred taxes can materially impact financial reporting - Changes in accounting standards by FASB and SEC can materially impact how financial condition and operating results are reported, potentially **retroactively**[201](index=201&type=chunk) - Management's estimates and assumptions, particularly for allowance for credit losses, goodwill impairment, and deferred income taxes, are subjective and susceptible to **material changes**, affecting consolidated financial statements[202](index=202&type=chunk) [Risks Related to Our Common Stock](index=35&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The Company's low return on equity post-offering and anti-takeover provisions could negatively affect its stock price and acquisition potential - The Company's **return on equity remains low** following the stock offering, which could negatively affect its stock price until net interest and noninterest income increase and capital is profitably leveraged[203](index=203&type=chunk)[204](index=204&type=chunk) - Provisions in articles of incorporation, bylaws, and banking laws, including regulatory approval requirements and a **10% voting limit**, could make takeover attempts more difficult, potentially affecting the market price of common stock[205](index=205&type=chunk) [Risks Related to the Somerset Regal Charitable Foundation](index=36&type=section&id=Risks%20Related%20to%20the%20Somerset%20Regal%20Charitable%20Foundation) The Company's contribution to the charitable foundation may not be fully tax deductible if profits are insufficient, potentially reducing overall profits - The Company's contribution to the charitable foundation may not be fully tax deductible if there are **insufficient profits**, potentially reducing overall profits[206](index=206&type=chunk) [Item 1B. Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section confirms the absence of any unresolved staff comments from the SEC - The Company has **no unresolved staff comments**[207](index=207&type=chunk) [Item 1C. Cybersecurity](index=36&type=section&id=Item%201C.%20Cybersecurity) The Company maintains a comprehensive cybersecurity risk management program, overseen by its Information Security Officer and Board, encompassing risk assessments, policies, training, and third-party vendor management - The Company's cybersecurity risk management program is managed by its Information Security Officer, a member of the Executive Management Team, with **direct access to the Board of Directors**[208](index=208&type=chunk) - The program includes extensive **risk assessments, policies**, and regular **employee training**[209](index=209&type=chunk) - Daily operations are monitored by IT professionals and a third-party security vendor providing **24x7 monitoring**, with annual audits by an outside firm specializing in IT and cybersecurity assessments[210](index=210&type=chunk)[212](index=212&type=chunk) - A vendor management program ensures third-party service providers meet specific criteria for **data security and cybersecurity risk management**, with ongoing monitoring[213](index=213&type=chunk) [Item 2. Properties](index=38&type=section&id=Item%202.%20Properties) As of June 30, 2025, the Company operates a main office and 13 branch offices, with seven properties owned and six leased, totaling **$3.09 million** in net book value for owned properties Properties as of June 30, 2025 | Description and Address | Leased or Owned | Square Footage | Net Book Value (in thousands) | | :-------------------------------- | :-------------- | :------------- | :---------------------------- | | Main Office (Bound Brook, NJ) | Owned | 15,000 | $801 | | Somerville Branch | Owned | 3,100 | $122 | | Raritan Branch | Owned | 1,800 | $173 | | Middlesex Branch | Owned | 1,800 | $249 | | Whitehouse Branch | Owned | 1,800 | $394 | | Flemington Branch | Owned | 3,400 | $272 | | Manville Branch | Owned | 4,900 | $682 | | Livingston Branch | Leased | 2,800 | $44 | | Roseland Branch | Leased | 1,800 | $0 | | Florham Park Branch | Leased | 1,100 | $0 | | Millburn Branch | Leased | 2,500 | $0 | | West Orange Branch | Leased | 2,000 | $0 | | Springfield Branch | Leased | 3,600 | $0 | | Somerset Branch | Leased | 3,600 | $687 | [Item 3. Legal Proceedings](index=39&type=section&id=Item%203.%20Legal%20Proceedings) The Company is not currently involved in any legal proceedings expected to materially adversely affect its financial condition, operations, or cash flows - The Company is not involved in any pending legal proceedings believed to have a **material adverse effect** on its financial condition, results of operations, or cash flows[218](index=218&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company's operations - Mine Safety Disclosures are **not applicable** to SR Bancorp, Inc[219](index=219&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=40&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) SR Bancorp's common stock trades on NASDAQ under 'SRBK', with 945 stockholders of record as of September 22, 2025, and recent share repurchases totaling 309,530 shares - SR Bancorp's common stock trades on The NASDAQ Capital Market under the symbol **'SRBK'**[222](index=222&type=chunk) - As of September 22, 2025, the Company had **945 stockholders of record**[222](index=222&type=chunk) Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Program | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------- | | April 1 - April 30, 2025 | 57,116 | $12.11 | 57,116 | | May 1 - May 31, 2025 | 252,414 | $13.10 | 252,414 | | June 1 - June 30, 2025 | — | — | — | | **Total** | **309,530** | | **309,530** | - The Board of Directors approved repurchases of **950,793 shares** on September 20, 2024, and an additional **886,137 shares** on July 8, 2025, each representing approximately **10.0% of outstanding common stock**[224](index=224&type=chunk) [Item 6. [Reserved]](index=40&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes SR Bancorp's financial performance, highlighting the impact of its 2023 conversion and merger, which led to a **$5.1 million net income in FY2025** and strategic focus on commercial lending, core deposits, and technology - The conversion to stock form and merger with Regal Bancorp, Inc. were completed on **September 19, 2023**, leading to the formation of Somerset Regal Bank and its listing on Nasdaq[227](index=227&type=chunk)[229](index=229&type=chunk) Key Financial Metrics (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in millions) | June 30, 2024 (in millions) | | :----------------------- | :-------------------------- | :-------------------------- | | Total Assets | $1,080 | $1,020 | | Deposits | $846.0 | $807.1 | | Total Equity | $193.8 | $199.5 | - Net income increased by **$16.0 million to $5.1 million** for the year ended June 30, 2025, compared to a net loss of **$10.9 million** for the year ended June 30, 2024, primarily due to reduced one-time merger-related expenses and increased net accretion income[274](index=274&type=chunk) - The Company's business strategy focuses on growing commercial lending, maintaining high asset quality, building profitable customer relationships, increasing transaction deposit accounts, and leveraging technology for **efficient operations and enhanced customer service**[257](index=257&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) [Conversion, Stock Offering and Merger](index=41&type=section&id=Conversion%2C%20Stock%20Offering%20and%20Merger) The Company completed its mutual-to-stock conversion and stock offering on September 19, 2023, simultaneously merging with Regal Bancorp, Inc - The conversion of Somerset Savings Bank, SLA to stock form and the related stock offering by SR Bancorp, Inc. were completed on **September 19, 2023**[227](index=227&type=chunk) - SR Bancorp sold **9,055,172 shares of common stock at $10.00 per share** and contributed shares and cash to the Somerset Regal Charitable Foundation[228](index=228&type=chunk) - Regal Bancorp, Inc. merged into SR Bancorp, and Regal Bank merged into Somerset Bank (renamed Somerset Regal Bank) on **September 19, 2023**, with Regal Bancorp shareholders receiving **$23.00 cash per share**[229](index=229&type=chunk) [Overview of Business and Financial Performance](index=41&type=section&id=Overview%20of%20Business%20and%20Financial%20Performance) The Company's primary business involves deposit acquisition and loan funding through Somerset Regal Bank, with net interest income as the main pre-tax income source - The principal business involves acquiring deposits and funding loans, with Somerset Regal Bank operating **14 branches** in New Jersey[230](index=230&type=chunk)[231](index=231&type=chunk) Key Financial Metrics (June 30, 2025) | Metric | Amount (in millions) | | :----------------------- | :------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Equity | $193.8 | - Primary pre-tax income source is **net interest income**, with noninterest income derived from service charges and bank-owned life insurance[232](index=232&type=chunk)[233](index=233&type=chunk) - Noninterest expenses include salaries, occupancy, equipment, data processing, advertising, FDIC premiums, and professional fees, with **salaries and employee benefits** being the largest component[236](index=236&type=chunk)[237](index=237&type=chunk) [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgments for credit losses, goodwill impairment, and deferred taxes, with the Company delaying new pronouncement adoption as an emerging growth company - Critical accounting policies involve significant management judgments and estimates, particularly for the **allowance for credit losses, goodwill and intangible assets impairment, and deferred tax assets**[243](index=243&type=chunk)[245](index=245&type=chunk) - As an **'emerging growth company,'** the Company plans to delay adoption of new accounting pronouncements until applicable to private companies, potentially affecting comparability[244](index=244&type=chunk) - The Allowance for Credit Losses (ACL) is calculated under **ASC 326**, recognizing lifetime expected credit losses based on historical experience, current conditions, and economic forecasts, with qualitative adjustments for unmodeled risk factors[246](index=246&type=chunk)[247](index=247&type=chunk)[249](index=249&type=chunk) - Goodwill is tested annually for impairment, and core deposit intangibles are amortized over **ten years** and evaluated for impairment annually[250](index=250&type=chunk)[252](index=252&type=chunk) - Income taxes are accounted for using the **asset and liability method**, recognizing deferred tax assets and liabilities for temporary differences, with a valuation allowance for amounts not likely to be realized[253](index=253&type=chunk)[254](index=254&type=chunk) [Business Strategy](index=44&type=section&id=Business%20Strategy) The Company's strategy focuses on community-oriented growth through commercial lending, asset quality, customer relationships, core deposit expansion, and technology leverage - The Company's business strategy is to operate and grow as a **community-oriented financial institution**[257](index=257&type=chunk) - Key strategic initiatives include leveraging residential and commercial lending expertise, expanding SBA lending, maintaining **high asset quality** through prudent underwriting, building profitable customer relationships, increasing transaction deposit accounts, and continuously leveraging technology for **efficiency and customer service**[257](index=257&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - The merger and additional capital from the stock offering allow for increased loan originations and larger loan balances, with a legal lending limit of **$29.1 million** at June 30, 2025[258](index=258&type=chunk) - Core deposits represented **68.3% of total deposits** at June 30, 2025, up from **66.2%** at June 30, 2024, reflecting a focus on expanding these lower-cost funds[263](index=263&type=chunk) [Comparison of Financial Condition at June 30, 2025 and June 30, 2024](index=45&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030%2C%202025%20and%20June%2030%2C%202024) Total assets increased by **$63.6 million** to **$1,080 million** at June 30, 2025, driven by loan growth, while total equity decreased by **$5.7 million** due to share repurchases Financial Condition Overview (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (in millions) | Change (%) | | :----------------------- | :-------------------------- | :-------------------------- | :------------------- | :--------- | | Total Assets | $1,080 | $1,020 | $63.6 | 6.2% | | Cash and Cash Equivalents | $57.8 | $45.9 | $11.9 | 25.9% | | Securities Held-to-Maturity | $141.8 | $156.1 | $(14.3) | (9.2)% | | Loans Receivable, net | $797.2 | $731.9 | $65.3 | 8.9% | | Bank Owned Life Insurance | $36.6 | $37.1 | $(0.5) | (1.3)% | | Goodwill and Intangible Assets | $26.7 | $28.1 | $(1.4) | (5.0)% | | Total Liabilities | $890.6 | $821.4 | $69.3 | 8.4% | | Deposits | $846.0 | $807.1 | $38.9 | 4.8% | | Borrowings | $30.0 | $0 | $30.0 | N/A | | Total Equity | $193.8 | $199.5 | $(5.7) | (2.9)% | - The increase in total assets was primarily driven by new loan originations, resulting in a **$65.3 million net increase in loans receivable** and an **$11.9 million increase in cash and cash equivalents**, partially offset by a **$14.3 million decrease in securities**[265](index=265&type=chunk) - Total equity decreased by **$5.7 million, or 2.9%**, primarily due to the repurchase of **936,991 shares of common stock at a cost of $11.3 million**, partially offset by net income of **$5.1 million**[273](index=273&type=chunk) [Comparison of Operating Results for the Years Ended June 30, 2025 and June 30, 2024](index=46&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Years%20Ended%20June%2030%2C%202025%20and%20June%2030%2C%202024) Net income significantly increased to **$5.1 million** in FY2025 from a **$10.9 million net loss** in FY2024, driven by reduced merger expenses and increased net accretion income - Net income increased significantly to **$5.1 million for FY2025** from a net loss of **$10.9 million for FY2024**, driven by reduced one-time merger-related expenses and a **$2.8 million net accretion income** from fair value adjustments[274](index=274&type=chunk) Interest Income (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | :--------- | | Total interest income | $46,315 | $40,866 | $5,449 | 13.3% | Interest Expense (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | :--------- | | Total interest expense | $16,734 | $11,495 | $5,239 | 45.6% | Net Interest Income and Margin (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 | Year Ended June 30, 2024 | Change | | :--------------------- | :----------------------- | :----------------------- | :----- | | Net interest income | $29.6 million | $29.4 million | 0.7% | | Net interest rate spread | 2.35% | 2.73% | (38 bps) | | Net interest margin | 2.93% | 3.19% | (26 bps) | Noninterest Income (Years Ended June 30, 2025 vs. 2024) | Noninterest Income Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Service charges and fees on deposit | $894 | $818 | $76 | 9.3% | | Increase in cash surrender value of bank owned life insurance | $1,043 | $907 | $136 | 15.0% | | Realized loss on sale of securities | $0 | $(4,463) | $4,463 | (100.0)% | | Gains from life insurance proceeds | $1,492 | $0 | $1,492 | 100.0% | | **Total noninterest income (loss)** | **$3,734** | **$(2,491)** | **$6,225** | 249.9% | Noninterest Expense (Years Ended June 30, 2025 vs. 2024) | Noninterest Expense Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Salaries and employee benefits | $13,916 | $15,102 | $(1,186) | (7.9)% | | Data processing | $2,191 | $3,100 | $(909) | (29.3)% | | Other expenses | $3,082 | $8,737 | $(5,655) | (64.7)% | | **Total noninterest expense** | **$27,055** | **$34,583** | **$(7,528)** | (21.8)% | [Market Risk](index=51&type=section&id=Market%20Risk) Interest rate risk is the primary market risk, managed by the ALCO/Investment Committee through modeling and strategies to optimize deposit and loan structures - Interest rate risk is the most significant form of market risk, managed by the ALCO/Investment Committee using a third-party modeling program to evaluate **sensitivity to interest rate changes**[288](index=288&type=chunk) - Strategies to manage interest rate risk include growing transaction deposits, emphasizing shorter-term commercial loans, and pricing residential loans to encourage **adjustable-rate options**[294](index=294&type=chunk) Estimated Changes in Economic Value of Equity (EVE) at June 30, 2025 | Change in Interest Rates (basis points) | Estimated EVE (in thousands) | Estimated Increase (Decrease) in EVE (in thousands) | Percent Change | | :-------------------------------------- | :--------------------------- | :-------------------------------------------------- | :------------- | | +400 | $112,890 | $(80,575) | (41.65)% | | +300 | $136,356 | $(57,109) | (29.52)% | | +200 | $158,020 | $(35,445) | (18.32)% | | +100 | $177,314 | $(16,151) | (8.35)% | | — | $193,465 | — | — | | -100 | $205,646 | $12,181 | 6.30% | | -200 | $213,269 | $19,804 | 10.24% | | -300 | $217,861 | $24,395 | 12.61% | | -400 | $220,240 | $26,775 | 13.84% | Estimated Changes in Net Interest Income (NII) at June 30, 2025 | Change in Interest Rates (basis points) | Year 1 NII Forecast (in thousands) | Year 1 Change From Level (in thousands) | Year 2 NII Forecast (in thousands) | Year 2 Change From Level (in thousands) | | :-------------------------------------- | :--------------------------------- | :-------------------------------------- | :--------------------------------- | :-------------------------------------- | | +400 | $27,658 | $(4,934) | $31,572 | $(3,198) | | +300 | $29,149 | $(3,443) | $33,015 | $(1,755) | | +200 | $30,473 | $(2,119) | $34,026 | $(744) | | +100 | $31,619 | $(973) | $34,599 | $(171) | | — | $32,592 | — | $34,770 | — | | -100 | $32,889 | $297 | $33,731 | $(1,039) | | -200 | $32,902 | $310 | $32,122 | $(2,648) | | -300 | $32,642 | $50 | $30,056 | $(4,714) | | -400 | $31,964 | $(628) | $27,446 | $(7,324) | [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is managed through deposit inflows, loan repayments, and investment securities, supplemented by wholesale borrowings, with liquid assets at **6.8% of total deposits** at June 30, 2025 - Liquidity is managed to fund assets and meet obligations, with primary sources including deposit inflows, loan repayments, and investment securities repayments, supplemented by **wholesale market and FHLB borrowings**[300](index=300&type=chunk) - The Company aims to maintain a liquid assets to total deposits ratio between **4% and 30%**, which was **6.8%** at June 30, 2025[300](index=300&type=chunk) - At June 30, 2025, cash and cash equivalents totaled **$57.8 million**, with **$41.0 million in outstanding loan commitments** and **$38.0 million of unused lines of credit**[301](index=301&type=chunk)[302](index=302&type=chunk) - Deposits increased by **$38.9 million (4.8%) to $846.0 million** at June 30, 2025, while borrowings increased to **$30.0 million** from the FHLB, with an additional **$70.0 million borrowing capacity**[304](index=304&type=chunk)[305](index=305&type=chunk) - The Company repurchased **936,991 shares of common stock for $11.3 million** and paid **$444,000 in dividends** during FY2025[306](index=306&type=chunk) [Regulatory Capital](index=54&type=section&id=Regulatory%20Capital) Somerset Regal Bank adheres to federal regulatory capital requirements, including the community bank leverage ratio framework, and was categorized as 'well capitalized' at June 30, 2025 - Somerset Regal Bank is subject to federal regulatory capital requirements and has adopted the **community bank leverage ratio framework**, requiring a Tier 1 capital to average assets ratio greater than **9%**[307](index=307&type=chunk)[521](index=521&type=chunk)[523](index=523&type=chunk) - At June 30, 2025, the Bank met all capital adequacy requirements and was categorized as **'well capitalized'** by the FDIC[307](index=307&type=chunk)[524](index=524&type=chunk) Tier 1 Capital to Average Total Assets (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (Amount in thousands) | June 30, 2025 (Ratio) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Ratio) | | :----------------------------------- | :---------------------------------- | :-------------------- | :---------------------------------- | :-------------------- | | Tier 1 capital (to average total assets) | $162,261 | 15.51% | $170,364 | 16.83% | [Recent Accounting Pronouncements](index=55&type=section&id=Recent%20Accounting%20Pronouncements) For details on the impact of recent accounting pronouncements, refer to Note 1 of the Notes to the Consolidated Financial Statements - For a discussion of the impact of recent accounting pronouncements, refer to **Note 1 of the Notes to the Consolidated Financial Statements**[309](index=309&type=chunk) [Impact of Inflation and Changing Prices](index=55&type=section&id=Impact%20of%20Inflation%20and%20Changing%20Prices) The Company's financial statements, prepared under GAAP, are more significantly impacted by market interest rate changes than by inflation - The Company's financial statements are prepared under GAAP, which does not account for changes in **purchasing power due to inflation**[310](index=310&type=chunk) - Changes in market interest rates have a greater impact on the Company's performance than inflation, as its assets and liabilities are **primarily monetary**[310](index=310&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the market risk disclosures within Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operation—Market Risk,' for quantitative and qualitative information - Information regarding material market risk is provided in **Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operation—Market Risk'**[311](index=311&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the Company's audited consolidated financial statements for FY2025 and FY2024, including the independent auditor's report, core financial statements, and detailed notes on accounting policies, business combinations, and various financial components - The Financial Statements and Supplementary Data are included starting on **page F-1 (page 61 in the document)** of this annual report on Form 10-K[311](index=311&type=chunk)[326](index=326&type=chunk) - The consolidated financial statements include the **Report of Independent Registered Public Accounting Firm**, Consolidated Statements of Financial Condition, Income (Loss), Comprehensive Income (Loss), Changes in Equity, and Cash Flows[326](index=326&type=chunk)[337](index=337&type=chunk) - Notes to Consolidated Financial Statements provide detailed information on significant accounting policies, business combinations, earnings per share, investment securities, loans, premises and equipment, leases, goodwill and intangibles, deposits, borrowings, benefit plans, stock-based compensation, income taxes, commitments, regulatory capital, related-party transactions, and **fair value measurements**[326](index=326&type=chunk)[337](index=337&type=chunk)[357](index=357&type=chunk) [Report of Independent Registered Public Accounting Firm](index=62&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Baker Tilly US, LLP issued an unqualified opinion on the consolidated financial statements for June 30, 2025 and 2024, affirming fair presentation in conformity with GAAP - Baker Tilly US, LLP, the independent registered public accounting firm, issued an **unqualified opinion**, stating that the consolidated financial statements for June 30, 2025 and 2024, present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[339](index=339&type=chunk) - The audit was conducted in accordance with **PCAOB and U.S. GAAP auditing standards**, but did not include an audit of internal control over financial reporting[341](index=341&type=chunk) [Consolidated Statements of Financial Condition](index=63&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) This section presents the Company's consolidated financial position, detailing assets, liabilities, and equity as of June 30, 2025 and 2024 Consolidated Statements of Financial Condition (June 30, 2025 vs. 2024) | Asset/Liability/Equity | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------- | :--------------------------- | :--------------------------- | | Total cash and cash equivalents | $57,779 | $45,909 | | Securities held-to-maturity | $141,845 | $156,144 | | Loans receivable, net | $797,166 | $731,859 | | Bank owned life insurance | $36,607 | $37,093 | | Goodwill and intangible assets | $26,708 | $28,141 | | **Total assets** | **$1,084,405** | **$1,020,844** | | Total deposits | $846,022 | $807,100 | | Borrowings | $30,000 | $0 | | **Total liabilities** | **$890,625** | **$821,361** | | Total stockholders' equity | $193,780

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section cautions investors on forward-looking statements, which are based on current assumptions and involve inherent risks - This section contains cautionary language regarding forward-looking statements, based on current assumptions and expectations, involving known and unknown risks and uncertainties, where actual results may differ materially[10](index=10&type=chunk)[12](index=12&type=chunk) - Key forward-looking statements address the company's **going concern ability**, continuous **losses**, need for **additional capital**, product development, third-party dependence, and unpredictable **clinical trial results** and **regulatory outcomes**[11](index=11&type=chunk) - The company changed its corporate name from Renovaro BioSciences Inc. to Renovaro Inc. in **February 2024**, and then to Lunai Bioworks Inc. in **August 2025**[14](index=14&type=chunk) Part I [Item 1 Business](index=6&type=section&id=Item%201%20Business) Lunai Bioworks operates through three subsidiaries, focusing on advanced cell and gene therapies, AI-driven cancer detection, and biomarker discovery [Company Overview](index=6&type=section&id=Company%20Overview) Lunai Bioworks Inc. operates through three wholly-owned subsidiaries, focusing on biotechnology and AI-driven healthcare technologies - Lunai Bioworks Inc. operates through three wholly-owned subsidiaries: Renovaro Biosciences, Renovaro Cube (acquired **February 13, 2024**), and BioSymetrics (acquired **April 8, 2025**)[17](index=17&type=chunk)[18](index=18&type=chunk) [Renovaro Biosciences Overview](index=6&type=section&id=Renovaro%20Biosciences%20Overview) Renovaro Biosciences develops advanced allogeneic cell and gene therapies to enhance immune responses for long-term cancer remission - Renovaro Biosciences is a biotechnology company focused on developing advanced allogeneic cell and gene therapies to enhance immune responses for long-term cancer remission, particularly in deadly cancers[19](index=19&type=chunk)[20](index=20&type=chunk) - The company's primary focus areas include RENB-DC11 for solid tumors (e.g., pancreatic cancer) and RENB-DC20 for Triple Negative Breast Cancer (TNBC), leveraging an allogeneic cell therapy platform[23](index=23&type=chunk)[26](index=26&type=chunk) [Renovaro Cube Overview](index=7&type=section&id=Renovaro%20Cube%20Overview) Renovaro Cube is an AI-driven healthcare technology company specializing in early cancer detection and recurrence using a proprietary Explainable AI platform - Renovaro Cube is an AI-driven healthcare technology company focused on early cancer detection and recurrence using a proprietary Explainable AI platform that analyzes genetics with a multi-omics approach[28](index=28&type=chunk) - The company's strategy includes developing products for early cancer characterization, personalized treatment selection, therapy response prediction and tracking, recurrence detection, efficacy monitoring, and drug discovery[29](index=29&type=chunk)[33](index=33&type=chunk) - Renovaro Cube's AI technology supports type-specific cancer detection, pan-cancer analysis, and patient stratification, leveraging DNA methylation data to identify biomarkers for various cancers[40](index=40&type=chunk)[41](index=41&type=chunk)[43](index=43&type=chunk) - Commercialization plans involve partnerships with academic cancer centers and pathology/imagery centers, hiring additional staff, building infrastructure, and establishing certified service laboratories in EMEA and the US for liquid biopsy analysis[53](index=53&type=chunk)[54](index=54&type=chunk)[69](index=69&type=chunk) [Business Overview (BioSymetrics)](index=16&type=section&id=Business%20Overview%20(BioSymetrics)) BioSymetrics is a biomedical AI company integrating multimodal data to advance biomarker discovery, therapeutic development, and precision medicine - BioSymetrics is a biomedical AI company integrating multimodal data (genomics, imaging, EHR) to advance biomarker discovery, therapeutic development, and precision medicine[70](index=70&type=chunk) - Its platform utilizes 'Contingent AI' to optimize the entire data science pipeline and features a proprietary 'Phenograph' knowledge graph to map human genes and phenotypes for virtual phenotypic screening and target nomination[72](index=72&type=chunk)[74](index=74&type=chunk) - BioSymetrics couples AI prediction with experimental validation, demonstrated by identifying a novel neuroactive compound (BioS_831) effective in a mouse seizure model, showing translation to mammalian epilepsy models[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Our Intellectual Property](index=18&type=section&id=Our%20Intellectual%20Property) The company protects its intellectual property through patents, copyrights, trademarks, and trade secrets, secured via filings and agreements - The company's intellectual property strategy relies on patents, copyrights, trademarks, and trade secrets, protected through filings and agreements[82](index=82&type=chunk)[83](index=83&type=chunk) - Key assigned patents include U.S. Patent No. **11,413,338 B2** for cancer therapy using recombinant dendritic cells (RENB-DC11) and Patent No. **US-11379757-B2** for multi-modal data analytics using machine learning (Contingent AI)[84](index=84&type=chunk)[85](index=85&type=chunk) [Competition](index=19&type=section&id=Competition) The company faces intense competition in AI-driven diagnostics and phenotype-based profiling, differentiating through its unique AI platforms - Renovaro Cube faces intense competition in AI-driven diagnostics from companies like Grail, Freenome, and Owkin, differentiating itself with a disease-agnostic, multi-omics, explainable AI platform[88](index=88&type=chunk) - BioSymetrics competes with Recursion Pharma and insitro in phenotype-based profiling, distinguishing its platform by providing multicellular/multi-organ phenotypes and higher throughput for large chemical screens than murine models[89](index=89&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) The company's products are subject to extensive government regulation, including FDA approval processes and various healthcare laws - The company's products are subject to extensive regulation by government authorities, including the FDA in the U.S. and comparable international agencies, covering research, development, testing, manufacturing, and commercialization[90](index=90&type=chunk) - Obtaining regulatory approval is a costly and time-consuming process, requiring preclinical studies, IND submissions, and multiple phases of clinical trials to demonstrate safety and efficacy[91](index=91&type=chunk)[93](index=93&type=chunk) - Compliance with various healthcare laws (e.g., federal anti-kickback statute, False Claims Act, HIPAA) and foreign corrupt practices acts (FCPA) is critical, with potential for significant penalties for non-compliance[97](index=97&type=chunk)[102](index=102&type=chunk)[107](index=107&type=chunk) - Renovaro Cube's AI-guided diagnostic platform, as a Software as a Medical Device (SaMD), will require compliance with FDA guidelines and EU Medical Device Regulation (MDR), emphasizing rigorous clinical validation, cybersecurity, and data privacy[106](index=106&type=chunk) [Employees](index=23&type=section&id=Employees) As of June 30, 2025, the company had 29 full-time employees, focusing on oncology therapeutic vaccines and AI-driven healthcare technology - As of **June 30, 2025**, the company had **29 full-time employees**, with a streamlined organization focused on oncology therapeutic vaccines and AI-driven healthcare technology[109](index=109&type=chunk) [Corporate Information](index=23&type=section&id=Corporate%20Information) Lunai Bioworks Inc. acquired Renovaro Cube and BioSymetrics to enhance its data capabilities, with its common stock trading on NASDAQ - Lunai Bioworks Inc. acquired Renovaro Cube Intl Ltd on **February 13, 2024**, and BioSymetrics Inc. on **April 8, 2025**, to enhance its data repository, biomarker discovery, and in vivo validation capabilities[110](index=110&type=chunk)[111](index=111&type=chunk) - The company's common stock trades on the NASDAQ Capital Market under the ticker '**RENB**'[4](index=4&type=chunk) [Item 1A Risk Factors](index=23&type=section&id=Item%201A%20Risk%20Factors) The company faces substantial risks, including recurring losses, going concern doubts, financing needs, legal proceedings, and regulatory uncertainties [Risk Factor Summary](index=23&type=section&id=Risk%20Factor%20Summary) Key risks include substantial losses, going concern doubts, financing needs, legal proceedings, and operational challenges with unproven AI solutions - Key risks include substantial and increasing **losses**, substantial doubt about **going concern**, need for significant **additional financing** (which may cause dilution), legal proceedings and regulatory investigations, and negative publicity[114](index=114&type=chunk)[115](index=115&type=chunk) - Operational risks involve the unproven market for AI-based healthcare solutions, potential regulatory limits on AI algorithms, unpredictability of preclinical/clinical trial results, reliance on third parties, and limited experience in drug development[115](index=115&type=chunk) - Intellectual property risks include dependence on licensed IP, inability to obtain/maintain sufficient protection, and third-party infringement claims; other risks relate to corporate infrastructure, management turnover, and stock price volatility[115](index=115&type=chunk)[120](index=120&type=chunk) [Risks Related to Our Financial Position and Capital Requirements](index=25&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Capital%20Requirements) The company faces significant financial risks, including substantial losses, going concern doubts, and the need for additional financing amid ongoing legal proceedings - The company has incurred substantial losses since inception, with a net loss of **$178,007,489** in FY2025 and **$88,425,828** in FY2024, and an accumulated deficit of **$510 million** as of **June 30, 2025**[118](index=118&type=chunk) - There is substantial doubt about the company's ability to continue as a

```markdown [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) [Cautionary Language Regarding Forward-Looking Statements and Industry Data](index=4&type=section&id=Cautionary%20Language%20Regarding%20Forward-Looking%20Statements%20and%20Industry%20Data) The report contains forward-looking statements regarding future operations, market trends, and expectations, which are subject to known and unknown risks and uncertainties. Investors are cautioned not to place undue reliance on these statements, as they are not guarantees of future events and actual results may differ materially - Forward-looking statements are based on current assumptions and beliefs, but actual results may differ materially due to various risks and uncertainties[10](index=10&type=chunk)[12](index=12&type=chunk) - Key areas of forward-looking statements include the company's ability to continue as a going concern, incurrence of losses, need for additional capital, dependence on third parties, clinical trial outcomes, regulatory scrutiny of AI/gene therapies, competition, intellectual property disputes, and stock price volatility[11](index=11&type=chunk)[15](index=15&type=chunk) [Part I](index=6&type=section&id=Part%20I) [Business Overview](index=6&type=section&id=Item%201%20Business) Lunai Bioworks Inc. operates through three subsidiaries: Renovaro Biosciences (allogeneic cell and gene therapies for cancer), Renovaro Cube (AI-driven early cancer detection and recurrence), and BioSymetrics (AI for biomarker discovery, therapeutic development, and precision medicine). The company has shifted its primary focus to AI-driven diagnostics and oncology, protecting its innovations through patents, trade secrets, and strategic agreements - Lunai Bioworks Inc. operates through three subsidiaries: Renovaro Biosciences, Renovaro Cube, and BioSymetrics[18](index=18&type=chunk)[300](index=300&type=chunk) - The company's primary focus has shifted to the development of GEDi Cube Intl and BioSymetrics Inc. technologies following acquisitions in February 2024 and April 2025, respectively[19](index=19&type=chunk)[301](index=301&type=chunk) [Renovaro Biosciences Overview](index=6&type=section&id=Renovaro%20Biosciences%20Overview) Renovaro Biosciences is a biotechnology company focused on developing advanced allogeneic cell and gene therapies to enhance immune responses for long-term cancer remission, particularly for solid tumors like pancreatic and triple-negative breast cancer - Renovaro Biosciences aims to develop allogeneic cell and gene therapies to train the immune system for long-term cancer remission[19](index=19&type=chunk)[20](index=20&type=chunk) - The company's focus areas include RENB-DC11 for solid tumors (e.g., pancreatic cancer) and RENB-DC20 for Triple Negative Breast Cancer (TNBC)[23](index=23&type=chunk)[26](index=26&type=chunk) [Renovaro Cube Overview](index=7&type=section&id=Renovaro%20Cube%20Overview) Renovaro Cube is an AI-driven healthcare technology company specializing in early cancer detection and recurrence using a proprietary Explainable AI platform that analyzes multi-omics data for individual biomarkers. It aims to develop commercial products for precision diagnosis, treatment selection, therapy tracking, recurrence detection, and drug discovery - Renovaro Cube uses a proprietary AI platform with Explainable AI and a multi-omics approach for early and accurate cancer diagnosis and recurrence detection[28](index=28&type=chunk) - The company's product development focuses on early detection, recurrence of cancer, response to treatment, and clinical trials, aiming to provide insights into disease characterization and enable more accurate diagnosis[29](index=29&type=chunk)[33](index=33&type=chunk) - Renovaro Cube's technology has been trained on complex cancer data to identify patterns and translate them into biomarkers for clinical use, covering type-specific, pan-cancer detection, and patient stratification[32](index=32&type=chunk)[40](index=40&type=chunk)[43](index=43&type=chunk) [Business Overview (BioSymetrics)](index=16&type=section&id=Business%20Overview%20(BioSymetrics)) BioSymetrics is a biomedical AI company integrating multimodal data (genomics, imaging, EHR) to advance biomarker discovery, therapeutic development, and precision medicine. Its platform utilizes 'Contingent AI' for pipeline optimization and a proprietary 'Phenograph' knowledge graph for virtual phenotypic screening and target nomination, coupled with experimental validation - BioSymetrics integrates multimodal data using proprietary machine learning pipelines and 'Contingent AI' for biomarker discovery, therapeutic development, and precision medicine[70](index=70&type=chunk)[72](index=72&type=chunk) - The Phenograph, a proprietary knowledge graph, maps human genes and phenotypes to model systems for virtual phenotypic screening and target nomination[74](index=74&type=chunk) - BioSymetrics couples AI prediction with experimental validation, demonstrated by identifying novel neuroactive compounds for epilepsy-related phenotypes using zebrafish models[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Our Intellectual Property](index=18&type=section&id=Our%20Intellectual%20Property) Lunai Bioworks protects its intellectual property through patents, copyrights, trademarks, trade secrets, and third-party agreements. Key assigned patents include methods for cancer therapy using recombinant dendritic cells (RENB-DC11) and data analytics using machine learning (Contingent AI). The company also relies on in-licensed technology and proprietary know-how - The company's IP strategy involves filing patent applications and relying on a combination of patent, copyright, trademark, and trade secret laws[82](index=82&type=chunk) - Key assigned patents include U.S. Patent No. 11,413,338 B2 for cancer therapy using recombinant dendritic cells (RENB-DC11) and Patent No. US-11379757-B2 for multi-modal data pre-processing using machine learning (Contingent AI)[84](index=84&type=chunk)[85](index=85&type=chunk) - Protection of trade secrets and proprietary know-how is maintained through non-disclosure and confidentiality agreements with employees, consultants, and collaborators[83](index=83&type=chunk)[87](index=87&type=chunk) [Competition](index=19&type=section&id=Competition) Lunai Bioworks operates in highly competitive markets for AI-driven diagnostics and therapeutic development. Renovaro Cube competes with companies like Grail, Freenome, and Owkin, differentiating itself with a disease-agnostic, multi-omics AI platform and explainable AI. BioSymetrics competes with Recursion Pharma and insitro, distinguishing its platform by focusing on multicellular/multi-organ phenotypes and large-scale chemical screening - Renovaro Cube competes in AI-driven diagnostics with companies like Grail, Freenome, and Owkin, differentiating through its disease-agnostic, multi-omics, and explainable AI platform[88](index=88&type=chunk) - BioSymetrics competes in phenotype-based profiling with Recursion Pharma and insitro, distinguishing its platform by focusing on multicellular/multi-organ phenotypes and high-throughput chemical screening[89](index=89&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) The company's therapeutic products and AI-driven diagnostic platforms are subject to extensive government regulation in the US (FDA, HIPAA, False Claims Act) and internationally (EU MDR, GDPR). Obtaining regulatory approvals is costly, time-consuming, and uncertain, with potential for delays, restrictions, or withdrawal of products. The evolving regulatory landscape for AI, including concerns about bias, could also significantly impact operations - Therapeutic products require FDA review and approval, involving preclinical studies, IND submission, and multiple phases of clinical trials, a costly and time-consuming process[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) - AI-guided diagnostic platforms (SaMD) require compliance with regulations like FDA guidelines and EU Medical Device Regulation (MDR), emphasizing clinical validation, cybersecurity, data privacy (HIPAA, GDPR), and quality control[106](index=106&type=chunk) - The company is subject to various healthcare laws (anti-kickback, False Claims Act, HIPAA, Physician Payments Sunshine Act) and evolving AI regulations, which could lead to significant compliance costs, fines, or restrictions on business operations[97](index=97&type=chunk)[102](index=102&type=chunk)[165](index=165&type=chunk)[171](index=171&type=chunk) [Employees](index=23&type=section&id=Employees) As of June 30, 2025, Lunai Bioworks had 29 full-time employees, having streamlined its organization to focus on oncology therapeutic vaccines and AI-driven healthcare technology - As of June 30, 2025, the company had **29 full-time employees**, with a streamlined focus on oncology therapeutic vaccines and AI-driven healthcare technology[109](index=109&type=chunk) [Corporate Information](index=23&type=section&id=Corporate%20Information) Lunai Bioworks Inc. (formerly Renovaro Inc. and Renovaro BioSciences Inc.) acquired Renovaro Cube Intl Ltd in February 2024 and BioSymetrics Inc. in April 2025. The company's common stock trades on the NASDAQ Capital Market under the ticker 'RENB.' - The company changed its name to Lunai Bioworks Inc. in August 2025, having previously been Renovaro Inc. and Renovaro BioSciences Inc[14](index=14&type=chunk)[390](index=390&type=chunk) - Key acquisitions include Renovaro Cube Intl Ltd (February 2024) and BioSymetrics Inc. (April 2025), enhancing data repository, biomarker discovery, in vivo validation, and drug discovery capabilities[110](index=110&type=chunk)[111](index=111&type=chunk)[395](index=395&type=chunk) - Lunai Bioworks Inc. common stock trades on the NASDAQ Capital Market under the ticker **'RENB.'**[4](index=4&type=chunk)[112](index=112&type=chunk)[294](index=294&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A%20Risk%20Factors) The company faces significant risks including substantial and increasing losses, going concern doubts, need for additional financing (which may cause dilution), legal proceedings, negative publicity, limited operating history, unproven AI healthcare market, regulatory limitations on AI, uncertain clinical trial results, reliance on third parties, intellectual property issues, management turnover, and stock price volatility - The company has incurred substantial losses and faces significant doubt about its ability to continue as a going concern, requiring substantial additional financing[114](index=114&type=chunk) - Key risks include the unproven nature of the AI-based healthcare solutions market, potential regulatory limitations on AI, and the inherent uncertainty of preclinical and clinical trial results[115](index=115&type=chunk) - Legal proceedings, negative publicity, intellectual property infringement claims, and management turnover are also significant risks that could harm the business[115](index=115&type=chunk) [Risk Factor Summary](index=23&type=section&id=Risk%20Factor%20Summary) This section provides a summary of the key risks and uncertainties that could adversely affect the company's business, financial condition, and operating results, applicable across all subsidiaries - The company faces risks related to substantial losses, going concern doubts, need for additional financing, legal proceedings, negative publicity, limited operating history, and the unproven AI healthcare market[114](index=114&type=chunk)[115](index=115&type=chunk) [Risks Related to Our Financial Position and Capital Requirements](index=25&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Capital%20Requirements) Lunai Bioworks has incurred substantial and increasing net losses since inception, with an accumulated deficit of $510 million as of June 30, 2025. There is substantial doubt about its ability to continue as a going concern, necessitating significant additional financing, which could dilute existing stockholders or restrict operations - The company is a pre-clinical-stage biotechnology and AI-driven healthcare technology company with no approved products or product sales revenue to date[118](index=118&type=chunk)[119](index=119&type=chunk) | Metric | June 30, 2025 | June 30, 2024 | | :----- | :------------ | :------------ | | Net Loss | $(178,007,489) | $(88,425,828) | | Accumulated Deficit | $(510,000,000) | $(332,000,000) | - The company's cash and cash equivalents of **$92,700** as of June 30, 2025, are insufficient for the next twelve months, raising substantial doubt about its ability to continue as a going concern[121](index=121&type=chunk) [Risks Related to Our Limited Operating History](index=28&type=section&id=Risks%20Related%20to%20Our%20Limited%20Operating%20History) Lunai Bioworks, as an early-stage biotechnology and AI-driven healthcare technology company, has a limited operating history and has not generated product revenue. Renovaro Cube and BioSymetrics also have limited histories in their current focus areas and have incurred net losses, making future performance difficult to predict. Commercial success depends on market acceptance, adequate reimbursement, and the ability to develop and commercialize new products, all of which are uncertain - Lunai Bioworks is an early-stage biotechnology company with no revenues to date and all product candidates in discovery or pre-clinical stages[131](index=131&type=chunk)[132](index=132&type=chunk)[314](index=314&type=chunk) - Renovaro Cube and BioSymetrics, while having some operational history, have limited experience in their current AI-driven healthcare focus and have incurred net losses, with Renovaro Cube never generating revenue from its cancer diagnostics AI platform[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) - Commercial success is highly dependent on market acceptance by consumers and healthcare providers, adequate coverage and reimbursement from third-party payors, and the ability to demonstrate clinical utility and differentiate products from competitors[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Risks Related to the Development of Our Product Candidates](index=35&type=section&id=Risks%20Related%20to%20the%20Development%20of%20Our%20Product%20Candidates) The development of the company's product candidates, including gene, cell, and immunotherapy, is highly uncertain, expensive, and time-consuming. Pre-clinical results are not predictive of clinical success, and novel approaches face heightened regulatory scrutiny. Competition is intense, and reliance on third parties for R&D and manufacturing poses risks of delays or failures. Changes in healthcare laws and reimbursement policies could also negatively impact revenue generation - Pre-clinical study results are not necessarily predictive of future clinical trial outcomes, and failure to demonstrate efficacy in future trials would materially adversely affect business prospects[172](index=172&type=chunk)[173](index=173&type=chunk) - Novel gene, cell, and immunotherapy product candidates face heightened regulatory scrutiny, potentially leading to delays in clinical development or approval[175](index=175&type=chunk) - The company operates in a highly competitive environment with rapid technological change, and competitors often have greater resources and longer drug development histories[177](index=177&type=chunk) - Reliance on third parties (e.g., university labs, CROs) for R&D and manufacturing means many aspects are out of direct control, risking delays or failures in completing studies[178](index=178&type=chunk) [Risks Related to Our Technology and Intellectual Property](index=39&type=section&id=Risks%20Related%20to%20Our%20Technology%20and%20Intellectual%20Property) The company's success relies on protecting its intellectual property (patents, trade secrets, licenses) and avoiding infringement claims. Licensing agreements are complex, and breaches could lead to loss of critical IP rights. The patentability and enforceability of biotechnology patents are uncertain, and third-party infringement claims could result in substantial costs, damages, or injunctions. The integration of AI into platforms introduces risks related to flawed algorithms, biased data, ethical concerns, and evolving regulations, which could lead to reputational harm or liability - The company relies on licensed intellectual property, and breaches of license agreements could lead to loss of important IP rights and adverse effects on business[186](index=186&type=chunk)[189](index=189&type=chunk) - Patentability, validity, and enforceability of biotechnology patents are uncertain, and third-party infringement claims could prevent or delay commercialization efforts, incurring substantial litigation expenses[191](index=191&type=chunk)[192](index=192&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - AI integration in Renovaro Cube's and BioSymetrics' platforms carries risks of flawed algorithms, insufficient/biased data, ethical issues, and evolving regulations, potentially leading to competitive harm, legal liability, and reputational damage[203](index=203&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk) [Risks Related to Employee Matters and Managing Growth](index=47&type=section&id=Risks%20Related%20to%20Employee%20Matters%20and%20Managing%20Growth) The company has limited corporate infrastructure and faces difficulties managing growth, including the need for additional managerial, scientific, and operational resources. Significant turnover in executive leadership and intense competition for highly skilled employees in AI, data science, and biomedical research create uncertainties and could harm business operations and growth prospects - The company has limited corporate infrastructure (**29 full-time employees** as of June 30, 2025) and relies on third-party contractors, which may lead to difficulties in managing growth and operational inefficiencies[226](index=226&type=chunk) - Significant turnover in executive leadership and management creates uncertainty, impacts execution, and can lead to loss of institutional knowledge[227](index=227&type=chunk)[229](index=229&type=chunk) - Attracting and retaining highly qualified personnel in AI, data science, and biomedical research is challenging due to intense competition, which could limit the ability to develop and commercialize products[228](index=228&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) [Risks Related To Our Business Operations](index=50&type=section&id=Risks%20Related%20To%20Our%20Business%20Operations) The company's business plan involves uncertain and risky activities, including product development programs that may be discontinued (as with prior pipelines) or modified based on competitive information. Serious adverse events or safety concerns from product candidates could delay clinical development, regulatory approval, or commercialization. International operations expose the company to economic, political, and regulatory risks, and product/professional liability claims could result in substantial liabilities - The business plan involves uncertain product development, with prior instances of discontinuing pipelines (e.g., pan-coronavirus and influenza) due to unfavorable results[242](index=242&type=chunk)[244](index=244&type=chunk) - Serious adverse events or undesirable side effects from product candidates could interrupt clinical trials, delay regulatory approval, or lead to market withdrawal and significant negative consequences[245](index=245&type=chunk)[246](index=246&type=chunk) - International operations expose the company to risks such as economic/political instability, changes in foreign laws, currency fluctuations, and difficulties in enforcing IP rights[247](index=247&type=chunk)[251](index=251&type=chunk) - The company faces substantial product or professional liability risks from potential errors in test results, manufacturing, design, or labeling of its products, which could lead to significant damages and reputational harm[249](index=249&type=chunk) [Risks Related to our Common Stock](index=52&type=section&id=Risks%20Related%20to%20our%20Common%20Stock) The company's stock price has been and is expected to remain volatile due to various factors, including negative publicity, competitive developments, regulatory actions, and financial performance. Substantial sales of common stock in the public market could cause the stock price to fall and dilute existing stockholders. As a public company, increased costs and management time are devoted to compliance. The company does not anticipate paying cash dividends, making capital appreciation the sole source of gain for stockholders. Anti-takeover provisions in charter documents and Delaware law could discourage acquisitions - The company's stock price has been volatile and may continue to be influenced by factors such as negative publicity, competitive success, regulatory actions, and financial results[250](index=250&type=chunk)[252](index=252&type=chunk)[255](index=255&type=chunk) - Sales of a substantial number of common stock shares in the public market could cause the stock price to fall and dilute existing stockholders[254](index=254&type=chunk)[259](index=259&type=chunk) - As a public company, the company incurs significant legal, accounting, and compliance costs, and management devotes substantial time to these programs[256](index=256&type=chunk)[257](index=257&type=chunk) - The company does not anticipate paying cash dividends, making capital appreciation the sole source of potential gain for stockholders[258](index=258&type=chunk) [Unresolved Staff Comments](index=55&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) This item states that there are no unresolved staff comments applicable to the company - The company has no unresolved staff comments[263](index=263&type=chunk) [Cybersecurity Risk Management and Strategy](index=55&type=section&id=Item%201C%20Cybersecurity%20Risk%20Management%20and%20Strategy) Lunai has a comprehensive cybersecurity risk management program guided by NIST CSF 2.0, integrated with its broader enterprise risk management strategy. Key components include risk assessments, a dedicated security team, external service provider engagement, employee training, an incident response plan, and third-party risk management. The Board of Directors, through the Audit Committee, oversees cybersecurity risks - Lunai's cybersecurity risk management program is guided by NIST CSF 2.0 and integrated with its enterprise risk management strategy[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - Key components include risk assessments, a dedicated security team, external evaluations, employee training, an incident response plan, and third-party risk management[268](index=268&type=chunk)[275](index=275&type=chunk) - Cybersecurity governance is a critical function of the Board of Directors, with the Audit Committee providing oversight and receiving regular updates from management[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) [Properties](index=56&type=section&id=Item%202%20Properties) The company leases its corporate headquarters in Los Angeles, CA (3,554 sq ft, 10-year lease from 2018) and an office in Boca Raton, FL (36-month operating lease from November 2024). Renovaro Cube previously leased an office in Amsterdam, Netherlands, which was terminated in April 2025 | Location | Use | Lease Term | Monthly Rent (Year 1-10) | | :------- | :-- | :--------- | :----------------------- | | 2080 Century Park East, Suite 906, Los Angeles, CA 90067 | Headquarters | 10 years (from June 19, 2018) | $17,770 - $23,186 | | 101 Plaza Real South, Suite 202, Boca Raton, FL 33432 | Lunai Bioworks Inc. Office | 36 months (from Nov 1, 2024) | Not specified | - Renovaro Cube's office lease in Amsterdam, Netherlands, which commenced on September 1, 2023, was mutually terminated on April 29, 2025[444](index=444&type=chunk) [Legal Proceedings](index=57&type=section&id=Item%203%20Legal%20Proceedings) The company is involved in several legal proceedings, including a pending Securities Class Action Litigation (settlement preliminarily approved Aug 2025), Federal Derivative Litigations (stayed), and State Derivative Litigation (stayed). The company also filed a complaint against a co-founder and others for alleged fraud related to misrepresented study results, and is involved in a dispute with Predictive Oncology, Inc. regarding a failed acquisition - A Securities Class Action Litigation (Chow Action) is pending, with a stipulation of settlement signed in September 2024 and preliminary approval granted in August 2025[276](index=276&type=chunk)[525](index=525&type=chunk) - Multiple Federal and State Derivative Litigations (Koenig, Solak, Midler Matters) are ongoing, naming a co-founder and current/former directors as defendants, alleging violations and breaches of fiduciary duty; these actions are currently stayed[277](index=277&type=chunk)[278](index=278&type=chunk)[280](index=280&type=chunk)[526](index=526&type=chunk)[527](index=527&type=chunk)[529](index=529&type=chunk) - The company filed a complaint against Serhat Gümrükcü and others, alleging a scheme to falsify and misrepresent study results for Hepatitis B and SARS-CoV-2/influenza pipelines, claiming approximately **$25 million** in damages[281](index=281&type=chunk)[530](index=530&type=chunk) - The company is also involved in a lawsuit against Predictive Oncology, Inc. for alleged breach of an acquisition agreement, seeking specific performance or money damages[291](index=291&type=chunk)[540](index=540&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item states that there are no mine safety disclosures applicable to the company - The company has no mine safety disclosures[292](index=292&type=chunk) [Part II](index=60&type=section&id=Part%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=60&type=section&id=Item%205%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Lunai Bioworks' Common Stock trades on the Nasdaq Capital Market under 'RENB.' As of September 26, 2025, there were 231,802,470 shares outstanding and approximately 233 stockholders of record. The company has not declared or paid cash dividends and does not intend to in the foreseeable future - Common Stock trades on Nasdaq Capital Market under **'RENB.'**[294](index=294&type=chunk) | Metric | Value | | :----- | :---- | | Shares Outstanding | 231,802,470 | | Stockholders of Record | ~233 | - The company has not declared or paid cash dividends and does not intend to in the foreseeable future, with future earnings to be retained for business growth[298](index=298&type=chunk)[54](index=54&type=chunk) [Selected Financial Data](index=60&type=section&id=Item%206%20Selected%20Financial%20Data) This item is reserved and no information is provided [Management's Discussion and Analysis of Financial Condition and Results Of Operations](index=60&type=section&id=Item%207%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20Of%20Operations) This section provides an overview of Lunai Bioworks' business, recent developments, and financial performance. The company is pre-revenue and faces significant going concern doubts due to recurring losses. For FY2025, net loss increased to $178.0 million, driven by goodwill impairment, despite improved other income. Liquidity remains constrained, necessitating additional financing for R&D and operations [Our Business](index=60&type=section&id=Our%20Business) Lunai Bioworks Inc. operates through Renovaro Biosciences, Renovaro Cube, and BioSymetrics Inc., with a primary focus shifted to the AI-driven technologies of GEDi Cube Intl and BioSymetrics Inc. The company is pre-revenue and pre-clinical, relying on financing and not expecting sales revenue until product approval - Lunai Bioworks operates through three subsidiaries: Renovaro Biosciences, Renovaro Cube, and BioSymetrics Inc[300](index=300&type=chunk) - The company's primary focus has shifted to the development of GEDi Cube Intl and BioSymetrics Inc. technologies following acquisitions[301](index=301&type=chunk) - The company is a pre-revenue, pre-clinical biotechnology and AI-driven healthcare technology company, funded by securities sales and debt financing, with no current sales revenue and no expectation of profitability in the foreseeable future[302](index=302&type=chunk)[314](index=314&type=chunk) [Recent Developments](index=61&type=section&id=Recent%20Developments) Recent developments include the bankruptcy declaration of Gedi Cube B.V. (an indirect subsidiary) in September 2025, and several promissory note issuances and an exchange agreement in July-August 2025 to restructure debt. The exchange agreement converted $9.7 million in secured notes into $16.1 million in new convertible notes, which were then converted into 53.6 million shares of common stock, eliminating secured indebtedness without cash proceeds - Gedi Cube B.V., an indirect subsidiary, was declared bankrupt by the Court of Amsterdam on September 2, 2025, leading to a material impairment[303](index=303&type=chunk)[565](index=565&type=chunk) - In July-August 2025, the company issued promissory notes totaling **$1,695,000** with interest rates of **10-18%** and various maturity dates[304](index=304&type=chunk)[305](index=305&type=chunk)[566](index=566&type=chunk)[567](index=567&type=chunk) - An Exchange Agreement on July 7, 2025, restructured debt by converting **$9.7 million** in secured notes into **$16.1 million** in convertible notes (**65% premium**), which were immediately converted into **53.6 million shares** of common stock, eliminating secured debt without cash proceeds[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[568](index=568&type=chunk)[569](index=569&type=chunk)[570](index=570&type=chunk) [Known Trends](index=61&type=section&id=Known%20Trends) The company's financial statements are prepared under a going concern assumption, but substantial recurring losses, cash usage in operations, and dependence on additional financing raise substantial doubt about its ability to continue. Management plans to reduce costs, streamline operations to focus on AI-driven cancer diagnostics, and seek additional equity or debt financing, but there's no assurance of obtaining funds on reasonable terms, which could lead to reduced operations or bankruptcy - Substantial recurring losses, cash usage in operations, and dependence on additional financing raise substantial doubt about the company's ability to continue as a going concern[309](index=309&type=chunk)[424](index=424&type=chunk) - Management plans to reduce overhead, streamline operations to focus on AI-driven cancer diagnostics, and secure additional funding through equity or debt financing[310](index=310&type=chunk)[425](index=425&type=chunk) - Failure to obtain additional funding could lead to material reduction or suspension of operations, significant dilution for stockholders, or even bankruptcy[310](index=310&type=chunk)[425](index=425&type=chunk) [Results of Operations](index=62&type=section&id=Results%20of%20Operations) The company reported a net loss of $178.0 million for the year ended June 30, 2025, a 101% increase from $88.4 million in 2024. Total operating expenses increased by 131% to $189.0 million, primarily due to a $158.8 million increase in goodwill impairment, partially offset by decreases in intangible asset impairment, general and administrative, and R&D expenses. Other income (expenses) significantly improved due to a positive change in contingent consideration fair value | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Net Loss | $(178,007,489) | $(88,425,828) | $(89,581,661) | 101% | | Total Operating Expenses | $188,966,002 | $81,639,296 | $107,326,706 | 131% | | Other Income (Expense) | $10,958,513 | $(6,786,532) | $17,745,045 | (261)% | [Revenues](index=63&type=section&id=Revenues) The company is a pre-revenue, pre-clinical biotechnology and AI-driven healthcare technology company and has not generated any revenues since inception. It does not anticipate earning revenues until its therapies or products are approved for marketing and sale - The company is a pre-revenue, pre-clinical biotechnology and AI-driven healthcare technology company[314](index=314&type=chunk) - No revenues have been generated since inception, and none are anticipated until product approval for marketing and sale[314](index=314&type=chunk) [Operating Expenses](index=63&type=section&id=Operating%20Expenses) Total operating expenses increased by $107.3 million (131%) to $189.0 million in FY2025, primarily driven by a $158.8 million increase in goodwill impairment. This was partially offset by decreases in intangible asset impairment ($42.6 million), general and administrative expenses ($6.7 million), and research and development expenses ($2.2 million) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :----------------------- | :----------- | :----------- | :----------- | :--------- | | General and administrative | $17,880,050 | $24,557,608 | $(6,677,558) | (27)% | | Research and development | $537,428 | $2,708,829 | $(2,171,401) | (80)% | | Intangible asset impairment | $0 | $42,611,000 | $(42,611,000) | (100)% | | Goodwill impairment | $170,419,429 | $11,640,000 | $158,779,429 | 1,364% | | Depreciation and amortization | $129,095 | $121,859 | $7,236 | 6% | | **Total Operating Expenses** | **$188,966,002** | **$81,639,296** | **$107,326,706** | **131%** | - The significant increase in operating expenses was primarily due to a **1,364% increase** in non-cash goodwill impairment[315](index=315&type=chunk) - General and administrative expenses decreased by **27%** due to lower consulting, legal, stock-based compensation, sales tax, investor relations, advertising, and board member compensation, partially offset by increased compensation-related, rent, IT, and subscription expenses[316](index=316&type=chunk) - Research and development expenses decreased by **80%** due to reduced collaborating partner expenses (CDMO and CROs for discontinued product candidates), consulting expenses, and consumables[317](index=317&type=chunk) [Other Income (Expenses)](index=63&type=section&id=Other%20Income%20(Expenses)) Net other income (expenses) significantly improved from a $(6.8) million expense in FY2024 to a $11.0 million income in FY2025, a change of $17.7 million (261%). This was primarily driven by a positive change in the fair value of contingent consideration | Category | 2025 | 2024 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :--------- | | Change in fair value of contingent consideration | $11,680,000 | $(3,048,183) | $14,728,183 | (483)% | | Loss on extinguishment of debt | $0 | $(1,303,578) | $1,303,578 | (100)% | | Change in fair value of equity securities | $(112,149) | $0 | $(112,149) | 100% | | Interest expense | $(725,684) | $(1,011,322) | $285,638 | (28)% | | Interest and other income (expense) | $116,346 | $(1,423,449) | $1,539,795 | (108)% | | **Total Other Income (Expense)** | **$10,958,513** | **$(6,786,532)** | **$17,745,045** | **(261)%** | - The primary driver for the increase in other income was a positive change of **$11,680,000** in the fair value of contingent consideration[318](index=318&type=chunk) [Net Loss](index=63&type=section&id=Net%20Loss) The net loss for the year ended June 30, 2025, increased by $89.6 million (101%) to $178.0 million, compared to $88.4 million in 2024. This increase was primarily due to a significant rise in goodwill impairment, partially offset by decreases in intangible asset impairment, general and administrative expenses, R&D expenses, and a favorable change in contingent consideration fair value | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------- | :----------- | :----------- | :----------- | :--------- | | Net Loss | $(178,007,489) | $(88,425,828) | $(89,581,661) | 101% | - The increase in net loss was primarily driven by a **$158.8 million** increase in non-cash goodwill impairment[319](index=319&type=chunk) - Offsetting factors included a **$42.6 million** decrease in non-cash intangible asset impairment, a **$6.7 million** decrease in general and administrative expenses, a **$2.2 million** decrease in R&D expenses, and a **$14.7 million** favorable change in the fair value of contingent consideration[319](index=319&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) The company relies on funding from stockholders, equity sales, and debt financing, as it has no sales revenue and expects this to continue until product approval. As of June 30, 2025, cash and cash equivalents were $92,700, and working capital was $(28.1) million, indicating a need for additional funds for R&D, personnel, equipment, and technology validation. Failure to secure additional funding could materially adversely affect growth plans and financial condition - The company has historically relied on stockholder funding, equity sales, and debt financing, with no sales revenue generated to date[320](index=320&type=chunk) | Metric | June 30, 2025 | June 30, 2024 | | :------------- | :------------ | :------------ | | Cash | $92,700 | $220,467 | | Working Capital | $(28,109,502) | $(28,312,274) | - Additional funds are needed for research and development, personnel increases, equipment purchases, and technology validation, with no assurance of availability on acceptable terms[321](index=321&type=chunk) [Equity](index=64&type=section&id=Equity) In FY2025, the company issued 15 million shares of Common Stock for the BioSymetrics acquisition ($6.06 million value) and several tranches of Common Stock for consulting services and executive compensation, totaling 3.16 million shares valued at $1.95 million - On April 8, 2025, **15,000,000 shares** of Common Stock were issued for the acquisition of BioSymetrics, Inc., valued at **$6,058,500**[323](index=323&type=chunk)[479](index=479&type=chunk) - Additional Common Stock issuances in FY2025 included **250,000 shares** to the Renovaro Cube CEO (**$177,500**), **160,000 shares** for consulting (**$118,400**), **500,000 shares** for consulting (**$275,000**), **250,000 shares** to the CEO (**$137,500**), and **2,000,000 shares** for consulting (**$1,400,000**)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk)[481](index=481&type=chunk)[483](index=483&type=chunk) [Debt](index=64&type=section&id=Debt) As of June 30, 2025, the company had $245,000 in convertible notes (12% interest, matured Dec 2024) and approximately $7.8 million in promissory notes. These promissory notes include bridge loans and other notes from related parties (Paseco ApS, Laksya Ventures Inc., Rene Sindlev, Yalla Yalla Limited), with interest rates of 10-12% and maturities ranging from December 2024 to December 2025. Most obligations, except Renovaro Cube's, are secured by a lien on all company assets | Debt Type | Principal Amount | Interest Rate | Maturity Date | | :---------------------- | :--------------- | :------------ | :------------ | | Convertible Notes Payable | $245,000 | 12% | Dec 29, 2024 | | Promissory Notes (Bridge Loans) | $3,450,000 | 10% | Dec 31, 2025 | | Promissory Notes (Paseco/Laksya) | $2,650,000 | 10% | Dec 2024 - Dec 2025 | | Promissory Notes (Renovaro Cube) | ~$490,000 | 10% | Dec 1, 2025 | | Promissory Note (Yalla Yalla) | ~$238,000 | 10% | Feb 24, 2025 | | Promissory Note (RS Bio/Sindlev) | $100,000 | 12% | Dec 31, 2024 | | Secured Promissory Note (RS Bio/Sindlev) | $105,263 | 12% | Dec 31, 2024 | | Secured Promissory Note (RS Bio/Sindlev) | $526,315 | 12% | Dec 31, 2024 | | Promissory Note (RS Bio/Sindlev) | $750,000 | 12% | Dec 31, 2024 | | Promissory Note (Paseco/Sindlev) | $831,497 | 12% | Nov 1, 2024 | - The company's obligations under most Promissory and Bridge Notes are secured by a Security Agreement, granting a lien on all company assets for the benefit of Paseco ApS, Rene Sindlev, and Laksya Ventures[339](index=339&type=chunk)[462](index=462&type=chunk) [Cash Flows](index=66&type=section&id=Cash%20Flows) For the year ended June 30, 2025, net cash used in operating activities decreased by $3.1 million to $7.9 million, while net cash used in investing activities decreased by $0.8 million to $0.5 million. Net cash provided by financing activities decreased by $2.1 million to $8.4 million. Overall, cash decreased by $127,767, resulting in an ending cash balance of $92,700 | Activity | 2025 | 2024 | Change ($) | | :------------------------------ | :----------- | :----------- | :----------- | | Net Cash Used in Operating Activities | $(7,874,647) | $(10,971,430) | $3,096,783 | | Net Cash Used in Investing Activities | $(500,000) | $(1,260,179) | $760,179 | | Net Cash Provided by Financing Activities | $8,382,772 | $10,517,455 | $(2,134,683) | | Effect of exchange rates on cash | $(135,892) | $60,141 | $(196,033) | | **Net Increase (Decrease) in Cash** | **$(127,767)** | **$(1,654,013)** | **$1,526,246** | | Cash, Beginning of Period | $220,467 | $1,874,480 | $(1,654,013) | | Cash, End of Period | $92,700 | $220,467 | $(127,767) | - The decrease in cash used in operating activities was primarily due to changes in operating assets and liabilities[342](index=342&type=chunk) - Financing activities were a primary source of cash, including proceeds from private placements and promissory notes, partially offset by repayments of finance agreements[344](index=344&type=chunk) [Off-Balance Sheet Arrangements](index=67&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2025, and 2024, the company had no off-balance sheet arrangements - The company had no off-balance sheet arrangements as of June 30, 2025, and 2024[345](index=345&type=chunk) [Significant Accounting Policies and Critical Accounting Estimates](index=67&type=section&id=Significant%20Accounting%20Policies%20and%20Critical%20Accounting%20Estimates) The preparation of financial statements requires significant estimates and assumptions, particularly for the fair value and impairment of intangible assets (patents, license agreements, goodwill), fair value of contingent consideration, and equity instruments. Goodwill and indefinite-life intangible assets are tested annually for impairment, with significant impairment losses recorded for goodwill in FY2025 and IPR&D in FY2024 - Significant accounting estimates include the fair value and potential impairment of intangible assets (definite and indefinite life), contingent consideration liability, and equity instruments[346](index=346&type=chunk)[396](index=396&type=chunk) - Goodwill and indefinite-life intangible assets (like IPR&D) are tested annually for impairment[350](index=350&type=chunk)[351](index=351&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk)[409](index=409&type=chunk) | Asset Type | Year Ended June 30, 2025 | Year Ended June 30, 2024 | | :--------- | :----------------------- | :----------------------- | | Goodwill | $170,419,429 | $11,640,000 | | IPR&D | $0 | $42,611,000 | [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Lunai Bioworks Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[362](index=362&type=chunk) [Financial Statements and Supplementary Data](index=68&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section provides an index to the company's consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statement of Stockholders' Equity (Deficit), Statements of Cash Flows, and Notes to the Consolidated Financial Statements - The index lists all components of the consolidated financial statements, including the auditor's report, primary financial statements, and detailed notes[365](index=365&type=chunk) [Report of Independent Registered Public Accounting Firm](index=70&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Sadler, Gibb & Associates, LLC issued an unqualified opinion on Lunai Bioworks Inc.'s consolidated financial statements for the years ended June 30, 2025 and 2024, stating they are presented fairly in all material respects. However, an explanatory paragraph highlights substantial doubt about the company's ability to continue as a going concern due to recurring losses and dependence on additional financing. The critical audit matter identified was the goodwill impairment assessment due to significant management estimates - The independent auditor issued an unqualified opinion on the consolidated financial statements for FY2025 and FY2024[366](index=366&type=chunk) - An explanatory paragraph highlights substantial doubt about the company's ability to continue as a going concern due to recurring losses and dependence on additional financing[367](index=367&type=chunk) - The critical audit matter identified was the goodwill impairment assessment, which required significant auditor judgment due to management's estimates and assumptions[371](index=371&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk) [Consolidated Financial Statements](index=72&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's core consolidated financial statements, including the Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statement of Stockholders' Equity (Deficit), and Statements of Cash Flows for the years ended June 30, 2025 and 2024 [Consolidated Balance Sheets](index=72&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $8.23 million, a significant decrease from $163.13 million in 2024, primarily due to a large goodwill impairment. Total liabilities decreased slightly to $29.58 million, while total stockholders' equity (deficit) shifted from a positive $131.98 million to a deficit of $(21.35) million | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :----------- | :--------- | | Total Assets | $8,230,840 | $163,129,450 | $(154,898,610) | (95)% | | Total Liabilities | $29,580,681 | $31,152,306 | $(1,571,625) | (5)% | | Total Stockholders' Equity (Deficit) | $(21,349,841) | $131,977,144 | $(153,326,985) | (116)% | - The substantial decrease in total assets was largely driven by the goodwill impairment recognized during the year[315](index=315&type=chunk)[372](index=372&type=chunk) - The company's stockholders' equity moved from a positive balance to a deficit, reflecting the significant net loss and impairment charges[376](index=376&type=chunk) [Consolidated Statements of Operations](index=74&type=section&id=Consolidated%20Statements%20of%20Operations) For the year ended June 30, 2025, the company reported a net loss of $178.0 million, a 101% increase from the $88.4 million loss in 2024. This was primarily due to a significant increase in goodwill impairment, partially offset by a favorable change in contingent consideration and reduced general & administrative and R&D expenses. Basic and diluted net loss per common share increased to $(1.08) from $(0.91) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Total Operating Expenses | $188,966,002 | $81,639,296 | $107,326,706 | 131% | | Loss from Operations | $(188,966,002) | $(81,639,296) | $(107,326,706) | 131% | | Total Other Income (Expense) | $10,958,513 | $(6,786,532) | $17,745,045 | (261)% | | Net Loss | $(178,007,489) | $(88,425,828) | $(89,581,661) | 101% | | Basic and Diluted Net Loss Per Common Share | $(1.08) | $(0.91) | $(0.17) | 18.7% | - The substantial increase in net loss was mainly driven by a **1,364% increase** in goodwill impairment[315](index=315&type=chunk)[319](index=319&type=chunk) - Other income (expense) saw a significant positive swing, primarily due to a favorable change in the fair value of contingent consideration[318](index=318&type=chunk) [Consolidated Statements of Comprehensive Loss](index=75&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) The comprehensive loss for the year ended June 30, 2025, was $(167.0) million, an 89% increase from $(88.6) million in 2024. This was primarily influenced by the net loss, partially offset by a positive foreign currency translation adjustment of $10.99 million in 2025, compared to a negative adjustment in 2024 | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :----------- | :--------- | | Net Loss | $(178,007,489) | $(88,425,828) | $(89,581,661) | 101% | | Foreign currency translation, net of taxes | $10,985,688 | $(140,964) | $11,126,652 | (7,893)% | | **Comprehensive Loss** | **$(167,021,801)** | **$(88,566,792)** | **$(78,455,009)** | **89%** | - A significant positive foreign currency translation adjustment in 2025 partially mitigated the impact of the net loss on comprehensive loss[381](index=381&type=chunk) [Consolidated Statement of Stockholders' Equity (Deficit)](index=76&type=section&id=Consolidated%20Statement%20of%20Stockholders'%20Equity%20(Deficit)) Total stockholders' equity shifted from a positive $131.98 million at June 30, 2024, to a deficit of $(21.35) million at June 30, 2025. This change was primarily driven by the net loss of $(178.0) million, partially offset by $6.06 million from common stock issued for acquisition, $2.38 million from private placement, $1.95 million from restricted shares, and a $10.99 million positive foreign currency translation adjustment | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Common Stock (Amount) | $17,741 | $15,847 | | Additional Paid-In Capital | $478,280,146 | $464,587,224 | | Accumulated Deficit | $(510,462,570) | $(332,455,081) | | Accumulated Other Comprehensive (Loss) | $10,814,842 | $(170,846) | | **Total Stockholders' Equity (Deficit)** | **$(21,349,841)** | **$131,977,144** | - The significant decrease in equity was primarily due to the net loss of **$(178.0) million** for the year[385](index=385&type=chunk) - Common stock issuances included **15 million shares** for the BioSymetrics acquisition and **1.6 million shares** from private placement offerings[385](index=385&type=chunk) [Consolidated Statements of Cash Flows](index=78&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the year ended June 30, 2025, net cash used in operating activities was $(7.87) million, net cash used in investing activities was $(0.50) million, and net cash provided by financing activities was $8.38 million. The overall net decrease in cash was $(127,767), resulting in an ending cash balance of $92,700 | Activity | 2025 | 2024 | | :------------------------------ | :----------- | :----------- | | Net Cash Used in Operating Activities | $(7,874,647) | $(10,971,430) | | Net Cash Used in Investing Activities | $(500,000) | $(1,260,179) | | Net Cash Provided by Financing Activities | $8,382,772 | $10,517,455 | | Effect of exchange rates on cash | $(135,892) | $60,141 | | **Net Increase (Decrease) in Cash** | **$(127,767)** | **$(1,654,013)** | | Cash, End of Period | $92,700 | $220,467 | - The decrease in cash used in operating activities was primarily due to changes in operating assets and liabilities[342](index=342&type=chunk) - Financing activities were a primary source of cash, including proceeds from private placements and promissory notes, partially offset by repayments of finance agreements[344](index=344&type=chunk) [Notes to the Consolidated Financial Statements](index=80&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering the company's organization, significant accounting policies, going concern status, fair value measurements, property and equipment, intangible assets and goodwill, leases, debt, income taxes, stockholders' equity, commitments and contingencies, related party transactions, acquisitions, segment reporting, and subsequent events [NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=80&type=section&id=NOTE%201%20%E2%80%94%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Lunai Bioworks Inc. (formerly Renovaro Inc.) is an AI-driven platform for precision medicine, diagnostics, and biodefense, operating through wholly-owned subsidiaries Renovaro Biosciences, Renovaro Cube, and BioSymetrics. The financial statements are prepared under U.S. GAAP, with significant estimates for intangible assets, contingent consideration, and equity instruments. Functional currencies vary by subsidiary, with the U.S. Dollar as the reporting currency - Lunai Bioworks Inc. (formerly Renovaro Inc.) is an AI-driven platform for precision medicine, diagnostics, and biodefense, operating through Renovaro Biosciences, Renovaro Cube, and BioSymetrics[390](index=390&type=chunk) - The company's financial statements are prepared under U.S. GAAP, requiring significant estimates for fair value and impairment of intangible assets, contingent consideration, and equity instruments[391](index=391&type=chunk)[396](index=396&type=chunk) - Functional currencies for subsidiaries include Danish Kroner (Renovaro Denmark), Euro (Renovaro Cube), and Canadian Dollar (BioSymetrics Corp.), with the U.S. Dollar as the reporting currency[397](index=397&type=chunk) [NOTE 2 – GOING CONCERN](index=84&type=section&id=NOTE%202%20%E2%80%93%20GOING%20CONCERN) The company's financial statements are prepared assuming a going concern, but substantial recurring losses, cash usage, and dependence on additional financing raise significant doubt about its ability to continue operations for the next year. As of June 30, 2025, the company had $92,700 in cash and an accumulated deficit of $510.5 million. Management plans to reduce costs, streamline operations, and seek further funding, but there is no assurance of success, which could lead to reduced operations or bankruptcy - Substantial recurring losses, cash usage, and dependence on additional financing raise significant doubt about the company's ability to continue as a going concern[424](index=424&type=chunk) | Metric | Amount | | :---------------- | :----------- | | Net Loss (FY2025) | $(178,007,489) | | Cash and Cash Equivalents | $92,700 | | Accumulated Deficit | $(510,462,570) | | Working Capital Deficit | $(28,109,502) | - Management's plans include reducing overhead, streamlining operations to focus on AI-driven cancer diagnostics, and securing additional equity or debt financing[425](index=425&type=chunk) [NOTE 3 — FAIR VALUE MEASUREMENTS](index=84&type=section&id=NOTE%203%20%E2%80%94%20FAIR%20VALUE%20MEASUREMENTS) The company applies FASB ASC Topic 820 for fair value measurements, using a three-tier hierarchy. As of June 30, 2025, Level 1 assets included $387,851 in equity securities, and Level 3 liabilities included a contingent consideration liability of $630,000 related to the Renovaro Cube acquisition. The contingent consideration is valued using Black-Scholes and Monte-Carlo models, with volatility as a key unobservable input - Fair value measurements are categorized into a three-tier hierarchy (Level 1, 2, 3) based on input observability[427](index=427&type=chunk) | Category | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------ | :------ | :------ | | Investment in equity securities | $387,851 | — | — | | Contingent consideration liability | — | — | $630,000 | - The contingent consideration liability, related to the Renovaro Cube acquisition, is valued using Black-Scholes and Monte-Carlo models, with volatility (**116%-141%**) being a key unobservable input[430](index=430&type=chunk)[431](index=431&type=chunk) - The fair value adjustment for contingent consideration resulted in a decrease of **$11,680,000** from June 30, 2024, to June 30, 2025[433](index=433&type=chunk) [NOTE 4 - PROPERTY AND EQUIPMENT](index=86&type=section&id=NOTE%204%20-%20PROPERTY%20AND%20EQUIPMENT) As of June 30, 2025, net property and equipment totaled $367,843, a decrease from $482,121 in 2024. This includes lab equipment, leasehold improvements, and furniture, fixtures, and equipment, depreciated on a straight-line basis over 4-10 years. Depreciation expense for FY2025 was $119,193 | Category | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Lab equipment and instruments | $639,998 | $639,998 | | Leasehold improvements | $224,629 | $224,629 | | Furniture, fixtures, and equipment | $205,396 | $195,834 | | Total | $1,070,023 | $1,060,461 | | Less accumulated depreciation | $(702,180) | $(578,340) | | **Net Property and Equipment** | **$367,843** | **$482,121** | - Depreciation expense for the year ended June 30, 2025, was **$119,193**[434](index=434&type=chunk) [NOTE 5 — INTANGIBLE ASSETS AND GOODWILL](index=86&type=section&id=NOTE%205%20%E2%80%94%20INTANGIBLE%20ASSETS%20AND%20GOODWILL) As of June 30, 2025, net definite-life intangible assets (patents, software, trademarks) totaled $165,994, and goodwill was $5,963,000. The company recorded significant goodwill impairment losses of $47.6 million in Q1 FY2025 and $122.8 million in Q4 FY2025, totaling $170.4 million for the year, primarily due to a decline in the estimated fair value of the RENC reporting unit. IPR&D had a carrying value of zero in FY2025 after a $42.6 million impairment in FY2024 | Asset Type | Net Carrying Value | | :-------------------------- | :----------------- | | Definite-Life Intangible Assets (Patents, Software, Trademarks) | $165,994 | | Goodwill | $5,963,000 | | IPR&D | $0 | - Goodwill impairment losses totaled **$170,419,429** for the year ended June 30, 2025, including **$47,614,729** in Q1 and **$122,804,700** in Q4, driven by a decline in the RENC reporting unit's fair value due to inability to raise capital[372](index=372&type=chunk)[408](index=408&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk) - IPR&D had a carrying value of **zero** as of June 30, 2025, following a **$42,611,000** impairment loss in the year ended June 30, 2024[352](index=352&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk) - The acquisition of BioSymetrics Inc. on April 8, 2025, added **$5,963,500** in goodwill, **$143,000** in software, and **$8,000** in trademarks[439](index=439&type=chunk)[546](index=546&type=chunk) [NOTE 7 — LEASES](index=88&type=section&id=NOTE%207%20%E2%80%94%20LEASES) The company leases its Los Angeles headquarters (10-year term from 2018) and a Boca Raton office (36-month term from Nov 2024). Renovaro Cube's Amsterdam office lease was terminated in April 2025. Lease liabilities are calculated using an incremental borrowing rate (weighted-average 4.66% as of June 30, 2025) and a weighted-average remaining lease term of 1.95 years - The company leases its corporate headquarters in Los Angeles (10-year term from 2018) and an office in Boca Raton (36-month term from Nov 2024)[443](index=443&type=chunk)[445](index=445&type=chunk) - Renovaro Cube's Amsterdam office lease, which commenced in September 2023, was mutually terminated on April 29, 2025[444](index=444&type=chunk) - As of June 30, 2025, the weighted-average remaining lease term is **1.95 years**, and the weighted-average discount rate (incremental borrowing rate) is **4.66%**[445](index=445&type=chunk)[446](index=446&type=chunk) | Years Ending June 30 | Lease Expense | | :--- | :------------ | | 2026 | $363,999 | | 2027 | $358,326 | | Thereafter | $56,621 | | Less imputed interest | $(41,353) | | **Total** | **$737,593** | [NOTE 8 — DEBT](index=89&type=section&id=NOTE%208%20%E2%80%94%20DEBT) As of June 30, 2025, the company had $245,000 in convertible notes (12% interest, matured Dec 2024) and approximately $7.8 million in promissory notes. These promissory notes include bridge loans and other notes from related parties (Paseco ApS, Laksya Ventures Inc., Rene Sindlev, Yalla Yalla Limited), with interest rates of 10-12% and maturities ranging from December 2024 to December 2025. Most obligations, except Renovaro Cube's, are secured by a lien on all company assets. Total interest expense for FY2025 was $725,684 | Debt Type | Principal Amount | Interest Rate | Maturity Date | | :---------------------- | :--------------- | :------------ | :------------ | | Convertible Notes Payable | $245,000 | 12% | Dec 29, 2024 | | Promissory Notes (Bridge Loans) | $3,450,000 | 10% | Dec 31, 2025 | | Promissory Notes (Paseco/Laksya) | $2,650,000 | 10% | Dec 2024 - Dec 2025 | | Promissory Notes (Renovaro Cube) | ~$490,000 | 10% | Dec 1, 2025 | | Promissory Note (Yalla Yalla) | ~$238,000 | 10% | Feb 24, 2025 | | Promissory Note (RS Bio/Sindlev) | $100,000 | 12% | Dec 31, 2024 | | Secured Promissory Note (RS Bio/Sindlev) | $105,263 | 12% | Dec 31, 2024 | | Secured Promissory Note (RS Bio/Sindlev) | $526,315 | 12% | Dec 31, 2024 | | Promissory Note (RS Bio/Sindlev) | $750,000 | 12% | Dec 31, 2024 | | Promissory Note (Paseco/Sindlev) | $831,497 | 12% | Nov 1, 2024 | - Most promissory and bridge notes are secured by a lien on all company assets[462](index=462&type=chunk) - Total interest expense for the year ended June 30, 2025, was **$725,684**[464](index=464&type=chunk) [NOTE 9 — INCOME TAXES](index=91&type=section&id=NOTE%209%20%E2%80%94%20INCOME%20TAXES) The company accounts for income taxes using an asset and liability approach. As of June 30, 2025, it had net operating loss carryforwards of approximately $541.6 million, resulting in deferred tax assets of $76.3 million. However, a full valuation allowance of $83.7 million was recorded against these deferred tax assets, as management believes it is more likely than not that the company will not generate adequate net profits to utilize them - The company had net operating loss carryforwards of approximately **$541,603,425** as of June 30, 2025[466](index=466&type=chunk) | Metric | 2025 | 2024 | | :-------------------------- | :----------- | :----------- | | Deferred Tax Assets (from NOLs) | $76,296,814 | $148,832,041 | | Valuation Allowance | $(83,680,863) | $(170,988,308) | | **Total Deferred Tax Assets (Liabilities)** | **$0** | **$0** | - A full valuation allowance was recorded against deferred tax assets due to management's assessment that it is more likely than not the company will not generate adequate net profits to utilize them[468](index=468&type=chunk) [NOTE 10 — STOCKHOLDERS' EQUITY](index=92&type=section&id=NOTE%2010%20%E2%80%94%20STOCKHOLDERS'%20EQUITY) As of June 30, 2025, the company had 350 million authorized shares of Common Stock, with 177,392,907 shares issued and outstanding. There were no Preferred Stock shares outstanding. Stock-based compensation expense for FY2025 was $3.31 million. The company has various equity incentive plans (2014, 2019, 2023 Plans) and outstanding options and warrants | Metric | Value | | :-------------------------------- | :------------ | | Authorized Common Stock | 350,000,000 shares | | Issued & Outstanding Common Stock | 177,392,907 shares | | Authorized Preferred Stock | 10,000,000 shares | | Issued & Outstanding Preferred Stock | 0 shares | - Stock-based compensation expense for the year ended June 30, 2025, was **$3,313,291**[419](index=419&type=chunk)[499](index=499&type=chunk) - As of June 30, 2025, the company had **4,623,614 Plan Options** outst

```markdown [Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Moving iMage Technologies reported improved Q4'25 and FY'25 financial performance, driven by expense reductions and strategic contract wins in cinema technology upgrades [Introduction](index=1&type=section&id=Introduction) Moving iMage Technologies announced its financial results for the fourth quarter (Q4'25) and fiscal year ended June 30, 2025 (FY'25), reporting an improved Q4 net loss and an increase in year-end net cash - **Moving iMage Technologies, Inc. (NYSE American: MITQ)** is a leading provider of out-of-home entertainment technology and services for cinema, Esports, stadiums, arenas, and other venues[1](index=1&type=chunk) Key Financial Snapshot (in thousands) | Metric | Q4'25 | Q4'24 | | :---------------- | :---------- | :---------- | | Net Loss | ($156) | ($416) | | Metric | FY'25 End | FY'24 End | | :---------------- | :---------- | :---------- | | Net Cash | $5,700 | $5,300 | [Management Commentary & Operational Highlights](index=1&type=section&id=Management%20Commentary%20%26%20Operational%20Highlights) Management highlighted improved bottom-line performance driven by operating expense reductions and an improved FY'25 gross margin. The company secured a significant laser projector contract and emphasized ongoing opportunities in cinema technology upgrades, including laser projection and Direct View LED displays, alongside a stable base of recurring service revenue - The company improved its **Q4'25 and FY'25 bottom-line performance**, as progress in reducing operating expenses more than offset higher revenues in the year-ago periods[4](index=4&type=chunk) Gross Margin Performance | Period | Q4'25 | Q4'24 | FY'25 | FY'24 | | :---------------- | :---- | :---- | :---- | :---- | | Gross Margin % | 20.4% | 22.5% | 25.2% | 23.3% | - Moving iMage secured a contract to install **150 Barco laser cinema projectors over three years** for a long-time U.S. film exhibition customer[4](index=4&type=chunk) - Key areas of opportunity include ongoing upgrades to **laser projection technology**, **Direct View LED display formats**, **PLF upgrades**, and **immersive audio solutions**[5](index=5&type=chunk)[6](index=6&type=chunk) - The company has built a largely recurring base of **$8,000 to $9,000 in annual revenue** from customers' ongoing parts, component replacement, design, and service needs[7](index=7&type=chunk) [Business Outlook](index=2&type=section&id=Business%20Outlook) The company anticipates a modest increase in cinema technology upgrades for FY'26, with revenue expectations weighted towards the second half and Q1'26 projected at approximately $4.9 million [FY'26 Outlook and Q1'26 Expectations](index=2&type=section&id=FY%26%2339%3B26%20Outlook%20and%20Q1%26%2339%3B26%20Expectations) Moving iMage Technologies is cautiously optimistic for FY'26, anticipating a modest increase in cinema technology upgrades. Revenue expectations for FY'26 are weighted towards the second half, with Q1'26 revenue projected at approximately $4.9 million - Moving iMage is cautiously optimistic regarding its **FY'26 outlook** and the potential for a modest ramp in cinema technology upgrades[8](index=8&type=chunk) - **FY'26 revenue expectations** are currently more weighted to the second half, given industry planning and budget cycles[8](index=8&type=chunk) Q1'26 Revenue Expectation (in thousands) | Metric | Q1'26 (Expected) | | :---------------- | :--------------- | | Revenue | $4,900 | [Financial Review](index=2&type=section&id=Financial%20Review) The company reported declining net sales for Q4'25 and FY'25, yet achieved improved net losses in both periods due to effective operating expense management and enhanced gross margins [Q4'25 Financial Performance](index=2&type=section&id=Q4%26%2339%3B25%20Financial%20Performance) In Q4'25, net sales declined by 7.3% primarily due to reduced customer project activity. Despite this, the company significantly improved its net loss by 62.5% to ($156K) from ($416K) in Q4'24, largely driven by a 26.5% reduction in operating expenses Q4'25 Key Financials (in thousands) | Metric | Q4'25 | Q4'24 | Change (%) | | :---------------------- | :---- | :---- | :--------- | | Net Sales | $5,883 | $6,349 | -7.3% | | Gross Profit | $1,202 | $1,429 | -15.9% | | Gross Margin % | 20.4% | 22.5% | -2.1 pp | | Operating Expenses | $1,389 | $1,891 | -26.5% | | Net Loss | ($156) | ($416) | +62.5% | | EPS | ($0.02) | ($0.04) | +$0.02 | - The **decrease in Q4'25 net sales** was principally due to reduced customer project activity and the impact of theater seating revenues recorded in the year-ago period[9](index=9&type=chunk) - **Q4'25 operating expenses decreased** due to Moving iMage's expense management initiatives, with **selling and marketing expenses down 34.3%** and **general and administrative expenses down 21.6%**[12](index=12&type=chunk) [FY'25 Financial Performance](index=3&type=section&id=FY%26%2339%3B25%20Financial%20Performance) For the full fiscal year 2025, revenue declined by 9.9% to $18.15M. However, the company improved its gross margin to 25.2% and reduced operating expenses by 9.4%, resulting in a 30.9% improvement in net loss to ($0.95M) compared to ($1.37M) in FY'24 FY'25 Key Financials (in thousands) | Metric | FY'25 | FY'24 | Change (%) | | :---------------------- | :---- | :---- | :--------- | | Revenue | $18,147 | $20,139 | -9.9% | | Gross Profit | $4,573 | $4,683 | -2.4% | | Gross Margin % | 25.2% | 23.3% | +1.9 pp | | Operating Expenses | $5,659 | $6,240 | -9.4% | | Net Loss | ($948) | ($1,372) | +30.9% | | EPS | ($0.10) | ($0.13) | +$0.03 | - **FY'25 revenue declined** principally due to reduced customer project activity[12](index=12&type=chunk) - The **improvement in FY'25 operating expenses** was driven by lower compensation expense, more effective use of sales and marketing budgets, and continued discipline around public company costs[12](index=12&type=chunk) [Conference Call Details](index=3&type=section&id=Conference%20Call%20Details) The company provided comprehensive details for its investor conference call, including dial-in information, instant access options, and replay availability [Investor Call Information](index=3&type=section&id=Investor%20Call%20Information) The company provided comprehensive details for its investor conference call, including dial-in numbers, a 'Call me™' link for instant access, and information regarding the transcript and replay availability - Dial-in Number: **1-877-407-4018**; Toll/International Number: **1-201-689-8471**[11](index=11&type=chunk) - A **'Call me™' link** is available for instant telephone access to the event, active 15 minutes prior to the scheduled start time[11](index=11&type=chunk) - Transcript will be posted online **48 hours** after the event. Telephone replay is available until **October 10, 2025, at 11:59 p.m. ET**[11](index=11&type=chunk) [About Moving iMage Technologies](index=4&type=section&id=About%20Moving%20iMage%20Technologies) Moving iMage Technologies (MiT) is a leading provider of out-of-home entertainment technology and services, offering integrated systems, proprietary products, and equipment distribution for various venues [Company Overview and Offerings](index=4&type=section&id=Company%20Overview%20and%20Offerings) Moving iMage Technologies (MiT) is a trusted partner in delivering state-of-the-art out-of-home entertainment environments, founded in 2003. The company provides products, integrated systems design, custom engineering, proprietary products, software, and installation services for various entertainment spaces, including cinemas, Esports venues, and stadiums. MiT also manufactures digital cinema peripherals and distributes equipment from major industry brands, complemented by its Caddy Products division - MiT provides **products, integrated systems design, custom engineering, proprietary products, software, and installation services** for cinemas, screening rooms, postproduction facilities, high-end home theaters, Esports venues, arenas, stadiums, and other entertainment spaces[14](index=14&type=chunk) - MiT manufactures a broad line of **digital cinema peripherals** in the U.S., including automation systems, projector pedestals/bases, projector lifts, hush boxes, direct-view LED frames, lighting fixtures and dimmers, power management devices, operations software, and Esports platforms[15](index=15&type=chunk) - The company distributes and integrates cinema equipment from leading brands such as **Barco, Sharp (NEC) Digital Cinema, Christie Digital, Dolby, LG, and Samsung**[15](index=15&type=chunk) - MiT's **Caddy Products division** designs and sells cupholders, concession trays, and venue accessories to enhance concession sales and improve the guest experience[16](index=16&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) The financial statements reveal an increase in total assets and cash, alongside improved operating cash flow, despite a decline in net sales for both Q4'25 and FY'25 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show an increase in total assets to $10.888 million at June 30, 2025, from $10.523 million in the prior year, primarily driven by higher cash and accounts receivable, and a significant increase in right-of-use assets. Total liabilities also increased, while stockholders' equity decreased Consolidated Balance Sheets Highlights (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Cash | $5,715 | $5,278 | | Accounts receivable, net | $1,464 | $1,048 | | Inventories, net | $2,066 | $3,117 | | Total Current Assets | $9,407 | $9,913 | | Right-of-use asset | $1,087 | $144 | | Total Assets | $10,888 | $10,523 | | Total Current Liabilities | $5,113 | $4,813 | | Total Long-Term Liabilities | $918 | — | | Total Liabilities | $6,031 | $4,813 | | Total Stockholders' Equity | $4,857 | $5,710 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations reflect a decline in net sales for both Q4'25 and FY'25. Despite this, the company achieved improved net losses in both periods, primarily due to effective management of operating expenses and an improved gross margin percentage for the full fiscal year Consolidated Statements of Operations (in thousands, except share and per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $5,883 | $6,349 | $18,147 | $20,139 | | Cost of goods sold | $4,681 | $4,920 | $13,574 | $15,456 | | Gross profit | $1,202 | $1,429 | $4,573 | $4,683 | | Total operating expenses | $1,389 | $1,891 | $5,659 | $6,240 | | Operating (loss) | ($187) | ($462) | ($1,086) | ($1,557) | | Net (loss) | ($156) | ($416) | ($948) | ($1,372) | | Weighted average shares outstanding: basic and diluted | 9,936,380 | 10,487,857 | 9,910,244 | 10,482,857 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows show a significant improvement in operating activities, with net cash provided turning positive to $437 thousand in FY'25 from a negative $796 thousand in FY'24. This, combined with minimal investing and financing activities, led to an overall increase in cash at the end of the period Consolidated Statements of Cash Flows (in thousands) | Metric | Year Ended June 30, 2025 | Year Ended June 30, 2024 | | :------------------------------------------ | :----------------------- | :----------------------- | | Net (loss) | ($948) | ($1,372) | | Net cash provided by (used in) operating activities | $437 | ($796) | | Net cash (used in) investing activities | — | ($12) | | Net cash (used in) financing activities | — | ($530) | | Net increase (decrease) in cash | $437 | ($1,338) | | Cash, beginning of the period | $5,278 | $6,616 | | Cash, end of the period | $5,715 | $5,278 | - Non-cash investing and financing activities for FY'25 included **$207 thousand** for right-of-use assets from new leases and **$988 thousand** from lease modification[23](index=23&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section serves as a standard disclaimer, clarifying that statements about future events are forward-looking and subject to risks, with no commitment to updates [Disclaimer on Future Projections](index=4&type=section&id=Disclaimer%20on%20Future%20Projections) This section serves as a standard disclaimer, clarifying that statements about future events are forward-looking and subject to risks. Actual results may differ materially from these projections, and the company does not commit to updating them - Statements using words like "believe," "anticipate," "expect," "plan," "intend," "estimate," "target" are considered **forward-looking statements**[13](index=13&type=chunk) - **Actual results may differ materially** from those expressed or implied by forward-looking statements due to numerous important factors detailed in SEC filings[13](index=13&type=chunk) - The company assumes **no obligation to update** any forward-looking statements, to the extent permitted under applicable law[13](index=13&type=chunk) [Investor Relations](index=4&type=section&id=Investor%20Relations) This section provides contact details for investor relations inquiries, including names, email, and phone number [Contact Information](index=4&type=section&id=Contact%20Information) This section provides contact details for investor relations inquiries, including names, email, and phone number - **Investor Relations Contacts**: **Chris Eddy** or **David Collins** at **Catalyst IR**[17](index=17&type=chunk) - **Email**: **mitq@catalyst-ir.com**; **Phone**: **212-924-9800**[17](index=17&type=chunk) ```

```markdown PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with their accompanying notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets increased slightly from $147,982 at December 31, 2024, to $159,642 at June 30, 2025, driven by a significant increase in non-current digital assets, while current assets decreased substantially and total liabilities more than doubled, leading to a larger shareholders' deficit | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Total Assets | $159,642 | $147,982 | $11,660 | 7.88% | | Current Assets | $5,130 | $128,357 | $(123,227) | -96.00% | | Non-Current Assets | $154,512 | $19,625 | $134,887 | 687.33% | | Total Liabilities | $5,910,110 | $2,363,345 | $3,546,765 | 150.00% | | Shareholders' Deficit | $(5,750,468) | $(2,215,363) | $(3,535,105) | 159.57% | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2025, the company reported a net loss of **$4.04 million**, a significant improvement from the **$8.50 million** net loss in the prior year period, with revenue seeing a substantial increase, but gross loss widened due to higher cost of sales, while operating expenses decreased significantly and other expenses remained substantial, primarily due to derivative and warrant liabilities | Metric (Six Months Ended June 30) | 2025 | 2024 | Change | % Change | | :-------------------------------- | :------------ | :------------ | :------------ | :------- | | Sales, net | $15,136 | $75 | $15,061 | 20081% | | Cost of sales | $85,939 | $56,259 | $29,680 | 53% | | Gross loss | $(70,803) | $(56,184) | $(14,619) | 26% | | Total Operating Expenses | $812,282 | $4,399,453 | $(3,587,171) | -82% | | Total other expense | $(3,159,700) | $(4,048,725) | $889,025 | -22% | | Net Loss | $(4,042,785) | $(8,504,362) | $4,461,577 | -52% | | Basic and diluted loss per common share | $(0.01) | $(0.07) | $0.06 | -85.71% | [Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Deficit)) The company's total stockholders' deficit increased from **$2.22 million** at December 31, 2024, to **$5.75 million** at June 30, 2025, primarily due to the net loss incurred during the period, partially offset by increases in common stock and additional paid-in capital from warrant exercises and debt settlements/conversions - Total stockholders' deficit increased by **$3.54 million** from **$(2.22 million)** at December 31, 2024, to **$(5.75 million)** at June 30, 2025[14](index=14&type=chunk) - Common stock issued and outstanding increased from 300,213,026 shares to 1,256,214,474 shares during the six months ended June 30, 2025[14](index=14&type=chunk) - Issuance of common stock for settlement of debt contributed **$167,798** to equity, and conversion of convertible notes to common stock contributed **$162,492** to equity[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, cash used in operating activities significantly decreased to **$357,158** from **$4.56 million** in the prior year, while investing activities used **$154,177**, primarily for digital asset purchases, and financing activities provided **$511,337**, mainly from convertible notes, a substantial decrease from **$5.19 million** in the prior year which included IPO proceeds | Cash Flow Activity (Six Months Ended June 30) | 2025 | 2024 | Change | | :-------------------------------------------- | :------------ | :------------ | :------------ | | Net cash used in operating activities | $(357,158) | $(4,557,406) | $4,200,248 | | Net cash used in investing activities | $(154,177) | $(2,131) | $(152,046) | | Net cash provided by financing activities | $511,337 | $5,187,384 | $(4,676,047) | | Net decrease in cash | $2 | $627,847 | $(627,845) | | Cash, end of year | $283 | $627,847 | $(627,564) | - Non-cash investing and financing activities for 2025 included **$36,078** for common stock issued for exercise of warrants[18](index=18&type=chunk) - Non-cash investing and financing activities for 2024 included **$1.50 million** for Series C warrants issued and **$7.66 million** for common stock issued for conversion of debt[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the figures presented in the condensed consolidated financial statements [NOTE 1 – ORGANIZATION AND GOING CONCERN](index=10&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20GOING%20CONCERN) Vocodia Holdings Corp, incorporated in Wyoming in 2021, is an AI technology provider, and its financial statements indicate substantial doubt about its ability to continue as a going concern due to a **$4.0 million** net loss and **$0.4 million** cash used in operations for the six months ended June 30, 2025, an accumulated deficit of **$104.7 million**, and negative working capital of **$5.9 million**, with management planning to raise additional funds and/or refinance indebtedness - Vocodia Holdings Corp is a conversational AI technology provider, incorporated April 27, 2021, and acquired IT services provider Click Fish Media, Inc. in 2022[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Net loss of approximately **$4.0 million** and cash used in operations of approximately **$0.4 million** for the six months ended June 30, 2025[23](index=23&type=chunk) - Accumulated deficit of **$104.7 million** and negative working capital of **$5.9 million** as of June 30, 2025, raising substantial doubt about going concern[23](index=23&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the accounting principles used, including GAAP, basis of consolidation, use of estimates, cash management, property and equipment depreciation, accounts receivable, revenue recognition, fair value measurements, advertising expense policy, share-based compensation, derivative financial instruments, warrants, and the accounting for the May 2025 Convertible Note, with the company operating as an Emerging Growth Company and electing the extended transition period for new accounting standards - Revenues are derived from implementation fees, recurring monthly software-as-a-service (SaaS), and generation/verification of leads[33](index=33&type=chunk) - Fair value measurements for financial instruments are classified using a three-level hierarchy (Level 1: unadjusted quoted prices; Level 2: quoted prices for similar instruments; Level 3: significant unobservable inputs)[34](index=34&type=chunk)[37](index=37&type=chunk) - Derivative financial instruments are initially recorded at fair value and re-valued each reporting date, with changes reported in the statements of operations[40](index=40&type=chunk) - Warrants are classified as liability-classified instruments if they do not meet equity classification criteria, recorded at fair value, with changes recognized