Fiscal Fourth Quarter and Full Year Fiscal 2025 Results Overview This section provides an executive summary of Evolution Petroleum's strong fiscal Q4 and full-year 2025 performance, highlighting key financial and operational achievements [Executive Summary and Key Highlights](index=1&type=section&id=1.1.%20Executive%20Summary%20and%20Key%20Highlights) Evolution Petroleum reported strong fiscal Q4 2025 results with a significant increase in net income and Adjusted EBITDA, driven by a diversified energy portfolio and strategic acquisitions. The company maintained its dividend policy and achieved near-record total production for the full fiscal year Financial Highlights | ($ in thousands) | Q4 2025 | Q4 2024 | Q3 2025 | % Change Q4/Q4 | % Change Q4/Q3 | | :--------------- | :------ | :------ | :------ | :------------- | :------------- | | Average BOEPD | 7,198 | 7,209 | 6,667 | — % | 8 % | | Revenues | $21,108 | $21,227 | $22,561 | (1)% | (6)% | | Net Income (Loss)| $3,412 | $1,235 | $(2,179)| 176 % | NM | | Adjusted Net Income (Loss) | $1,129 | $1,093 | $806 | 3 % | 40 % | | Adjusted EBITDA | $8,572 | $8,037 | $7,421 | 7 % | 16 % | - Fiscal Q4 production was **7,198 average BOEPD**, with oil accounting for **61% of revenue**, natural gas **27%**, and NGLs **12%**[4](index=4&type=chunk) - Returned **$4.1 million** to shareholders in cash dividends during fiscal Q4 and **$16.3 million** for fiscal year 2025. Declared **13th consecutive dividend of $0.12 per common share**, marking its **48th consecutive quarterly payment**[4](index=4&type=chunk) - Generated near-record total production in fiscal 2025, averaging **7,074 BOEPD**, up **4%** from fiscal 2024[4](index=4&type=chunk) [Subsequent Events](index=2&type=section&id=1.2.%20Subsequent%20Events) Following the fiscal quarter end, Evolution Petroleum completed its largest minerals-only acquisition to date and secured additional borrowing capacity - In August 2025, Evolution closed its largest minerals-only acquisition in the SCOOP/STACK for approximately **$17 million**, adding **~5,500 net royalty acres** and **~420 net BOE per day**[6](index=6&type=chunk) - The acquisition was funded with cash and **$15.0 million** in borrowings under the Company's Senior Secured Credit Facility[6](index=6&type=chunk) [Management Commentary](index=2&type=section&id=1.3.%20Management%20Commentary) CEO Kelly Loyd highlighted fiscal 2025 as a defining year, marked by near-record production, consistent shareholder returns, strengthened balance sheet, and strategic acquisitions to enhance long-term profitability and cash flow durability - Fiscal 2025 was a defining year, approximating company records in total production and liquids production, maintaining quarterly dividend at **$0.12 per share**, and returning **$16.3 million** to shareholders[7](index=7&type=chunk) - Strengthened the balance sheet by amending and restating the credit facility to add liquidity and extend maturity to **June 30, 2028**, and added another lender[7](index=7&type=chunk) - Closed the largest minerals-only acquisition in company history and advanced high-return development at Chaveroo, positioning the Company to generate durable cash flow[7](index=7&type=chunk) - Future strategy includes remaining selective and returns-focused, opportunistically acquiring cash-generating, low-decline assets, pacing development to market conditions, and using hedges to provide a solid base of returns[8](index=8&type=chunk) Fiscal Fourth Quarter 2025 Financial Performance This section details Evolution Petroleum's financial results for fiscal Q4 2025, covering revenues, operating costs, net income, and Adjusted EBITDA [Revenues](index=2&type=section&id=2.1.%20Revenues) Total revenues for fiscal Q4 2025 saw a slight decrease year-over-year, primarily due to lower realized oil and NGL prices, partially offset by higher natural gas prices Revenues Breakdown | Revenues ($ in thousands) | Q4 2025 | Q4 2024 | % Change Y/Y | | :------------------------ | :------ | :------ | :----------- | | Crude oil | $12,833 | $14,533 | (11.7)% | | Natural gas | $5,648 | $3,582 | 57.7% | | Natural gas liquids | $2,627 | $3,112 | (15.6)% | | Total revenues | $21,108 | $21,227 | (0.6)% | - Total revenues decreased **1%** to **$21.1 million** compared to **$21.2 million** in the year-ago quarter, driven by **20%** and **12%** lower realized oil and NGL prices, respectively, partially offset by higher realized natural gas prices[9](index=9&type=chunk) [Operating Costs](index=2&type=section&id=2.2.%20Operating%20Costs) Lease operating costs remained flat year-over-year, while depletion, depreciation, and accretion (DD&A) and general and administrative (G&A) expenses increased, reflecting changes in asset mix and prior year adjustments Operating Costs Breakdown | Operating Costs ($ in thousands) | Q4 2025 | Q4 2024 | % Change Y/Y | | :------------------------------- | :------ | :------ | :----------- | | Lease operating costs (LOE) | $11,367 | $11,408 | (0.4)% | | Depletion, depreciation, and accretion | $5,821 | $5,302 | 9.8% | | General and administrative expenses | $2,580 | $2,114 | 22.0% | | Total operating costs | $19,768 | $18,824 | 5.0% | - LOE was **$11.4 million**, flat year-over-year, but included additional costs from the TexMex acquisition, higher workover expenses, and plant maintenance, offset by a Barnett joint-interest audit benefit[9](index=9&type=chunk)[10](index=10&type=chunk) - Depletion rate increased to **$8.27 per BOE** from **$7.51 per BOE**, reflecting changes in the depletable base and asset mix[11](index=11&type=chunk) - G&A expenses (excluding stock-based compensation) increased by **$0.4 million** to **$2.0 million**, primarily due to a prior year downward adjustment for accrued bonuses[12](index=12&type=chunk) [Net Income and Adjusted Net Income](index=3&type=section&id=2.3.%20Net%20Income%20and%20Adjusted%20Net%20Income) Net income significantly increased in fiscal Q4 2025, while adjusted net income also saw a modest rise, reflecting improved profitability despite revenue fluctuations Net Income and Adjusted Net Income | Net Income ($ in thousands) | Q4 2025 | Q4 2024 | % Change Y/Y | | :-------------------------- | :------ | :------ | :----------- | | Net income (loss) | $3,412 | $1,235 | 176% | | Net income (loss) per diluted share | $0.10 | $0.04 | 150% | | Adjusted net income (loss) | $1,129 | $1,093 | 3% | | Adjusted net income (loss) per diluted share | $0.03 | $0.03 | 0% | [Adjusted EBITDA](index=3&type=section&id=2.4.%20Adjusted%20EBITDA) Adjusted EBITDA increased year-over-year, primarily due to higher realized pricing, including the cash benefit from hedging activities Adjusted EBITDA | Adjusted EBITDA ($ in thousands) | Q4 2025 | Q4 2024 | % Change Y/Y | | :------------------------------- | :------ | :------ | :----------- | | Adjusted EBITDA | $8,572 | $8,037 | 7% | - The increase in Adjusted EBITDA was due to higher realized pricing, including the cash benefit of hedges, in the current period compared to the prior year period[14](index=14&type=chunk) Production and Pricing Analysis This section analyzes Evolution Petroleum's production volumes and average realized commodity prices for fiscal Q4 2025, highlighting key trends and drivers [Production Volumes](index=3&type=section&id=3.1.%20Production%20Volumes) Total production for fiscal Q4 2025 remained essentially flat year-over-year, with crude oil and NGLs contributing 73% of revenue, a decrease from the prior year Production Volumes | Production (MBBL/MMCF) | Q4 2025 | Q4 2024 | % Change Y/Y | | :--------------------- | :------ | :------ | :----------- | | Crude oil (MBBL) | 211 | 190 | 11.1% | | Natural gas (MMCF) | 2,045 | 2,152 | (5.0)% | | Natural gas liquids (MBBL) | 103 | 107 | (3.7)% | | Equivalent (MBOE) | 655 | 656 | (0.2)% | | Average daily production (BOEPD) | 7,198 | 7,209 | (0.2)% | - Total oil and natural gas liquids production generated **73% of revenue** for the quarter compared to **83%** in the year-ago period[15](index=15&type=chunk) - Production changes were driven by downtime in the Delhi Field, pipeline balancing in the Jonah Field, and natural declines, partially offset by the TexMex acquisition and Chaveroo wells[15](index=15&type=chunk) [Average Realized Commodity Prices](index=3&type=section&id=3.2.%20Average%20Realized%20Commodity%20Prices) Average realized commodity prices remained stable overall, with a significant increase in natural gas prices offsetting declines in crude oil and NGL prices Average Realized Commodity Prices | Average price per unit | Q4 2025 | Q4 2024 | % Change Y/Y | | :--------------------- | :------ | :------ | :----------- | | Crude oil (BBL) | $60.82 | $76.49 | (20)% | | Natural gas (MCF) | $2.76 | $1.66 | 66 % | | Natural Gas Liquids (BBL) | $25.50 | $29.08 | (12)% | | Equivalent (BOE) | $32.23 | $32.36 | — % | - Average realized commodity price (excluding derivative contracts) decreased slightly to **$32.23 per BOE**, primarily due to lower realized oil and NGL prices, partially offset by a **66% increase** in realized natural gas prices[16](index=16&type=chunk)[17](index=17&type=chunk) Operational Updates This section provides an overview of Evolution Petroleum's operational activities across its key fields, including SCOOP/STACK, Chaveroo, Delhi, and Jonah [SCOOP/STACK Operations](index=4&type=section&id=4.1.%20SCOOP%2FSTACK%20Operations) Drilling activity moderated in the SCOOP/STACK legacy position, with production from recently drilled wells contributing in Q4, and activity continuing on newly acquired mineral acreage - Drilling activity on the Company's legacy position moderated during the quarter, with **five wells** remaining in progress[18](index=18&type=chunk) - Production from certain recently drilled wells began contributing in the fiscal fourth quarter, and activity is continuing across the newly acquired mineral acreage[18](index=18&type=chunk) [Chaveroo Field Operations](index=4&type=section&id=4.2.%20Chaveroo%20Field%20Operations) Four new gross wells were brought online at Chaveroo under budget and ahead of expectations, with future drilling paced by commodity prices - Four new gross wells were completed and brought online in the second development block on schedule and under budget, exceeding pre-drill expectations[19](index=19&type=chunk) - Permitting for the next pad is underway, but timing for additional drilling will be paced to commodity prices[19](index=19&type=chunk) [Delhi Field Operations](index=4&type=section&id=4.3.%20Delhi%20Field%20Operations) Delhi operations experienced downtime due to facility safety upgrades and reduced CO2 injections, impacting production volumes - Operations experienced downtime related to shut-ins for facility safety upgrades and reduced CO2 injections due to higher summer temperatures[20](index=20&type=chunk) - The operator continues to inject only recycled CO₂[20](index=20&type=chunk) [Jonah Field Operations](index=4&type=section&id=4.4.%20Jonah%20Field%20Operations) Jonah operations remained steady, though reported sales volumes were negatively impacted by pipeline balancing and allocation timing, with make-up volumes expected in fiscal Q1 2026 - Operations remained steady, but reported sales volumes were negatively impacted by pipeline balancing and allocation timing[20](index=20&type=chunk) - Make-up volumes are expected to benefit the fiscal first quarter of 2026[20](index=20&type=chunk) Balance Sheet, Liquidity, and Capital Spending This section reviews Evolution Petroleum's financial position, including liquidity, credit facility, capital expenditures, and operating cash flow [Liquidity and Credit Facility](index=4&type=section&id=5.1.%20Liquidity%20and%20Credit%20Facility) Evolution Petroleum strengthened its liquidity position by amending its credit facility, increasing the borrowing base and adding a new lender to support future acquisitions Liquidity and Borrowings | Financial Metric ($ in thousands) | June 30, 2025 | | :-------------------------------- | :------------ | | Cash and cash equivalents | $2,507 | | Borrowings outstanding | $37,500 | | Total liquidity | $30,000 | - Amended and restated senior secured reserve-based credit facility, establishing an initial **$65 million** borrowing base under a **$200 million** revolver maturing **June 30, 2028**[4](index=4&type=chunk)[22](index=22&type=chunk) - Added a second lender to increase the borrowing base to **$65 million** and provide additional credit capacity for future acquisitions[22](index=22&type=chunk) - After additional borrowings for the SCOOP/STACK acquisition and a letter of credit issuance, current remaining availability under the credit facility is **$11.7 million**[23](index=23&type=chunk)[24](index=24&type=chunk) [Capital Expenditures and Operating Cash Flow](index=4&type=section&id=5.2.%20Capital%20Expenditures%20and%20Operating%20Cash%20Flow) The company generated substantial cash flow from operating activities in fiscal Q4 2025, while investing in capital expenditures and acquisitions Cash Flow and Capital Expenditures | Cash Flow Item ($ in thousands) | Q4 2025 | | :------------------------------ | :------ | | Capital expenditures | $4,700 | | Net cash provided by operating activities | $10,500 | - Invested **$4.7 million** in capital expenditures during fiscal Q4[21](index=21&type=chunk) - Net cash provided by operating activities was **$10.5 million** for the quarter[21](index=21&type=chunk) - Closed on **$9 million** TexMex acquisition of non-operated oil and natural gas assets on **April 14th**, adding **~440 net BOEPD**[5](index=5&type=chunk) Shareholder Returns This section highlights Evolution Petroleum's commitment to shareholder returns through its consistent cash dividend policy [Cash Dividend on Common Stock](index=5&type=section&id=6.1.%20Cash%20Dividend%20on%20Common%20Stock) Evolution Petroleum declared its 48th consecutive quarterly cash dividend, demonstrating a sustained commitment to returning capital to shareholders - Declared a cash dividend of **$0.12 per common share** for the fiscal 2026 first quarter, payable **September 30, 2025**[2](index=2&type=chunk)[4](index=4&type=chunk)[25](index=25&type=chunk) - This marks the **48th consecutive quarterly cash dividend** on the Company's common stock since **December 31, 2013**[25](index=25&type=chunk) - To date, Evolution has returned approximately **$134.8 million**, or **$4.05 per share**, back to stockholders in common stock dividends[25](index=25&type=chunk) Company Information This section provides an overview of Evolution Petroleum's business focus and a cautionary statement regarding forward-looking information [About Evolution Petroleum](index=5&type=section&id=7.1.%20About%20Evolution%20Petroleum) Evolution Petroleum Corporation is an independent energy company focused on maximizing shareholder returns through ownership and investment in onshore U.S. oil and natural gas properties, aiming for a diversified portfolio through acquisitions and exploitation efforts - Evolution Petroleum Corporation is an independent energy company focused on maximizing total shareholder returns through the ownership of and investment in onshore oil and natural gas properties in the U.S[27](index=27&type=chunk) - The Company aims to build and maintain a diversified portfolio of long-life oil and natural gas properties through acquisitions, selective development opportunities, production enhancements, and other exploitation efforts[27](index=27&type=chunk) [Cautionary Statement](index=5&type=section&id=7.2.%20Cautionary%20Statement) The report contains forward-looking statements subject to various risks and uncertainties, and actual results may differ materially from expectations. The company disclaims any obligation to update these statements - All forward-looking statements regarding the Company's current and future expectations, potential results, and plans involve a wide range of risks and uncertainties[28](index=28&type=chunk) - Many factors could cause actual results to differ materially from expectations, as detailed under 'Risk Factors' in SEC filings[28](index=28&type=chunk) - The Company undertakes no obligation to update any forward-looking statement[28](index=28&type=chunk) Proved Reserves as of June 30, 2025 This section presents Evolution Petroleum's independently estimated proved reserves as of June 30, 2025, categorized by development status and asset location [Reserve Categories](index=7&type=section&id=8.1.%20Reserve%20Categories) Evolution Petroleum's proved reserves as of June 30, 2025, were estimated by independent reservoir engineers, adhering to SEC rules for disclosure and classification Proved Reserves by Category | Reserve Category | Oil (MBbls) | Natural Gas (MMcf) | NGLs (MBbls) | Total Proved Reserves (MBOE) | | :-------------------- | :---------- | :----------------- | :----------- | :--------------------------- | | Proved Developed Producing | 8,349 | 57,149 | 4,311 | 22,185 | | Proved Non-Producing | 378 | 757 | 5 | 509 | | Proved Undeveloped | 3,401 | 3,599 | 412 | 4,413 | | Total Proved | 12,128 | 61,505 | 4,728 | 27,107 | - Proved reserves were estimated by independent reservoir engineers, Cawley, Gillespie and Associates, Inc. and DeGolyer and MacNaughton[31](index=31&type=chunk) - SEC rules require disclosure of proved reserves by significant geographic area, using the trailing 12-month average price, and allow new technologies for determination if empirically demonstrated reliable[32](index=32&type=chunk) [Reserves by Asset](index=7&type=section&id=8.2.%20Reserves%20by%20Asset) The company's total proved reserves are diversified across various assets, with significant contributions from Barnett Shale, Delhi Field, and Jonah Field Proved Reserves by Asset | Asset | Oil (MBbls) | Natural Gas (MMcf) | NGLs (MBbls) | Total Proved Reserves (MBOE) | | :-------------- | :---------- | :----------------- | :----------- | :--------------------------- | | TexMex | 1,925 | 6,429 | — | 2,997 | | SCOOP/STACK | 1,268 | 11,498 | 716 | 3,900 | | Chaveroo Field | 2,889 | 841 | 179 | 3,208 | | Jonah Field | 167 | 16,915 | 228 | 3,214 | | Williston Basin | 1,841 | 1,120 | 275 | 2,303 | | Barnett Shale | 74 | 24,702 | 1,903 | 6,094 | | Hamilton Dome Field | 1,831 | — | — | 1,831 | | Delhi Field | 2,133 | — | 1,427 | 3,560 | | Total Proved | 12,128 | 61,505 | 4,728 | 27,107 | Condensed Consolidated Financial Statements (Unaudited) This section provides the unaudited condensed consolidated statements of operations, balance sheets, and cash flows for Evolution Petroleum [Statements of Operations](index=8&type=section&id=9.1.%20Statements%20of%20Operations) The condensed consolidated statements of operations show a significant increase in net income for Q4 2025 compared to Q4 2024, primarily driven by a net gain on derivative contracts Condensed Consolidated Statements of Operations | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Years Ended June 30, 2025 | Years Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :------------------------ | :------------------------ | | Total revenues | $21,108 | $21,227 | $85,840 | $85,877 | | Total operating costs | $19,768 | $18,824 | $81,665 | $77,971 | | Income (loss) from operations | $1,340 | $2,403 | $4,175 | $7,906 | | Net gain (loss) on derivative contracts | $3,696 | $(109) | $473 | $(1,292) | | Net income (loss)| $3,412 | $1,235 | $1,473 | $4,080 | | Diluted EPS | $0.10 | $0.04 | $0.03 | $0.12 | [Balance Sheets](index=9&type=section&id=9.2.%20Balance%20Sheets) The balance sheet as of June 30, 2025, shows a slight decrease in total assets and stockholders' equity compared to the prior year, with an increase in total liabilities Condensed Consolidated Balance Sheets | ($ in thousands) | June 30, 2025 | June 30, 2024 | | :--------------- | :------------ | :------------ | | Cash and cash equivalents | $2,507 | $6,446 | | Total current assets | $17,375 | $21,723 | | Oil and natural gas properties, net | $142,248 | $139,685 | | Total assets | $160,252 | $162,877 | | Total current liabilities | $21,387 | $15,813 | | Senior secured credit facility | $37,500 | $39,500 | | Total liabilities| $88,439 | $81,750 | | Total stockholders' equity | $71,813 | $81,127 | [Statements of Cash Flows](index=10&type=section&id=9.3.%20Statements%20of%20Cash%20Flows) Cash flows from operating activities increased significantly for the year ended June 30, 2025, while cash used in investing activities decreased, and cash used in financing activities also decreased year-over-year Condensed Consolidated Statements of Cash Flows | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Years Ended June 30, 2025 | Years Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :------------------------ | :------------------------ | | Net cash provided by operating activities | $10,456 | $7,987 | $33,052 | $22,729 | | Net cash used in investing activities | $(11,589) | $2,508 | $(21,642) | $(49,633) | | Net cash provided by (used in) financing activities | $(1,961) | $(7,116) | $(15,349) | $22,316 | | Net increase (decrease) in cash and cash equivalents | $(3,094) | $3,379 | $(3,939) | $(4,588) | | Cash and cash equivalents, end of period | $2,507 | $6,446 | $2,507 | $6,446 | Non-GAAP Reconciliations (Unaudited) This section provides reconciliations of non-GAAP financial measures, including Adjusted EBITDA and Adjusted Net Income, to their most directly comparable GAAP measures [Adjusted EBITDA Reconciliation](index=11&type=section&id=10.1.%20Adjusted%20EBITDA%20Reconciliation) Adjusted EBITDA, a non-GAAP measure, is used by management and external users to assess operating performance without regard to financing methods, capital structure, or historical costs, showing an increase in Q4 2025 Adjusted EBITDA Reconciliation | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Years Ended June 30, 2025 | Years Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :------------------------ | :------------------------ | | Net income (loss)| $3,412 | $1,235 | $1,473 | $4,080 | | Interest expense | $678 | $875 | $2,970 | $1,459 | | Income tax expense (benefit) | $973 | $243 | $396 | $1,417 | | Depletion, depreciation, and accretion | $5,821 | $5,302 | $21,993 | $20,062 | | Stock-based compensation | $622 | $552 | $2,482 | $2,137 | | Unrealized loss (gain) on derivative contracts | $(2,934) | $(170) | $492 | $893 | | Adjusted EBITDA | $8,572 | $8,037 | $29,806 | $30,048 | - Adjusted EBITDA is defined as net income (loss) plus interest expense, income tax expense (benefit), DD&A, stock-based compensation, ceiling test impairment, other impairments, unrealized loss (gain) on change in fair value of derivatives, and other non-recurring or non-cash expense (income) items[40](index=40&type=chunk) [Adjusted Net Income Reconciliation](index=12&type=section&id=10.2.%20Adjusted%20Net%20Income%20Reconciliation) Adjusted Net Income, a non-GAAP measure, provides insight into the impact of selected items on reported results, showing a slight increase in Q4 2025 Adjusted Net Income Reconciliation | ($ in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Years Ended June 30, 2025 | Years Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------ | :------------------------ | | Net income (loss), as reported | $3,412 | $1,235 | $1,473 | $4,080 | | Unrealized loss (gain) on commodity contracts | $(2,934) | $(170) | $492 | $893 | | Selected items, net of tax | $(2,283) | $(142) | $388 | $663 | | Net income (loss), excluding selected items | $1,129 | $1,093 | $1,861 | $4,743 | | Diluted EPS, excluding selected items | $0.03 | $0.03 | $0.04 | $0.14 | - Adjusted Net Income and earnings per share excluding selected items are non-GAAP financial measures presented to help users understand the impact of these items on reported results[42](index=42&type=chunk) Supplemental Information on Oil and Natural Gas Operations (Unaudited) This section provides unaudited supplemental details on Evolution Petroleum's oil and natural gas operations, including revenues, lease operating costs, production volumes, and average sales prices by asset [Revenues and Lease Operating Costs](index=13&type=section&id=11.1.%20Revenues%20and%20Lease%20Operating%20Costs) Supplemental data provides a detailed breakdown of revenues by commodity and lease operating costs, showing slight changes in total revenues and stable LOE year-over-year for Q4 2025 Revenues and Lease Operating Costs Breakdown | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | | **Revenues:** | | | | Crude oil | $12,833 | $14,533 | | Natural gas | $5,648 | $3,582 | | Natural gas liquids | $2,627 | $3,112 | | Total revenues | $21,108 | $21,227 | | **Lease operating costs:** | | | | Ad valorem and production taxes | $1,381 | $1,276 | | Gathering, transportation, and other costs | $2,765 | $2,730 | | Other lease operating costs | $7,221 | $7,402 | | Total lease operating costs | $11,367 | $11,408 | [Production Volumes and Average Sales Price by Asset](index=14&type=section&id=11.2.%20Production%20Volumes%20and%20Average%20Sales%20Price%20by%20Asset) Detailed production volumes and average sales prices by asset for Q4 2025 show the impact of the TexMex acquisition and varying commodity price trends across different fields Production Volumes and Average Sales Price by Asset | Asset | Q4 2025 Production (MBBL/MMCF) | Q4 2025 Price ($/unit) | Q4 2024 Production (MBBL/MMCF) | Q4 2024 Price ($/unit) | | :-------------- | :----------------------------- | :--------------------- | :----------------------------- | :--------------------- | | **Crude oil:** | | | | | | TexMex | 17 | $63.68 | — | $— | | SCOOP/STACK | 32 | $64.15 | 41 | $80.55 | | Chaveroo Field | 30 | $58.47 | 12 | $79.82 | | Delhi Field | 56 | $67.03 | 57 | $80.46 | | **Natural gas:**| | | | | | SCOOP/STACK | 312 | $3.20 | 319 | $2.70 | | Jonah Field | 691 | $2.49 | 818 | $1.59 | | Barnett Shale | 945 | $2.84 | 979 | $1.39 | | **NGLs:** | | | | | | SCOOP/STACK | 18 | $23.27 | 20 | $22.16 | | Delhi Field | 17 | $25.66 | 17 | $31.83 | | **Total Equivalent (MBOE):** | 655 | $32.23 | 656 | $32.36 | | **Average daily production (BOEPD):** | 7,198 | | 7,209 | | [Summary of Average Production Costs by Asset](index=15&type=section&id=11.3.%20Summary%20of%20Average%20Production%20Costs%20by%20Asset) Average production costs per BOE varied significantly across different assets in Q4 2025, with TexMex showing the highest per-BOE cost and Barnett Shale the lowest Average Production Costs by Asset | Production costs (in thousands, except per BOE) | Q4 2025 Amount | Q4 2025 per BOE | Q4 2024 Amount | Q4 2024 per BOE | | :---------------------------------------------- | :------------- | :-------------- | :------------- | :-------------- | | TexMex | $1,189 | $41.47 | $— | $— | | SCOOP/STACK | $1,130 | $11.05 | $1,028 | $9.06 | | Chaveroo Field | $501 | $16.65 | $301 | $24.42 | | Jonah Field | $1,928 | $14.91 | $1,834 | $11.99 | | Williston Basin | $1,159 | $26.48 | $1,227 | $25.53 | | Barnett Shale | $1,850 | $8.67 | $3,853 | $17.47 | | Hamilton Dome Field | $1,523 | $44.36 | $1,415 | $40.40 | | Delhi Field | $2,087 | $28.73 | $1,750 | $23.96 | | Total | $11,367 | $17.35 | $11,408 | $17.39 | - Total lease operating costs include lifting costs, workover expenses, and gathering, transportation, processing, and other expenses[48](index=48&type=chunk) Summary of Open Derivative Contracts (Unaudited) This section outlines Evolution Petroleum's open derivative contracts for crude oil and natural gas, detailing hedging instruments and volumes to manage price risk [Open Derivative Contracts](index=16&type=section&id=12.1.%20Open%20Derivative%20Contracts) Evolution Petroleum has various open derivative contracts for crude oil and natural gas, including fixed-price swaps and two-way/three-way collars, extending through December 2027 to manage commodity price risk Open Derivative Contracts Summary | Period | Commodity | Instrument | Volumes (MMBTU/BBL) | Swap Price ($/MMBTU/BBL) | Sub Floor Price ($/MMBTU/BBL) | Floor Price ($/MMBTU/BBL) | Ceiling Price ($/MMBTU/BBL) | | :------------------------- | :---------- | :--------- | :------------------ | :----------------------- | :---------------------------- | :------------------------ | :-------------------------- | | July 2025 - September 2025 | Crude Oil | Swap | 9,591 | $60.50 | | | | | July 2025 - December 2025 | Crude Oil | Swap | 11,880 | $72.00 | | | | | August 2025 - August 2026 | Crude Oil | Collar | 83,458 | | | $60.00 | $65.55 | | September 2026 - December 2026 | Crude Oil | Three-Way Collar | 40,872 | | $50.00 | $60.00 | $70.45 | | July 2025 - December 2025 | Natural Gas | Collar | 450,550 | | | $4.00 | $4.95 | | July 2025 - December 2026 | Natural Gas | Swap | 2,546,138 | $3.60 | | | | | July 2025 - December 2027 | Natural Gas | Swap | 3,323,035 | $3.57 | | | | | April 2026 - October 2026 | Natural Gas | Collar | 952,588 | | | $3.50 | $4.55 | - The company utilizes various hedging practices, including fixed-price swaps and collars, for crude oil and natural gas to manage price volatility[50](index=50&type=chunk)[51](index=51&type=chunk)

[Overview and Business Highlights](index=1&type=section&id=Overview%20and%20Business%20Highlights) Flux Power reported solid year-over-year growth for both Q4 and the full fiscal year 2025, leading to bottom-line improvements and strategic initiatives for profitable growth [Executive Summary](index=1&type=section&id=Executive%20Summary) Flux Power reported solid year-over-year growth for both Q4 and the full fiscal year 2025, leading to bottom-line improvements. The CEO emphasized achieving profitable growth through operational efficiencies, enhanced customer value, and diversified revenue streams, while acknowledging near-term macroeconomic uncertainties - Flux Power finished fiscal year 2025 with solid year-over-year growth on both a quarterly and annualized basis, leading to improvements in the bottom line[3](index=3&type=chunk) - CEO Krishna Vanka's top strategic initiative is to achieve profitable growth through operational efficiencies, a reinvigorated sales approach, enhanced value delivery to customers, and more diverse revenue streams[3](index=3&type=chunk) - The company acknowledges uncertainty and near-term caution due to the current tariff and macroeconomic environment but remains optimistic for the latter part of the coming fiscal year, citing additional capital infusion and growth in sales opportunities[4](index=4&type=chunk) [Fourth Quarter and Recent Business Highlights](index=1&type=section&id=Fourth%20Quarter%20and%20Recent%20Business%20Highlights) During Q4 and recently, Flux Power secured significant purchase orders from major airlines, received a new patent for battery charge balancing, was recognized as one of the fastest-growing companies, released its SkyEMS 2.0 software platform beta, and closed a $5 million private placement - Secured a purchase order for over **$2 million** from a major North American airline for its newly redesigned G80-420 lithium-ion battery pack[5](index=5&type=chunk) - Secured an additional **$1.2 million** order with another airline for G80 lithium-ion energy solutions with the SkyEMS software platform[5](index=5&type=chunk) - Awarded a new patent covering a breakthrough approach to battery charge balancing to optimize performance, extend battery life, and reduce downtime[5](index=5&type=chunk) - Recognized among Financial Times' fastest growing companies in the Americas 2025[5](index=5&type=chunk) - Released SkyEMS 2.0 software platform as a beta with an airline customer, with plans for broader rollout[5](index=5&type=chunk) - Closed a **$5 million** private placement of prefunded warrants and common warrants[5](index=5&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) Flux Power demonstrated strong financial performance in Q4 and full fiscal year 2025, with significant revenue and gross profit growth, alongside improved operating and net loss figures across both GAAP and non-GAAP metrics [Fourth Quarter Fiscal 2025 Financial Results](index=1&type=section&id=Fourth%20Quarter%20Fiscal%202025%20Financial%20Results) Flux Power demonstrated strong Q4 FY2025 performance with significant revenue and gross profit growth, alongside improved operating and net loss figures. Non-GAAP metrics further highlighted operational improvements, including a positive non-GAAP operating income and a near break-even non-GAAP net loss GAAP Financials | Metric | Q4 FY2025 | Q4 FY2024 | Change (%) | | :----------------- | :---------- | :---------- | :--------- | | Revenue | $16.7 million | $13.4 million | +25% | | Gross Profit | $5.8 million | $3.6 million | +61% | | Gross Margin | 34.5% | 26.9% | +760 bps | | Operating Expenses | $6.5 million | $5.4 million | +20.4% | | Operating Loss | ($0.8 million) | ($1.8 million) | -55.6% | | Net Loss | ($1.2 million) | ($2.2 million) | -45.5% | | Net Loss per Share | ($0.07) | ($0.13) | -46.2% | Non-GAAP Adjustments | Metric | Q4 FY2025 (Non-GAAP) | Q4 FY2024 (Non-GAAP) | Change | | :-------------------------- | :------------------- | :------------------- | :----- | | Operating Income / (Loss) | $0.4 million | ($1.5 million) | Improved | | Net Loss | ($0.03 million) | ($1.9 million) | Improved | | Net Loss per Share | ($0.00) | ($0.11) | Improved | - Non-GAAP adjustments for Q4 FY2025 primarily exclude **$1.0 million** in restatement-related costs and **$0.148 million** in stock-based compensation[7](index=7&type=chunk)[27](index=27&type=chunk) Adjusted EBITDA | Metric | Q4 FY2025 | Q4 FY2024 | Change | | :------------- | :---------- | :---------- | :----- | | Adjusted EBITDA | $0.6 million | ($1.2 million) | Improved | [Full Year Fiscal 2025 Financial Results](index=2&type=section&id=Full%20Year%20Fiscal%202025%20Financial%20Results) For the full fiscal year 2025, Flux Power achieved revenue growth and a significant improvement in gross margin. While operating and net losses persisted, both GAAP and non-GAAP figures showed substantial reductions compared to the prior year, indicating progress towards profitability GAAP Financials | Metric | FY2025 | FY2024 | Change (%) | | :----------------- | :---------- | :---------- | :--------- | | Revenue | $66.4 million | $60.8 million | +9% | | Gross Margin | 32.7% | 28.3% | +440 bps | | Operating Expenses | $26.8 million | $23.8 million | +12.6% | | Operating Loss | ($5.0 million) | ($6.6 million) | -24.2% | | Net Loss | ($6.7 million) | ($8.3 million) | -19.3% | | Net Loss per Share | ($0.40) | ($0.50) | -20% | Non-GAAP Adjustments | Metric | FY2025 (Non-GAAP) | FY2024 (Non-GAAP) | Change | | :-------------------------- | :------------------ | :------------------ | :----- | | Operating Loss | ($1.1 million) | ($5.0 million) | Improved | | Net Loss | ($2.8 million) | ($6.8 million) | Improved | | Net Loss per Share | ($0.17) | ($0.41) | Improved | - Non-GAAP adjustments for FY2025 primarily exclude **$2.9 million** in restatement-related costs and **$0.979 million** in stock-based compensation[10](index=10&type=chunk)[12](index=12&type=chunk)[27](index=27&type=chunk) Adjusted EBITDA | Metric | FY2025 | FY2024 | Change | | :------------- | :----------- | :----------- | :----- | | Adjusted EBITDA | ($0.1 million) | ($4.0 million) | Improved | [Financial Position](index=2&type=section&id=Financial%20Position) Flux Power's financial position as of June 30, 2025, shows increased cash and access to significant credit facilities, further bolstered by a post-quarter private placement [Balance Sheet](index=2&type=section&id=Balance%20Sheet) As of June 30, 2025, Flux Power reported increased cash and access to significant credit facilities. Post-quarter, the company raised additional capital through a private placement, bolstering its working capital position | Metric | June 30, 2025 | June 30, 2024 | Change | | :----- | :------------ | :------------ | :----- | | Cash | $1.3 million | $0.643 million | +107.8% | - Subsequent to quarter-end, the Company raised approximately **$5 million** in gross proceeds from a private placement of prefunded warrants and common warrants, with a net cash impact of approximately **$3.8 million**[14](index=14&type=chunk) - Additional working capital sources include a **$16.0 million** credit facility from Gibraltar Business Capital (with **$2.4 million** available) and a **$1.0 million** subordinated line of credit with Cleveland Capital[14](index=14&type=chunk) [Additional Information](index=3&type=section&id=Additional%20Information) This section provides details about Flux Power's business, conference call information, and important disclosures regarding forward-looking statements and associated risks [About Flux Power](index=3&type=section&id=About%20Flux%20Power) Flux Power designs, manufactures, and sells advanced lithium-ion energy storage solutions for industrial and commercial sectors, including material handling and airport ground support equipment. Their proprietary battery management system (BMS) and telemetry offer superior performance, lower ownership costs, and environmental benefits over traditional solutions - Flux Power specializes in designing, manufacturing, and selling advanced lithium-ion energy storage solutions for electrification in industrial and commercial sectors[17](index=17&type=chunk) - Key application areas include material handling, airport ground support equipment (GSE), and stationary energy storage[17](index=17&type=chunk) - Their lithium-ion battery packs, featuring a proprietary battery management system (BMS) and telemetry, offer better performance, lower cost of ownership, and are more environmentally friendly than traditional lead-acid and propane-based solutions, contributing to reduced CO2 emissions and improved ESG metrics[17](index=17&type=chunk) [Conference Call Details](index=3&type=section&id=Conference%20Call%20Details) Flux Power hosted a conference call on September 16, 2025, to discuss its Q4 and FY2025 financial results. Replay options were available via telephone and webcast until October 9, 2025, and for 90 days on the investor relations website, respectively - A conference call was held on Tuesday, September 16, 2025, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss financial results[15](index=15&type=chunk) - A telephone replay was available until October 9, 2025, and a webcast replay on the Investor Relations website for approximately 90 days[16](index=16&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This release contains forward-looking statements subject to various estimates, assumptions, risks, and uncertainties that could cause actual results to differ materially. Investors are cautioned against undue reliance and advised to refer to risk factors outlined in SEC filings - The release includes forward-looking statements identified by terms like 'believes' or 'expects,' which involve estimates, assumptions, risks, and uncertainties[18](index=18&type=chunk) - Actual results may differ materially due to factors such as access to capital, compliance with credit facilities, ability to raise capital, raw material availability, new product success, sales projections, gross margin improvement, and customer acceptance[18](index=18&type=chunk) - Investors should not place undue reliance on these statements and should refer to risk factors in Form 10-K, 10-Q, and other SEC reports[18](index=18&type=chunk) [Condensed Consolidated Financial Statements](index=5&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the condensed consolidated financial statements, including statements of operations, non-GAAP adjustments, Adjusted EBITDA reconciliation, and balance sheets for the reported periods [Condensed Consolidated Statements of Operations (Full Year)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Full%20Year)) The full-year consolidated statements of operations show Flux Power's revenue growth and improved gross profit for fiscal year 2025 compared to 2024, alongside a reduction in net loss | Metric | Year ended June 30, 2025 | Year ended June 30, 2024 | | :------------------------------------------ | :----------------------- | :----------------------- | | Revenues | $66,434,000 | $60,824,000 | | Cost of sales | $44,694,000 | $43,591,000 | | Gross profit | $21,740,000 | $17,233,000 | | Total operating expenses | $26,768,000 | $23,848,000 | | Operating loss | ($5,028,000) | ($6,615,000) | | Interest income (expense), net | ($1,646,000) | ($1,718,000) | | Net loss | ($6,674,000) | ($8,333,000) | | Net loss per share - basic and diluted | ($0.40) | ($0.50) | | Weighted average common shares outstanding | 16,717,761 | 16,548,533 | [Condensed Consolidated Statements of Operations (Quarter)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Quarter)) The condensed consolidated statements of operations for the fourth quarter of fiscal year 2025 highlight significant revenue and gross profit increases, coupled with a reduced net loss compared to the prior year's quarter | Metric | Quarter ended June 30, 2025 | Quarter ended June 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Revenues | $16,737,000 | $13,377,000 | | Cost of sales | $10,965,000 | $9,785,000 | | Gross profit | $5,772,000 | $3,592,000 | | Total operating expenses | $6,532,000 | $5,403,000 | | Operating loss | ($760,000) | ($1,811,000) | | Interest income (expense), net | ($419,000) | ($433,000) | | Net loss | ($1,179,000) | ($2,244,000) | | Net loss per share - basic and diluted | ($0.07) | ($0.13) | | Weighted average common shares outstanding | 16,822,202 | 16,847,255 | [Non-GAAP Net Income Adjustments](index=7&type=section&id=Non-GAAP%20Net%20Income%20Adjustments) Non-GAAP net income adjustments for both the full year and fourth quarter of fiscal 2025 show a significant improvement in net loss when excluding stock-based compensation and restatement-related costs, indicating a stronger underlying operational performance | Metric | Year ended June 30, 2025 | Year ended June 30, 2024 | Quarter ended June 30, 2025 | Quarter ended June 30, 2024 | | :-------------------------------- | :----------------------- | :----------------------- | :-------------------------- | :-------------------------- | | Net Income / (Loss) (GAAP) | ($6,674,000) | ($8,333,000) | ($1,179,000) | ($2,244,000) | | Stock Based Compensation | $979,000 | $1,571,000 | $148,000 | $338,000 | | Restatement and related Costs | $2,900,000 | - | $1,000,000 | - | | Total Non-GAAP Adjustments | $3,879,000 | $1,571,000 | $1,148,000 | $338,000 | | Non-GAAP Net Income / (Loss) | ($2,795,000) | ($6,762,000) | ($31,000) | ($1,906,000) | | Non-GAAP loss per share | ($0.17) | ($0.41) | ($0.00) | ($0.11) | [Non-GAAP Operating Income Adjustments](index=8&type=section&id=Non-GAAP%20Operating%20Income%20Adjustments) The non-GAAP operating income adjustments reveal a substantial improvement in operating performance for both the full year and fourth quarter of fiscal 2025, with the fourth quarter showing a positive non-GAAP operating income after excluding specific non-recurring and non-cash expenses | Metric | Year ended June 30, 2025 | Year ended June 30, 2024 | Quarter ended June 30, 2025 | Quarter ended June 30, 2024 | | :------------------------------------ | :----------------------- | :----------------------- | :-------------------------- | :-------------------------- | | Operating Income / (Loss) (GAAP) | ($5,028,000) | ($6,615,000) | ($760,000) | ($1,811,000) | | Stock Based Compensation | $979,000 | $1,571,000 | $148,000 | $338,000 | | Restatement and related Costs | $2,900,000 | - | $1,000,000 | - | | Total Non-GAAP Adjustments | $3,879,000 | $1,571,000 | $1,148,000 | $338,000 | | Non-GAAP Operating Income / (Loss) | ($1,149,000) | ($5,044,000) | $388,000 | ($1,473,000) | [Adjusted EBITDA Reconciliation](index=9&type=section&id=Adjusted%20EBITDA%20Reconciliation) The Adjusted EBITDA reconciliation demonstrates a significant improvement for both the full year and fourth quarter of fiscal 2025, with Q4 2025 achieving positive Adjusted EBITDA, reflecting enhanced operational efficiency when excluding non-cash and non-recurring items | Metric | Year ended June 30, 2025 | Year ended June 30, 2024 | Quarter ended June 30, 2025 | Quarter ended June 30, 2024 | | :---------------------- | :----------------------- | :----------------------- | :-------------------------- | :-------------------------- | | Net loss | ($6,674,000) | ($8,333,000) | ($1,179,000) | ($2,244,000) | | Interest, net | $1,646,000 | $1,718,000 | $419,000 | $433,000 | | Depreciation and amortization | $1,002,000 | $1,045,000 | $252,000 | $258,000 | | EBITDA | ($4,026,000) | ($5,570,000) | ($508,000) | ($1,553,000) | | Restatement and related Costs | $2,900,000 | - | $1,000,000 | - | | Stock-based compensation | $979,000 | $1,571,000 | $148,000 | $338,000 | | Adjusted EBITDA | ($147,000) | ($3,999,000) | $640,000 | ($1,215,000) | [Condensed Consolidated Balance Sheets](index=10&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show an increase in total assets and current assets for Flux Power as of June 30, 2025, compared to the prior year, driven by higher cash, accounts receivable, and inventories. Total liabilities also increased, leading to a stockholders' deficit | Metric | June 30, 2025 | June 30, 2024 | | :------------------------------------ | :-------------- | :-------------- | | Cash | $1,334,000 | $643,000 | | Accounts receivable, net | $11,374,000 | $9,773,000 | | Inventories, net | $17,231,000 | $16,977,000 | | Total current assets | $31,804,000 | $28,338,000 | | Total assets | $34,752,000 | $32,301,000 | | Accounts payable | $16,295,000 | $11,395,000 | | Accrued expenses | $7,058,000 | $3,926,000 | | Line of credit | $13,627,000 | $13,834,000 | | Subordinated debt | $1,000,000 | - | | Total current liabilities | $39,618,000 | $30,674,000 | | Total liabilities | $40,156,000 | $32,107,000 | | Total stockholders' equity (deficit) | ($5,404,000) | $194,000 |

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's condensed consolidated financial statements, notes, and management's discussion [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This item presents the company's condensed consolidated financial statements [Condensed Consolidated Statements of Financial Condition](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Condition) Total assets decreased by **7.14% to $6.99 billion**, primarily due to reduced securities and loans held for sale | Metric | March 31, 2025 (in thousands) | September 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :--------- | | Total assets | $6,994,786 | $7,532,017 | $(537,231) | -7.13% | | Cash and cash equivalents | $254,249 | $158,337 | $95,912 | 60.58% | | Securities available for sale | $1,411,520 | $1,741,221 | $(329,701) | -18.93% | | Loans held for sale | $45,767 | $691,688 | $(645,921) | -93.38% | | Loans and leases | $4,464,870 | $4,075,195 | $389,675 | 9.56% | | Total liabilities | $6,180,739 | $6,709,828 | $(529,089) | -7.88% | | Deposits | $5,819,209 | $5,875,085 | $(55,876) | -0.95% | | Short-term borrowings | $— | $377,000 | $(377,000) | -100.00% | | Total stockholders' equity | $814,047 | $822,189 | $(8,142) | -0.99% | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income attributable to the parent increased by **7.21%**, driven by higher net interest and noninterest income | Metric (in thousands, except EPS) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net interest income | $136,279 | $128,634 | $7,645 | 5.94% | | Provision for credit loss | $35,266 | $29,744 | $5,522 | 18.57% | | Total noninterest income | $138,524 | $128,945 | $9,579 | 7.43% | | Total noninterest expense | $148,177 | $140,742 | $7,435 | 5.28% | | Net income attributable to parent | $74,957 | $69,918 | $5,039 | 7.21% | | Basic EPS | $3.16 | $2.74 | $0.42 | 15.33% | | Diluted EPS | $3.14 | $2.74 | $0.40 | 14.60% | | Metric (in thousands, except EPS) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net interest income | $261,528 | $247,561 | $13,967 | 5.64% | | Provision for credit loss | $53,927 | $37,502 | $16,425 | 43.80% | | Total noninterest income | $195,902 | $181,706 | $14,196 | 7.81% | | Total noninterest expense | $275,973 | $261,819 | $14,154 | 5.41% | | Net income attributable to parent | $104,923 | $104,817 | $106 | 0.10% | | Basic EPS | $4.37 | $4.07 | $0.30 | 7.37% | | Diluted EPS | $4.35 | $4.07 | $0.28 | 6.88% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Total comprehensive income attributable to the parent significantly increased to **$99.6 million** | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net income before noncontrolling interest | $75,194 | $70,167 | $5,027 | 7.17% | | Change in net unrealized gain (loss) on debt securities | $25,517 | $(23,414) | $48,931 | -208.90% | | Total other comprehensive income (loss) | $24,606 | $(18,137) | $42,743 | -235.67% | | Comprehensive income attributable to parent | $99,563 | $51,781 | $47,782 | 92.28% | | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net income before noncontrolling interest | $105,359 | $105,323 | $36 | 0.03% | | Change in net unrealized gain (loss) on debt securities | $(36,823) | $65,121 | $(101,944) | -156.54% | | Total other comprehensive income (loss) | $(12,917) | $48,873 | $(61,790) | -126.43% | | Comprehensive income attributable to parent | $92,006 | $153,690 | $(61,684) | -40.13% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity slightly decreased due to common stock repurchases and increased comprehensive loss | Metric (in thousands) | Balance, September 30, 2024 (As Restated) | Balance, March 31, 2025 | Change (in thousands) | % Change | | :-------------------------------- | :---------------------------------------- | :---------------------- | :-------------------- | :--------- | | Total stockholders' equity | $822,189 | $814,047 | $(8,142) | -0.99% | | Cash dividends declared | N/A | $(2,392) | N/A | N/A | | Repurchases of common stock | N/A | $(102,447) | N/A | N/A | | Stock compensation | N/A | $5,072 | N/A | N/A | | Total other comprehensive loss | N/A | $(12,917) | N/A | N/A | | Net income | N/A | $104,923 | N/A | N/A | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Company saw a net increase in cash and cash equivalents, driven by investing activities | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net cash provided by operating activities | $116,593 | $232,510 | $(115,917) | -49.85% | | Net cash provided by investing activities | $507,816 | $1,995 | $505,821 | 25354.44% | | Net cash used in financing activities | $(526,458) | $(262,236) | $(264,222) | 100.76% | | Net change in cash and cash equivalents | $95,912 | $(27,692) | $123,604 | -446.35% | | Cash and cash equivalents at end of period | $254,249 | $347,888 | $(93,639) | -26.92% | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on accounting policies, divestitures, securities, and loans [NOTE 1. BASIS OF PRESENTATION](index=11&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) Interim financial statements adhere to U.S. GAAP and SEC rules, with reclassifications not affecting net income - Interim financial statements prepared under U.S. GAAP and SEC rules, with all necessary adjustments[27](index=27&type=chunk) - Reclassification of "Gain (Loss) on Sale of Loans and Leases" to "Secondary Market Revenue" for interim period ending March 31, 2025, with no impact on previously reported net income or financial condition[28](index=28&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")](index=11&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES%20AND%20RECENTLY%20ADOPTED%20ACCOUNTING%20STANDARDS%20UPDATES%20(%22ASU%22)) Significant accounting policies are largely unchanged, with ASU 2023-07 effective and other ASUs pending - ASU 2023-07 (Segment Reporting) effective October 1, 2024, improves reportable segment disclosures but does not impact consolidated financial statements[29](index=29&type=chunk) - ASU 2023-09 (Income Taxes) effective October 1, 2025, requires enhanced income tax disclosures[31](index=31&type=chunk) - ASU 2024-03 (Expense Disaggregation) effective October 1, 2027, requires specified expense disaggregation disclosures[32](index=32&type=chunk)[33](index=33&type=chunk) [NOTE 3. DIVESTITURES](index=12&type=section&id=NOTE%203.%20DIVESTITURES) The Company completed the sale of its commercial insurance premium finance business, recognizing a **$15.0 million** pre-tax gain - Completed sale of commercial insurance premium finance business on October 31, 2024[34](index=34&type=chunk) | Metric (in thousands) | Value | | :-------------------- | :---- | | Purchase price | $611,513 | | Premium on transaction | $31,200 | | Gain on divestitures | $15,044 | - Settlement adjustments during Q2 fiscal 2025 resulted in a **$1.4 million** decrease in the previously recognized gain[34](index=34&type=chunk) [NOTE 4. SECURITIES](index=13&type=section&id=NOTE%204.%20SECURITIES) The fair value of debt securities AFS decreased to **$1.41 billion**, driven by **$217.9 million** in sales | Security Type | March 31, 2025 (Fair Value, in thousands) | September 30, 2024 (Fair Value, in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total debt securities AFS | $1,411,520 | $1,741,221 | $(329,701) | -18.93% | | Total debt securities HTM | $26,492 | $30,236 | $(3,744) | -12.38% | | Gross Unrealized Losses (AFS) | $(217,398) | $(203,542) | $(13,856) | 6.81% | - Decrease in AFS securities driven by **$217.9 million** in sales to offset gains from divestitures and reposition the portfolio[37](index=37&type=chunk) - Management assessed all unrealized losses on AFS securities as due to adverse market conditions/interest rates, not credit loss, and does not intend to sell prior to recovery of amortized cost[37](index=37&type=chunk) [NOTE 5. LOANS AND LEASES, NET](index=16&type=section&id=NOTE%205.%20LOANS%20AND%20LEASES,%20NET) Total gross loans and leases increased by **9.56% to $4.46 billion**, with ACL increasing to **$102.9 million** | Loan Category (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :--------------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Total gross loans and leases | $4,464,870 | $4,075,195 | $389,675 | 9.56% | | Commercial finance | $3,524,755 | $3,295,599 | $229,156 | 6.95% | | Consumer finance | $246,202 | $248,800 | $(2,598) | -1.04% | | Tax services | $55,973 | $8,825 | $47,148 | 534.26% | | Warehouse finance | $643,124 | $517,847 | $125,277 | 24.19% | | Allowance for credit losses | $(102,890) | $(71,765) | $(31,125) | 43.37% | | ACL Activity (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Provision for credit losses | $53,771 | $37,031 | $16,740 | 45.21% | | Charge-offs | $(32,728) | $(31,186) | $(1,542) | 4.95% | | Recoveries | $10,082 | $8,582 | $1,500 | 17.48% | - Nonaccrual loans and leases increased to **$36.0 million** at March 31, 2025, from **$26.4 million** at September 30, 2024, primarily in commercial finance[71](index=71&type=chunk) [NOTE 6. EARNINGS PER COMMON SHARE ("EPS")](index=27&type=section&id=NOTE%206.%20EARNINGS%20PER%20COMMON%20SHARE%20(%22EPS%22)) Basic EPS for the three months ended March 31, 2025, was **$3.16**, with diluted EPS at **$3.14** | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | | :------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------------------- | :---------------------------------------------- | | Basic earnings per common share | $3.16 | $2.74 | $4.37 | $4.07 | | Diluted earnings per common share | $3.14 | $2.74 | $4.35 | $4.07 | | Total weighted-average basic common shares outstanding | 23,657,145 | 25,281,743 | 23,941,980 | 25,529,186 | | Total weighted-average diluted common shares outstanding | 23,776,023 | 25,311,144 | 24,039,020 | 25,555,656 | - Diluted EPS reflects the two-class method, as it was more dilutive than the treasury stock method[76](index=76&type=chunk) [NOTE 7. RENTAL EQUIPMENT, NET](index=28&type=section&id=NOTE%207.%20RENTAL%20EQUIPMENT,%20NET) Net book value of rental equipment slightly decreased to **$202.2 million** | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Net book value | $202,194 | $205,339 | $(3,145) | -1.53% | | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | Remaining in 2025 | $21,322 | | 2026 | $36,044 | | 2027 | $27,855 | | 2028 | $19,116 | | 2029 | $12,939 | | Thereafter | $6,769 | | Total | $123,965 | [NOTE 8. GOODWILL AND INTANGIBLE ASSETS](index=29&type=section&id=NOTE%208.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Total goodwill decreased to **$297.9 million** due to **$11.6 million** derecognition | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Total goodwill | $297,928 | $309,505 | $(11,577) | -3.74% | - Goodwill derecognition of **$11.6 million** due to the sale of the commercial insurance premium finance business[80](index=80&type=chunk)[81](index=81&type=chunk) | Intangible Asset (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :------------------------------ | :------------- | :----------------- | :-------------------- | :--------- | | Total Intangible Assets | $14,064 | $16,589 | $(2,525) | -15.22% | [NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES](index=30&type=section&id=NOTE%209.%20OPERATING%20LEASE%20RIGHT-OF-USE%20ASSETS%20AND%20LIABILITIES) Operating lease ROU assets and liabilities decreased, with a **$0.5 million** gain on remeasurement | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Operating lease ROU assets | $24,100 | $24,400 | $(300) | -1.23% | | Operating lease liabilities | $25,200 | $26,000 | $(800) | -3.08% | - Derecognition of lease ROU assets and liabilities from the commercial insurance premium finance business sale resulted in a **$0.5 million** gain on remeasurement[85](index=85&type=chunk) - Weighted-average remaining lease term for operating leases is **8.41 years** at March 31, 2025[86](index=86&type=chunk) [NOTE 10. STOCKHOLDERS' EQUITY](index=31&type=section&id=NOTE%2010.%20STOCKHOLDERS'%20EQUITY) The Company repurchased **1,277,664** common shares, with **5,722,336** remaining available - Repurchased **1,277,664** shares of common stock during the six months ended March 31, 2025, under share repurchase programs[87](index=87&type=chunk) - **5,722,336** shares of common stock remained available for repurchase as of March 31, 2025[88](index=88&type=chunk) - Repurchased **66,446** shares for employee tax withholding obligations during the six months ended March 31, 2025[89](index=89&type=chunk) [NOTE 11. STOCK COMPENSATION](index=32&type=section&id=NOTE%2011.%20STOCK%20COMPENSATION) The Company granted various stock awards and PSUs, with **$11.7 million** in unrecognized compensation | Award Type | Granted (Six Months Ended March 31, 2025) | Nonvested Outstanding (March 31, 2025) | | :-------------------- | :---------------------------------------- | :------------------------------------- | | Restricted Stock Awards | 15,600 | 83,546 | | Restricted Stock Units | 86,200 | 85,628 | | PSUs | 34,208 | 142,366 | - Unrecognized stock-based compensation expense of **$11.7 million** as of March 31, 2025, with a weighted average remaining recognition period of **1.78 years**[97](index=97&type=chunk) [NOTE 12. INCOME TAXES](index=33&type=section&id=NOTE%2012.%20INCOME%20TAXES) Income tax expense was **$22.2 million**, with an effective tax rate of **17.38%** | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Income tax expense | $22,171 | $24,623 | $(2,452) | -9.96% | | Effective tax rate | 17.38% | 18.95% | -1.57% | -8.28% | - The lower effective tax rate is primarily due to the effect of investment tax credits during fiscal year 2025[98](index=98&type=chunk) [NOTE 13. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=35&type=section&id=NOTE%2013.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Total revenue increased by **6.56% to $457.4 million**, driven by refund transfer product fees | Revenue Category (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Total Revenue | $457,430 | $429,267 | $28,163 | 6.56% | | Refund transfer product fees | $33,073 | $29,364 | $3,709 | 12.63% | | Refund advance and other tax fee income | $49,110 | $43,311 | $5,799 | 13.39% | | Card and deposit fees | $59,859 | $66,094 | $(6,235) | -9.43% | - Refund transfer fees are recognized immediately after the taxpayer's refund is disbursed[103](index=103&type=chunk) - Card and deposit fees are recognized as transactions occur or as services are performed[104](index=104&type=chunk)[105](index=105&type=chunk) [NOTE 14. SEGMENT REPORTING](index=36&type=section&id=NOTE%2014.%20SEGMENT%20REPORTING) The Company reports across Consumer, Commercial, and Corporate Services/Other segments - Company operates through three reportable segments: Consumer (Partner Solutions), Commercial (Commercial Finance), and Corporate Services/Other (shared services, treasury, investment portfolio, warehouse finance, wholesale deposits, borrowings)[107](index=107&type=chunk) | Metric (in thousands) | Consumer (6M 2025) | Commercial (6M 2025) | Corporate Services/Other (6M 2025) | Total (6M 2025) | | :-------------------- | :----------------- | :------------------- | :--------------------------------- | :-------------- | | Net interest income | $156,694 | $85,280 | $19,554 | $261,528 | | Noninterest income | $147,629 | $39,357 | $8,916 | $195,902 | | Income (loss) before income tax expense | $141,533 | $46,932 | $(60,935) | $127,530 | | Total assets | $431,962 | $3,975,353 | $2,587,471 | $6,994,786 | | Total deposits | $5,633,529 | $140 | $185,540 | $5,819,209 | [NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS](index=37&type=section&id=NOTE%2015.%20FAIR%20VALUES%20OF%20FINANCIAL%20INSTRUMENTS) Financial instruments are measured using a fair value hierarchy, with debt securities AFS primarily Level 2 - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[110](index=110&type=chunk)[111](index=111&type=chunk) - Debt securities AFS are primarily Level 2, and marketable equity securities are Level 1[112](index=112&type=chunk)[113](index=113&type=chunk) | Financial Instrument (in thousands) | March 31, 2025 (Fair Value) | September 30, 2024 (Fair Value) | | :---------------------------------- | :-------------------------- | :------------------------------ | | Debt securities available for sale | $1,411,520 | $1,741,221 | | Loans and leases | $4,418,831 | $4,036,490 | | Deposits | $5,819,118 | $5,874,994 | [NOTE 16. SUBSEQUENT EVENTS](index=40&type=section&id=NOTE%2016.%20SUBSEQUENT%20EVENTS) Management identified no material subsequent events requiring recognition or disclosure - No material subsequent events identified after March 31, 2025, up to the filing date[121](index=121&type=chunk) [NOTE 17. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS](index=41&type=section&id=NOTE%2017.%20RESTATEMENT%20OF%20PREVIOUSLY%20ISSUED%20FINANCIAL%20STATEMENTS) The Company restated its unaudited historical condensed consolidated financial statements to correct accounting errors - Restatement of unaudited historical condensed consolidated financial statements for March 31, 2024[122](index=122&type=chunk) - Corrections for errors in allowance for credit losses, interest income, provision for credit losses, and noninterest expense[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of financial condition and results [FORWARD-LOOKING STATEMENTS](index=42&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section contains forward-looking statements subject to significant risks and uncertainties - Forward-looking statements are based on current information and assumptions, subject to significant risks and uncertainties[125](index=125&type=chunk) - Key risk factors include maintaining executive management, realizing growth opportunities, geopolitical conflicts, inflation, interest rate changes, regulatory actions, and technological risks[125](index=125&type=chunk) - The Company disclaims any obligation to update or revise forward-looking statements[126](index=126&type=chunk) [GENERAL](index=43&type=section&id=GENERAL) Pathward Financial, Inc. is a NASDAQ-listed bank holding company, analyzing financial condition and results - Pathward Financial, Inc. is a registered bank holding company, and its common stock trades on NASDAQ under "CASH"[127](index=127&type=chunk)[128](index=128&type=chunk) - Prior period financial information for March 31, 2024, has been restated as described in Note 17[129](index=129&type=chunk) [EXECUTIVE SUMMARY](index=43&type=section&id=EXECUTIVE%20SUMMARY) Pathward, N.A. was Certified™ by Great Place to Work®, with Q2 fiscal 2025 highlights including a **29%** increase in tax income - Pathward®, N.A. became Certified™ by Great Place to Work® for the third year in a row[130](index=130&type=chunk) | Metric | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | Change | % Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :--------- | | Total tax services product income (net) | $47.6 million | $36.9 million | $10.7 million | 29.00% | | Total revenue (Q2 fiscal) | $274.8 million | $257.6 million | $17.2 million | 6.68% | | Net Interest Margin (NIM) (Q2 fiscal) | 7.12% | 6.77% | 0.35% | 5.17% | | Gross loans and leases (March 31, 2025 vs March 31, 2024, excluding divested business) | $4.46 billion | $3.88 billion | $0.58 billion | 15.00% | - Repurchased **575,804** shares of common stock at an average price of **$78.11** during Q2 fiscal 2025[131](index=131&type=chunk) [FINANCIAL CONDITION](index=44&type=section&id=FINANCIAL%20CONDITION) Total assets decreased to **$6.99 billion** due to reduced loans held for sale and securities AFS | Metric (in millions) | March 31, 2025 | September 30, 2024 | Change | % Change | | :------------------- | :------------- | :----------------- | :----- | :--------- | | Total assets | $6,994.8 | $7,532.0 | $(537.2) | -7.13% | | Cash and cash equivalents | $254.2 | $158.3 | $95.9 | 60.58% | | Investment securities | $1,442.8 | $1,774.3 | $(331.5) | -18.68% | | Loans held for sale | $45.8 | $691.7 | $(645.9) | -93.38% | | Total gross loans and leases | $4,464.9 | $4,075.2 | $389.7 | 9.56% | | Commercial finance loans | $3,524.8 | $3,295.6 | $229.2 | 6.95% | | Total deposits | $5,819.2 | $5,875.1 | $(55.9) | -0.95% | | Total borrowings | $33.4 | $410.4 | $(377.0) | -91.86% | | Stockholders' equity | $814.0 | $822.2 | $(8.2) | -0.99% | - The increase in cash and cash equivalents was primarily due to proceeds from the sale of the commercial insurance premium finance business and debt securities AFS, partially offset by repayment of short-term borrowings[137](index=137&type=chunk) - The Company managed **$1.12 billion** of off-balance sheet custodial deposits at March 31, 2025, earning servicing fee income[150](index=150&type=chunk) [RESULTS OF OPERATIONS](index=47&type=section&id=RESULTS%20OF%20OPERATIONS) Net income for Q2 fiscal 2025 increased to **$75.0 million**, with diluted EPS of **$3.14** | Metric (in millions, except EPS) | Q2 Fiscal 2025 | Q2 Fiscal 2024 (Restated) | Change | % Change | | :------------------------------- | :------------- | :------------------------ | :----- | :--------- | | Net income | $75.0 | $69.9 | $5.1 | 7.21% | | Diluted EPS | $3.14 | $2.74 | $0.40 | 14.60% | | Net interest income | $136.3 | $128.6 | $7.7 | 5.99% | | Net Interest Margin (NIM) | 7.12% | 6.77% | 0.35% | 5.17% | | Provision for credit losses | $35.3 | $29.7 | $5.6 | 18.86% | | Noninterest income | $138.5 | $128.9 | $9.6 | 7.45% | | Noninterest expense | $148.2 | $140.7 | $7.5 | 5.33% | | Effective tax rate | 17.7% | 19.4% | -1.7% | -8.76% | - Average interest-earning assets increased by **$122.2 million** to **$7.76 billion** in Q2 fiscal 2025, driven by cash and loan/lease balances, partially offset by decreased investment securities[156](index=156&type=chunk) - Secondary market revenue, refund advance, and other tax product income, and refund transfer product fees primarily drove the increase in noninterest income[161](index=161&type=chunk) - Card and deposit fee income decreased due to lower quarterly average deposit balances at partner banks and reduced servicing fee income from lower EFFR[162](index=162&type=chunk) [Asset Quality](index=52&type=section&id=Asset%20Quality) Nonperforming assets decreased to **$41.6 million** (**0.59%** of total assets) | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :------------------------------------ | :------------- | :----------------- | :-------------------- | :--------- | | Total nonperforming assets | $41,618 | $43,033 | $(1,415) | -3.29% | | Total nonperforming loans and leases | $39,806 | $41,562 | $(1,756) | -4.22% | | Nonaccruing loans and leases | $36,049 | $26,412 | $9,637 | 36.49% | | Accruing loans 90+ days delinquent | $3,757 | $15,150 | $(11,393) | -75.20% | | Classified loans & leases: Substandard | $202,900 | $180,900 | $22,000 | 12.16% | | Classified loans & leases: Doubtful | $5,000 | $10,300 | $(5,300) | -51.46% | | Allowance for Credit Losses (ACL) | $102,900 | $71,800 | $31,100 | 43.32% | - The decrease in nonperforming assets was primarily driven by a decrease in nonperforming loans in the seasonal tax services portfolio[174](index=174&type=chunk) - ACL as a percentage of total loans and leases increased to **2.30%** at March 31, 2025, from **1.76%** at September 30, 2024, due to seasonality in tax services and consumer finance portfolios[183](index=183&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=54&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The Company's critical accounting policies and estimates remained without significant changes - No significant changes to critical accounting policies and estimates during the first six months of fiscal 2025[184](index=184&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=55&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The Company's total available liquidity exceeded **$3.89 billion**, and both the Company and Bank remain well-capitalized - Primary sources of funds are deposits, borrowings, and payments on loans/securities[185](index=185&type=chunk) - Total available liquidity was over **$3.89 billion** at March 31, 2025, including cash, off-balance sheet custodial deposits, and FHLB/FRB access[186](index=186&type=chunk) - Uninsured deposits remained less than **15%** of total deposits during Q2 fiscal 2025[186](index=186&type=chunk) | Capital Ratio | Company (March 31, 2025) | Bank (March 31, 2025) | Minimum to be Well Capitalized | | :------------------------ | :----------------------- | :-------------------- | :----------------------------- | | Tier 1 leverage capital ratio | 8.32% | 8.52% | 5.00% | | Common equity Tier 1 capital ratio | 13.64% | 14.25% | 6.50% | | Tier 1 capital ratio | 13.91% | 14.25% | 8.00% | | Total capital ratio | 15.57% | 15.51% | 10.00% | - The Company and Bank exceeded federal regulatory minimum capital requirements and were classified as well-capitalized at March 31, 2025[188](index=188&type=chunk) [CONTRACTUAL OBLIGATIONS](index=56&type=section&id=CONTRACTUAL%20OBLIGATIONS) No material changes occurred to contractual obligations outside the ordinary course of business - No material changes to contractual obligations from September 30, 2024, through March 31, 2025[195](index=195&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item discusses the company's exposure to market risks, particularly interest rate risk [Interest Rate Risk ("IRR")](index=57&type=section&id=Interest%20Rate%20Risk%20(%22IRR%22)) The Company actively manages interest rate risk using EAR and EVE analyses - The Company actively manages interest rate risk using Earnings at Risk (EAR) and Economic Value of Equity (EVE) analyses[203](index=203&type=chunk)[205](index=205&type=chunk) | Scenario (March 31, 2025) | Net Interest Income (in thousands) | Percentage Change from Base | | :------------------------ | :--------------------------------- | :-------------------------- | | -200 bps parallel shift | $384,557 | -11.1% | | -100 bps parallel shift | $405,270 | -6.3% | | Base Case | $432,439 | —% | | +100 bps parallel shift | $459,790 | 6.3% | | +200 bps parallel shift | $485,814 | 12.3% | | Scenario (March 31, 2025) | Economic Value of Equity at Risk % Change from Base | | :------------------------ | :-------------------------------------------------- | | -200 bps parallel shift | -5.1% | | -100 bps parallel shift | -2.0% | | +100 bps parallel shift | 1.1% | | +200 bps parallel shift | 1.6% | - The economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding[208](index=208&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) This item addresses disclosure controls, material weaknesses, and internal control changes [EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES](index=59&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were not effectively designed due to a material weakness - Disclosure controls and procedures were not effectively designed as of March 31, 2025[210](index=210&type=chunk) - A material weakness in internal control over financial reporting was identified[210](index=210&type=chunk) - Despite the material weakness, management believes the consolidated financial statements in this Form 10-Q fairly present the Company's financial position[211](index=211&type=chunk) [REMEDIATION PLAN AND STATUS](index=59&type=section&id=REMEDIATION%20PLAN%20AND%20STATUS) The Company is actively remediating the material weakness by engaging a consultant - Engaged a third-party technical accounting consultant to assist with identification, assessment, and accounting impacts for consumer lending program agreements[214](index=214&type=chunk) - Designed and is implementing a control enhancement for periodic review and validation of accounting policies for consumer lending program agreements[214](index=214&type=chunk) [CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING](index=60&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) No other material changes occurred in internal controls over financial reporting - No other material changes in internal controls over financial reporting during the second fiscal quarter, apart from the described material weakness and remediation[215](index=215&type=chunk) [PART II - OTHER INFORMATION](index=61&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The Company has no material pending legal proceedings - No material pending legal proceedings or contemplated governmental proceedings[218](index=218&type=chunk) [Item 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors - No material changes to risk factors during the six months ended March 31, 2025[219](index=219&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased **575,804** common shares, with **5,722,336** remaining available | Period (Fiscal 2025 Q2) | Total Number of Shares Purchased | Average Price Paid per Share | Shares Remaining Under Program | | :---------------------- | :------------------------------- | :--------------------------- | :----------------------------- | | January 1 to 31 | 305,900 | $76.80 | 5,992,240 | | February 1 to 28 | 269,904 | $79.59 | 5,722,336 | | March 1 to 31 | — | — | 5,722,336 | | Total | 575,804 | N/A | N/A | - **5,722,336** shares remained available for repurchase under the program as of March 31, 2025[222](index=222&type=chunk) [Item 3. Defaults Upon Senior Securities](index=61&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the current reporting period - Not applicable[223](index=223&type=chunk) [Item 4. Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the current reporting period - Not applicable[225](index=225&type=chunk) [Item 5. Other Information](index=61&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements - No adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or executive officers[227](index=227&type=chunk) [Item 6. Exhibits](index=62&type=section&id=Item%206.%20Exhibits) Exhibits include Section 302 and 906 certifications and iXBRL financial information - Includes Section 302 and 906 certifications of Chief Executive Officer and Chief Financial Officer[229](index=229&type=chunk) - Financial information formatted in Inline Extensible Business Reporting Language (iXBRL) is provided[229](index=229&type=chunk) [SIGNATURES](index=63&type=section&id=SIGNATURES) The report is duly signed by Brett L. Pharr, CEO, and Gregory A. Sigrist, CFO - Report signed by Brett L. Pharr, CEO and Director, and Gregory A. Sigrist, EVP and CFO[233](index=233&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 2, 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: 000-49885 Tennessee 62-1287151 (State or other jurisdiction of (IRS Employer Identification No.) incorporation ...

[PART I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business) Espey Mfg. & Electronics Corp. is a military power electronics OEM, with **13.5% sales growth in FY2025**, managing customer concentration and supply chain risks - Espey Mfg. & Electronics Corp. is a power electronics design and original equipment manufacturing (OEM) company, providing highly reliable products for military and severe environment applications. The company is **ISO 9001:2015 and AS9100:2016 certified**[12](index=12&type=chunk)[13](index=13&type=chunk) Total Sales (FY2024-2025) | Fiscal Year | Total Sales | | :------------ | :------------ | | 2025 | $43,950,872 | | 2024 | $38,736,319 | | **Change** | **+13.5%** | - Sales to six customers accounted for **74% of total sales in 2025** (16%, 13%, 12%, 12%, 11%, 10% respectively), and sales to five customers accounted for **81% of total sales in 2024** (20%, 18%, 16%, 16%, 11% respectively), indicating significant customer concentration risk[15](index=15&type=chunk) Sales Backlog (June 30, 2024-2025) | Backlog Category | June 30, 2025 | June 30, 2024 | | :--------------- | :------------ | :------------ | | Total Sales Backlog | $139.7 million | $97.2 million | | Funded Portion | $106.6 million | N/A | | Unfunded Backlog | $33 million | $2.3 million | | **Change (Total)** | **+43.7%** | | - Approximately **$49.1 million** of the June 30, 2025 backlog is anticipated to be filled during the fiscal year ending June 30, 2026[22](index=22&type=chunk) - The Company's business is not seasonal, but is exposed to risks from its concentration in the rail industry and military/industrial applications, including dependence on government appropriations and potential contract terminations[25](index=25&type=chunk) Research and Development Expenditures (FY2024-2025) | Fiscal Year | R&D Expenditures | | :------------ | :----------------- | | 2025 | $71,074 | | 2024 | $86,714 | - As of August 31, 2025, the Company had **152 employees**, with approximately **34%** represented by the International Brotherhood of Electrical Workers under a collective bargaining agreement expiring June 30, 2028[29](index=29&type=chunk) [Cybersecurity](index=6&type=section&id=Item%201C.%20Cybersecurity) The company prioritizes robust cybersecurity, managing complex threats as a defense contractor through NIST-compliant assessments and DFARS compliance - The Company faces complex cybersecurity threats as a defense contractor, including malware, ransomware, phishing, Denial of Service attacks, and Advanced Persistent Threats[36](index=36&type=chunk) - A security team, comprising senior management, IT, human resources, and program management, performs routine risk assessments in accordance with **NIST 800-30**, with oversight from the Audit Committee of the Board of Directors[36](index=36&type=chunk) - The Company is required to adhere to rigorous regulations like **DFARS** for protecting controlled unclassified information (CUI) and mandatory reporting of cybersecurity incidents to the Department of Defense (DoD)[36](index=36&type=chunk) [Property](index=6&type=section&id=Item%202.%20Property) All company operations are housed in an owned, vertically integrated **174,000 sq ft** facility in Saratoga Springs, New York - The Company's entire operation, including administrative, manufacturing, and engineering facilities, is located in Saratoga Springs, New York[37](index=37&type=chunk) - The Saratoga Springs plant, owned by the Company, consists of two buildings on a 22-acre site, with approximately **174,000 square feet** of in-service floor space (**113,000 sq ft for manufacturing**)[38](index=38&type=chunk) - The manufacturing operation includes a complete machine shop with welding and sheet metal fabrication facilities, and a sophisticated on-site environmental test facility, which are also available to other companies on a contract basis[38](index=38&type=chunk) [Legal Proceedings](index=6&type=section&id=Item%203.%20Legal%20Proceedings) The company faces ordinary course litigation, but management believes no pending matters will materially impact its financial condition - The Company is party to various litigation matters and claims arising from time to time in the ordinary course of business[39](index=39&type=chunk) - Management believes that the final outcome of such matters will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows[39](index=39&type=chunk) - Currently, there are **no legal matters pending**[39](index=39&type=chunk) [Mine Safety Disclosures](index=6&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company [PART II](index=7&type=section&id=PART%20II) [Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities](index=7&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%20and%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details common stock market activity, including price ranges, dividend payments, and equity compensation plan information Common Stock Price Range (High/Low) by Quarter | Quarter | 2025 High | 2025 Low | 2024 High | 2024 Low | | :------------- | :-------- | :------- | :-------- | :------- | | First Quarter | $32.00 | $20.50 | $18.00 | $14.74 | | Second Quarter | $33.00 | $26.38 | $19.29 | $14.69 | | Third Quarter | $30.29 | $25.16 | $27.32 | $17.97 | | Fourth Quarter | $48.71 | $24.85 | $26.31 | $20.20 | - The approximate number of holders of record of the common stock was **53** on September 12, 2025[43](index=43&type=chunk) Cash Dividends Paid on Common Stock | Fiscal Year | Regular Dividend per Share | Special Dividend per Share | | :------------ | :------------------------- | :------------------------- | | 2025 | $1.00 | $0.75 | | 2024 | $0.675 | — | Equity Compensation Plan Information (June 30, 2025) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of Securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) (c) | | :---------------------------------- | :------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 228,146 | $19.26 | 12,469 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 228,146 | | 12,469 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=8&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses FY2025 financial performance, including **13.5% sales growth** and improved net income, alongside FY2026 outlook and critical accounting policies [Business Outlook](index=8&type=section&id=Business%20Outlook) Management projects higher FY2026 revenues but lower net income per share due to backlog costs, while navigating supply chain issues and pursuing strategic growth - Management expects revenues in fiscal year 2026 to be higher than fiscal year 2025, but net income per share is anticipated to fall below fiscal 2025 results due to higher anticipated aggregate costs for products in the backlog[49](index=49&type=chunk) - Ongoing demand in the power electronics industry continues to create shortages and extended lead times, with some components requiring a year or more. The Company factors these into planning and quotations[50](index=50&type=chunk) - The Company expects new orders in fiscal year 2026 to be lower than the **$86.4 million** received in fiscal year 2025, which included two significant multi-year contract awards totaling **$49.4 million**[53](index=53&type=chunk) - As of August 31, 2025, the Company has outstanding opportunities representing approximately **$163 million** for both repeat and new programs[53](index=53&type=chunk) - Capital expenditures for fiscal year 2026 are not expected to exceed **$850,000**, primarily for machinery and equipment and facility upgrades, in addition to grant-funded projects[57](index=57&type=chunk) [Results of Operations](index=9&type=section&id=Results%20of%20Operations) FY2025 net sales grew **13.5% to $43.95 million**, driving a **40% increase in net income to $8.14 million**, with improved gross profit margins Key Financial Performance Indicators (FY2024-2025) | Metric | FY2025 | FY2024 | Change (%) | | :-------------------------------------- | :------------ | :------------ | :--------- | | Net Sales | $43,950,872 | $38,736,319 | +13.5% | | Cost of Sales | $31,266,241 | $28,083,259 | +11.3% | | Gross Profit | $12,684,631 | $10,653,060 | +19.1% | | Gross Profit as % of Sales | 28.9% | 27.5% | +1.4 pp | | Selling, General and Administrative Expenses | $4,557,945 | $4,113,608 | +10.8% | | Operating Income | $8,126,686 | $6,539,452 | +24.3% | | Other Income | $1,601,978 | $755,562 | +112.0% | | Income before Provision for Income Taxes | $9,728,664 | $7,295,014 | +33.4% | | Provision for Income Taxes | $1,585,710 | $1,479,874 | +7.1% | | Net Income | $8,142,954 | $5,815,140 | +40.0% | | Basic EPS | $3.14 | $2.34 | +34.2% | | Diluted EPS | $3.02 | $2.29 | +31.9% | - The increase in net sales in FY2025 was primarily attributable to several large multi-year contracts for shipboard transformers and power distribution panels, power systems for combat vehicles, and power systems for aircraft radar and missile platforms, as well as increases in build-to-print sales[59](index=59&type=chunk) - The increase in gross profit for FY2025 was primarily due to higher sales levels, favorable product mix, higher than average profit margins on completed milestone sales, and non-recurring cost savings from labor efficiencies and material purchases. FY2024 gross profit was negatively impacted by unanticipated costs on fixed-price engineering design contracts[61](index=61&type=chunk) - Other income increased significantly due to higher interest income from increased investment securities and fixed interest rates, and a one-time Capital Investment Grant of **$300,000** related to the completion of a new building in fiscal 2025[63](index=63&type=chunk) Effective Tax Rate (FY2024-2025) | Fiscal Year | Effective Tax Rate | | :------------ | :----------------- | | 2025 | 16.3% | | 2024 | 20.3% | - The lower effective tax rate in fiscal 2025 was mainly due to benefits from stock option exercises, dividends paid on allocated ESOP shares, and foreign derived intangible income[64](index=64&type=chunk) [Liquidity and Capital Resources](index=10&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased to **$46.9 million**, and operating cash flow significantly rose to **$20.99 million in FY2025**, supported by Navy grants Working Capital (June 30, 2024-2025) | Fiscal Year | Working Capital | | :------------ | :-------------- | | 2025 | $46.9 million | | 2024 | $38 million | Summary of Cash Flow Information (FY2024-2025) | Cash Flow Activity | FY2025 | FY2024 | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $20,991,372 | $10,595,200 | | Net cash used in investing activities | $(6,938,966) | $(7,840,277) | | Net cash provided by (used in) financing activities | $458,268 | $(1,151,708) | - The increase in cash provided by operating activities in FY2025 compared to the prior year primarily relates to an increase in contract liabilities and a decrease in inventory, partially offset by increases in accounts receivable and prepaid expenses[68](index=68&type=chunk) - The Company has an uncommitted and unused **$3,000,000** line of credit, expiring February 28, 2026, and does not anticipate needing borrowed funds in the foreseeable future[66](index=66&type=chunk)[168](index=168&type=chunk) Capital Expenditures and Grant Reimbursements (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Total expended for plant improvements and new equipment | $4,365,404 | $5,164,165 | | Reimbursed from $7.4M Navy award | $3,260,000 | $4,228,722 | | Eligible for reimbursement under $3.4M Navy award | $1,731,042 | N/A | [Critical Accounting Policies and Significant Estimates](index=11&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) Key accounting policies involve significant estimates for revenue recognition on fixed-price contracts, inventory valuation, and deferred taxes - Critical accounting policies include revenue recognition, inventory valuation, and deferred taxes, which involve significant management judgments, estimates, and assumptions[72](index=72&type=chunk) - Revenue recognition for fixed-price military contracts involves determining performance obligations and transaction prices using an expected cost plus a margin approach, as standalone observable prices are not available[73](index=73&type=chunk)[74](index=74&type=chunk) - Inventory, including raw materials and contracts in process, is valued at the lower of cost (average cost) or net realizable value, with provisions for losses made when probable and estimable, based on estimated total cost at completion[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences between financial statement and tax bases, measured using enacted tax rates[79](index=79&type=chunk) [Financial Statements and Supplementary Data](index=12&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes audited financial statements, the independent auditor's unqualified opinion, and detailed notes on accounting policies and financial performance [Report of Independent Registered Public Accounting Firm](index=12&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Freed Maxick, P.C. issued an **unqualified opinion** on the company's FY2025 and FY2024 financial statements, affirming U.S. GAAP conformity - Freed Maxick, P.C. issued an **unqualified opinion** on the financial statements of Espey Mfg. & Electronics Corp. for the fiscal years ended June 30, 2025 and 2024[82](index=82&type=chunk) - The audit was conducted in accordance with **PCAOB standards**, assessing risks of material misstatement and evaluating accounting principles and significant management estimates[84](index=84&type=chunk)[85](index=85&type=chunk) [Critical Audit Matters](index=12&type=section&id=Critical%20Audit%20Matters) Inventory valuation for contracts in process is a critical audit matter due to its magnitude and the subjectivity of cost estimates - The valuation of inventory and accruals related to contracts in process and work in process was identified as a **critical audit matter**[87](index=87&type=chunk) - This matter is critical due to the magnitude of the inventory and the subjectivity involved in estimating the total cost at completion of a contract, which requires a high degree of auditor judgment[88](index=88&type=chunk) - Audit procedures included understanding management's estimation process, retrospective review of prior period estimates, brainstorming for fraud/error susceptibility, testing management's estimates, and reviewing job loss accruals[89](index=89&type=chunk) [Consolidated Balance Sheets](index=14&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$79.12 million in 2025**, driven by higher cash, investments, and contract liabilities, boosting stockholders' equity Consolidated Balance Sheet Highlights (June 30, 2024-2025) | Asset/Liability/Equity Category | June 30, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------ | | Cash and cash equivalents | $18,862,645 | $4,351,970 | | Investment securities | $24,717,245 | $18,878,631 | | Total current assets | $75,156,408 | $53,236,656 | | Total assets | $79,116,564 | $56,542,931 | | Contract liabilities | $22,886,404 | $9,043,422 | | Total current liabilities | $28,267,564 | $15,268,959 | | Total liabilities | $28,267,564 | $15,268,959 | | Total stockholders' equity | $50,849,000 | $41,273,972 | - Cash and cash equivalents increased significantly from **$4.35 million in 2024 to $18.86 million in 2025**[90](index=90&type=chunk) - Contract liabilities saw a substantial increase from **$9.04 million in 2024 to $22.89 million in 2025**[90](index=90&type=chunk) [Consolidated Statements of Comprehensive Income](index=15&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) FY2025 saw net sales rise **13.5% to $43.95 million**, with net income increasing **40% to $8.14 million** and basic EPS at **$3.14** Consolidated Statements of Comprehensive Income (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Net sales | $43,950,872 | $38,736,319 | | Gross profit | $12,684,631 | $10,653,060 | | Operating income | $8,126,686 | $6,539,452 | | Total other income | $1,601,978 | $755,562 | | Income before provision for income taxes | $9,728,664 | $7,295,014 | | Provision for income taxes | $1,585,710 | $1,479,874 | | Net income | $8,142,954 | $5,815,140 | | Unrealized gain on investment securities | $5,052 | $8,973 | | Total comprehensive income | $8,148,006 | $5,824,113 | | Net income per share: Basic | $3.14 | $2.34 | | Net income per share: Diluted | $3.02 | $2.29 | - Net income increased by **40.0%** from **$5,815,140 in FY2024 to $8,142,954 in FY2025**[91](index=91&type=chunk) - Basic EPS increased from **$2.34 in FY2024 to $3.14 in FY2025**, and Diluted EPS increased from **$2.29 to $3.02**[91](index=91&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=16&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity increased to **$50.85 million in 2025**, driven by net income and stock option exercises, despite dividend payments Key Changes in Stockholders' Equity (FY2024-2025) | Item | FY2025 Change | FY2024 Change | | :---------------------------------- | :------------ | :------------ | | Net income | $8,142,954 | $5,815,140 | | Stock options exercised | $3,055,622 | $526,362 | | Stock-based compensation | $346,281 | $283,673 | | Dividends paid on common stock | $(2,597,354) | $(1,678,070) | | Reduction of unearned ESOP shares | $622,473 | $438,136 | | Total Stockholders' Equity (End of Period) | $50,849,000 | $41,273,972 | - Total stockholders' equity increased by **$9,575,028** from June 30, 2024, to June 30, 2025[95](index=95&type=chunk) [Consolidated Statements of Cash Flows](index=18&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow nearly doubled to **$20.99 million in FY2025**, leading to a **$14.51 million increase** in cash and cash equivalents Consolidated Statements of Cash Flows (FY2024-2025) | Cash Flow Activity | FY2025 | FY2024 | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $20,991,372 | $10,595,200 | | Net cash used in investing activities | $(6,938,965) | $(7,840,277) | | Net cash provided by (used in) financing activities | $458,268 | $(1,151,708) | | Increase in cash and cash equivalents | $14,510,675 | $1,603,215 | | Cash and cash equivalents, end of the year | $18,862,645 | $4,351,970 | - Net cash provided by operating activities increased by approximately **98%** in FY2025, primarily due to an increase in contract liabilities and a decrease in inventory[96](index=96&type=chunk) - Cash flows from financing activities shifted from a net use of **$1.15 million in FY2024** to a net provision of **$0.46 million in FY2025**, largely due to increased proceeds from stock option exercises[96](index=96&type=chunk) [Notes to Financial Statements](index=19&type=section&id=Notes%20to%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, revenue, investments, PPE, taxes, ESOP, stock compensation, and other financial specifics [Note 1. Nature of Operations](index=19&type=section&id=Note%201.%20Nature%20of%20Operations) Espey Mfg. & Electronics Corp. manufactures electronic equipment primarily for military and industrial applications globally - Espey Mfg. & Electronics Corp. is a manufacturer of electronic equipment used primarily in military and industrial applications[97](index=97&type=chunk) - The principal markets for the Company's products are companies that provide electronic support to both military and industrial applications across the United States and at some international locations[97](index=97&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=19&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note details key accounting policies for revenue recognition, inventory, depreciation, income taxes, investments, and segment reporting - Revenue from fixed-price military and industrial contracts is recognized based on performance obligations, with transaction prices determined using an expected cost plus a margin approach[98](index=98&type=chunk)[100](index=100&type=chunk) - Inventory (raw materials, contracts in process, work in process) is valued at the lower of cost (average cost) or net realizable value, with provisions for losses on contracts made when probable and estimable[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company adopted **ASU 2023-07**, 'Segment Reporting', effective June 30, 2025, which did not materially impact its segment-related disclosures[119](index=119&type=chunk) - The Company's defense electronics products market is largely dependent on new contracts from the United States and foreign governments, exposing it to concentration of risk related to government expenditures and procurement regulations (**FAR, DFAR**)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) [Note 3. Revenue](index=23&type=section&id=Note%203.%20Revenue) Revenue is recognized over time from military and industrial contracts, with a **$139.7 million backlog** and high customer concentration - Revenue is recognized over time using the output method, based on units delivered or milestones achieved, as control of products or services is transferred to customers[127](index=127&type=chunk) Revenue Recognition by Method (FY2024-2025) | Revenue Source | FY2025 | FY2024 | | :------------------ | :------------ | :------------ | | Units delivered | $35,343,557 | $33,403,833 | | Milestones achieved | $8,607,314 | $5,332,486 | Contract Liabilities (June 30, 2024-2025) | Fiscal Year | Contract Liabilities | | :------------ | :------------------- | | 2025 | $22,886,404 | | 2024 | $9,043,422 | | **Change** | **+153.1%** | - The total sales backlog at June 30, 2025, was approximately **$139.7 million**, with **35%** expected to be recognized in fiscal year 2026, **19%** in 2027, **15%** in 2028, and **31%** thereafter[131](index=131&type=chunk) - Sales to six domestic customers accounted for **74% of total sales in 2025**, and sales to five domestic customers accounted for **81% of total sales in 2024**, highlighting significant customer concentration[132](index=132&type=chunk) Export Shipments (FY2024-2025) | Fiscal Year | Export Shipments | | :------------ | :--------------- | | 2025 | $3,124,820 | | 2024 | $2,350,087 | | **Change** | **+32.97%** | [Note 4. Investment Securities](index=24&type=section&id=Note%204.%20Investment%20Securities) Investment securities, primarily certificates of deposit and municipal bonds, increased to **$24.72 million in 2025**, with most maturing within one year Investment Securities Fair Value (June 30, 2024-2025) | Security Type | June 30, 2025 Fair Value | June 30, 2024 Fair Value | | :-------------------- | :----------------------- | :----------------------- | | Certificates of deposit | $23,539,000 | $17,651,000 | | Municipal bonds | $1,178,245 | $711,570 | | U.S. Treasury bills | — | $516,061 | | **Total** | **$24,717,245** | **$18,878,631** | - The investment portfolio is diversified, highly liquid, and primarily consists of investment grade fixed income instruments[134](index=134&type=chunk) Contractual Maturities of Available-for-Sale Debt Securities (June 30, 2024-2025) | Fiscal Year | Less than One Year | One to Five Years | Total | | :------------ | :----------------- | :---------------- | :------------ | | June 30, 2025 | $22,933,933 | $1,783,312 | $24,717,245 | | June 30, 2024 | $17,889,582 | $989,049 | $18,878,631 | [Note 5. Contracts in Process](index=25&type=section&id=Note%205.%20Contracts%20in%20Process) Unrecognized gross contract value for contracts in process increased to **$139.67 million in 2025**, with associated costs of **$15.04 million** Contracts in Process (June 30, 2024-2025) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Unrecognized gross contract value | $139,673,288 | $97,216,542 | | Costs related to contracts in process | $15,040,253 | $15,904,588 | - The unrecognized gross contract value increased by approximately **43.7%** from 2024 to 2025[136](index=136&type=chunk) - Costs related to contracts in process include material, subcontract costs, labor, and an allocation of overhead costs, and are not reflected in comprehensive income until units are shipped[136](index=136&type=chunk) [Note 6. Property, Plant and Equipment](index=25&type=section&id=Note%206.%20Property%2C%20Plant%20and%20Equipment) Net PPE increased to **$3.96 million in 2025**, supported by **$7.4 million** and an additional **$3.4 million** in Navy funding for upgrades Property, Plant and Equipment, Net (June 30, 2024-2025) | Category | June 30, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------ | | Land | $45,000 | $45,000 | | Building and improvements | $6,137,629 | $5,472,156 | | Machinery and equipment | $11,887,737 | $11,509,018 | | Furniture and fixtures | $165,651 | $165,651 | | Total | $18,236,017 | $17,191,825 | | Accumulated depreciation | $(14,275,861) | $(13,885,550) | | **Net PPE** | **$3,960,156**| **$3,306,275**| - Depreciation expense was **$451,523** for the year ended June 30, 2025, and **$453,517** for 2024[137](index=137&type=chunk) - The Company received **$7.4 million** in Navy funding for facility and capital equipment upgrades, completed in April 2025, with all related assets placed in service by June 30, 2025[138](index=138&type=chunk) - An additional **$3.4 million** Navy award was received in fiscal year 2025 for continued upgrades, with approximately **$1,731,042** in unreimbursed spending included in property, plant, and equipment at June 30, 2025[139](index=139&type=chunk) [Note 7. Pension Expense](index=26&type=section&id=Note%207.%20Pension%20Expense) The company paid a **$772,157** pension withdrawal obligation in FY2025 and made contributions to NEBF and a 401(k) plan - The Company recorded a termination withdrawal obligation of **$772,157** at June 30, 2024, for withdrawing from the IBEW Local 1799 Pension Fund, which was paid in full during fiscal year 2025[140](index=140&type=chunk) Pension and 401(k) Contributions (FY2024-2025) | Plan | FY2025 | FY2024 | | :---------------------------------- | :---------- | :---------- | | National Electrical Benefit Fund (NEBF) | $79,739 | $79,429 | | 401(k) employer matching contributions | $66,617 | $60,301 | [Note 8. Provision for Income Taxes](index=26&type=section&id=Note%208.%20Provision%20for%20Income%20Taxes) The FY2025 income tax provision was **$1.59 million**, with a lower effective tax rate of **16.3%** due to various tax benefits Provision for Income Taxes (FY2024-2025) | Component | FY2025 | FY2024 | | :-------------------- | :------------ | :------------ | | Current tax expense - federal | $1,882,969 | $2,515,865 | | Current tax (benefit) expense - state | $9,606 | $(3,010) | | Deferred tax benefit | $(306,865) | $(1,032,981) | | **Total Provision** | **$1,585,710**| **$1,479,874**| Effective Income Tax Rates and Reconciliation (FY2024-2025) | Item | FY2025 | FY2024 | | :-------------------------------------- | :------ | :------ | | U.S. federal statutory income tax rate | 21.0% | 21.0% | | State franchise tax, net of federal income tax benefit | 0.1 | — | | ESOP cost versus Fair Market Value | 0.5 | 0.1 | | Dividend on allocated ESOP shares | (0.6) | (0.3) | | Stock-based compensation | (3.8) | 0.2 | | Foreign derived intangible income | (0.9) | (0.8) | | Other | (0.0) | 0.1 | | **Effective tax rate** | **16.3%** | **20.3%** | Deferred Tax Assets and Liabilities (June 30, 2024-2025) | Category | June 30, 2025 | June 30, 2024 | | :---------------------------- | :------------ | :------------ | | Total deferred tax assets | $1,272,246 | $974,091 | | Total deferred tax liability | $70,227 | $78,937 | | **Net deferred tax asset (liability)** | **$1,202,019**| **$895,154** | [Note 9. Employee Stock Ownership Plan](index=27&type=section&id=Note%209.%20Employee%20Stock%20Ownership%20Plan) The company sponsors a leveraged ESOP, with compensation expense of **$622,472 in 2025** and **595,299 total shares** held - The Company sponsors a leveraged Employee Stock Ownership Plan (ESOP) covering all nonunion employees who meet eligibility criteria[149](index=149&type=chunk) ESOP Compensation Expense (FY2024-2025) | Fiscal Year | ESOP Compensation Expense | | :------------ | :------------------------ | | 2025 | $622,472 | | 2024 | $438,136 | ESOP Shares (June 30, 2024-2025) | Share Category | June 30, 2025 | June 30, 2024 | | :---------------- | :------------ | :------------ | | Allocated shares | 405,482 | 451,132 | | Unearned shares | 189,817 | 211,487 | | **Total shares held by the ESOP** | **595,299** | **662,619** | | Fair value of unearned shares | $8,676,535 | $4,494,099 | [Note 10. Stock-based Compensation](index=28&type=section&id=Note%2010.%20Stock-based%20Compensation) Stock-based compensation expense increased to **$346,281 in FY2025**, with **228,146 options outstanding** and an aggregate intrinsic value of **$6.03 million** Total Stock-based Compensation Expense (FY2024-2025) | Fiscal Year | Total Stock-based Compensation Expense | | :------------ | :------------------------------------- | | 2025 | $346,281 | | 2024 | $283,673 | - As of June 30, 2025, there was **$233,094** of unrecognized compensation cost related to stock option awards, expected to be recognized as expense over the next **1.75 years**[154](index=154&type=chunk) Stock Option Activity (FY2024-2025) | Activity | Shares Subject to Option (2025) | Weighted Average Exercise Price (2025) | Shares Subject to Option (2024) | Weighted Average Exercise Price (2024) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | Balance at July 1 | 322,056 | $18.41 | 296,331 | $19.15 | | Granted | 79,000 | $21.79 | 80,900 | $16.78 | | Exercised | (162,410) | $18.81 | (31,325) | $16.80 | | Forfeited or expired | (10,500) | $18.90 | (23,850) | $24.30 | | **Outstanding at June 30**| **228,146** | **$19.26** | **322,056** | **$18.41** | - The aggregate intrinsic value of outstanding options at June 30, 2025, was **$6,033,634**[158](index=158&type=chunk)[159](index=159&type=chunk) [Note 11. Concentration of Credit Risk](index=30&type=section&id=Note%2011.%20Concentration%20of%20Credit%20Risk) The company faces significant credit risk concentration, with **six customers accounting for 70%** of trade accounts receivable - Financial instruments, including cash and cash equivalents, short-term investments, and accounts receivable, subject the Company to concentrations of credit risk[161](index=161&type=chunk) - At June 30, 2025, **70%** of the Company's total trade accounts receivable balance was represented by six customers (26%, 14%, 11%, 7%, 7%, and 6% respectively)[161](index=161&type=chunk) - The Company manages credit risk through credit approvals, credit limits, monitoring procedures, and establishing an allowance for credit losses based on various factors[162](index=162&type=chunk) [Note 12. Related Parties](index=30&type=section&id=Note%2012.%20Related%20Parties) This note details the administration and voting rights of common stock shares held by the ESOP Trust - The administration of common stock shares held by the ESOP Trust is governed by the Espey Mfg. & Electronics Corp. Employee Retirement Plan and Trust and a Trust Agreement[163](index=163&type=chunk) - Allocated shares are voted according to participant instructions, while unallocated shares and those without instructions are voted in the same proportion as instructions received on allocated shares, as directed by the Board of Directors[163](index=163&type=chunk) [Note 13. Commitments and Contingencies](index=31&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) The company faces government contractor audits and ordinary course litigation, but no material adverse effects are currently anticipated - Contingent liabilities on outstanding standby letters of credit agreements aggregated to **zero** at June 30, 2025 and 2024[164](index=164&type=chunk) - As a U.S. Government contractor, the Company is subject to audits, reviews, and investigations, with potential risks including contract termination, damages, and debarment for non-compliance[164](index=164&type=chunk) - The Company is party to various litigation matters and claims arising in the ordinary course of business, but currently, there are **no matters pending** that are expected to have a material adverse effect[165](index=165&type=chunk) [Note 14. Stockholders' Equity](index=31&type=section&id=Note%2014.%20Stockholders'%20Equity) This note details stockholders' equity, including **240,615 reserved common shares**, EPS reconciliation, and dividend payments Common Shares Reserved for Future Issuance (June 30, 2025) | Category | Number of Shares | | :---------------------------- | :--------------- | | Stock options outstanding | 228,146 | | Stock options available for issuance | 12,469 | | **Total common shares reserved** | **240,615** | Earnings Per Share (EPS) Reconciliation (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Net income (Numerator) | $8,142,954 | $5,815,140 | | Denominator for basic EPS (Weighted average common shares) | 2,591,036 | 2,489,165 | | Denominator for diluted EPS (Weighted average common shares) | 2,696,192 | 2,536,967 | - The Company paid regular cash dividends on common stock of **$1.00 per share** for fiscal year 2025 and **$0.675 per share** for fiscal year 2024[167](index=167&type=chunk) [Note 15. Line of Credit](index=32&type=section&id=Note%2015.%20Line%20of%20Credit) The company has an unused **$3 million** line of credit expiring **February 28, 2026**, and does not anticipate needing borrowed funds - The Company has an uncommitted and unused Line of Credit with a financial institution, allowing borrowing up to **$3,000,000**[168](index=168&type=chunk) - The line of credit bears interest at the SOFR Daily Floating Rate plus **2 percentage points**, is collateralized by accounts receivable, and expires on **February 28, 2026**[168](index=168&type=chunk) - The Company did not borrow any funds during the last two fiscal years and does not anticipate the need for borrowed funds in the foreseeable future[168](index=168&type=chunk) [Note 16. Quarterly Financial Information (Unaudited)](index=32&type=section&id=Note%2016.%20Quarterly%20Financial%20Information%20%28Unaudited%29) This note presents unaudited quarterly financial data for FY2025 and FY2024, including net sales, gross profit, and net income Quarterly Financial Information (Unaudited) - FY2025 | 2025 Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----------- | :----------- | :----------- | :----------- | :-------- | :---------- | | First | $10,443,218 | $2,800,882 | $1,598,317 | $0.63 | $0.61 | | Second | $13,608,740 | $3,163,712 | $1,908,499 | $0.74 | $0.71 | | Third | $10,302,719 | $2,948,384 | $1,704,487 | $0.66 | $0.63 | | Fourth | $9,596,194 | $3,771,652 | $2,931,651 | $1.10 | $1.05 | Quarterly Financial Information (Unaudited) - FY2024 | 2024 Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----------- | :----------- | :----------- | :----------- | :-------- | :---------- | | First | $8,568,214 | $2,245,377 | $1,094,544 | $0.44 | $0.44 | | Second | $10,302,541 | $3,142,575 | $1,795,370 | $0.73 | $0.72 | | Third | $8,254,653 | $2,064,191 | $1,031,930 | $0.41 | $0.40 | | Fourth | $11,610,911 | $3,200,917 | $1,893,296 | $0.76 | $0.73 | [Note 17. Segment Reporting](index=32&type=section&id=Note%2017.%20Segment%20Reporting) The company adopted ASU 2023-07 and operates as a single segment, with domestic revenue consistently exceeding **90% of total revenue** - As of June 30, 2025, the Company adopted **FASB's ASU 2023-07**, 'Segment Reporting', which provides enhancements to qualitative and quantitative reportable segment disclosure requirements[170](index=170&type=chunk) - Espey operates as a **single operating segment**, with the Chief Executive Officer serving as the Chief Operating Decision Maker (CODM)[170](index=170&type=chunk) - The CODM evaluates performance and makes operating decisions based on consolidated financial data, focusing on significant expenses like Cost of Sales and Selling, General and Administrative costs[170](index=170&type=chunk) - Domestic revenue accounted for **more than 90%** of total revenue during the years ended June 30, 2025 and 2024[170](index=170&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=33&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were **no changes** in and disagreements with accountants on accounting and financial disclosure - There were **no changes** in and disagreements with accountants on accounting and financial disclosure[171](index=171&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were **effective as of June 30, 2025** - The Company's management, with the participation of the CEO and Principal Financial Officer, concluded that disclosure controls and procedures were **effective as of June 30, 2025**[171](index=171&type=chunk) - There have been **no material changes** in internal controls over financial reporting during the period covered by this report[172](index=172&type=chunk) - Management concluded that the internal control over financial reporting was **effective as of June 30, 2025**, based on the **COSO Internal Control-Integrated Framework (2013)**[174](index=174&type=chunk) [Other information](index=33&type=section&id=Item%209B.%20Other%20information) **No other information** was reported for this item - **No other information** was reported for this item[175](index=175&type=chunk) [PART III](index=34&type=section&id=PART%20III) This section incorporates by reference information from the **2025 Annual Meeting of Shareholders** proxy statement for Items 10 through 14 - Information for Items 10 through 14 is incorporated by reference from the Company's definitive proxy statement relating to the **2025 Annual Meeting of Shareholders**[177](index=177&type=chunk) [PART IV](index=34&type=section&id=PART%20IV) [Exhibits, Financial Statement Schedules, Signatures](index=34&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules%2C%20Signatures) This section lists filed exhibits and includes required signatures from key officers and directors, affirming report accuracy - This section lists various exhibits, including the Certificate of Incorporation, By-Laws, Description of Capital Stock, Stock Option Plans, Employment Agreements, Code of Ethics, and Certifications[179](index=179&type=chunk)[180](index=180&type=chunk) - The report is duly signed by the President and Chief Executive Officer, Chairman of the Board, other Directors, and the Principal Financial Officer, affirming compliance with Securities Exchange Act requirements[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 ☐ 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: 001-41389 ConnectM Technology Solutions, Inc. (Exact name of registrant as specified in its charter) | Delaware | 87-2898342 | | ...

PART I – FINANCIAL INFORMATION (unaudited) [Item 1. Unaudited Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' deficit, and statements of cash flows, along with detailed notes explaining the company's organization, accounting policies, acquisitions, debt, and other financial instruments [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20(unaudited)%20and%20December%2031%2C%202024) The balance sheets show a significant increase in total assets and a decrease in total liabilities and stockholders' deficit from December 31, 2024, to June 30, 2025, primarily driven by increases in accounts receivable, property and equipment, goodwill, and additional paid-in capital Selected Balance Sheet Data | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Total Assets | $21,837,977 | $12,756,542 | | Total Liabilities | $33,419,209 | $36,543,049 | | Total Stockholders' Deficit | $(11,581,232) | $(23,786,507) | | Cash | $2,658,044 | $2,407,843 | | Accounts Receivable | $5,480,311 | $1,897,471 | | Property and Equipment, net | $3,508,727 | $936,573 | | Goodwill | $5,157,376 | $1,728,108 | | Additional Paid-In Capital | $42,541,947 | $20,152,919 | | Accumulated Deficit | $(55,988,573) | $(45,426,099) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024%20(unaudited)) The company reported increased revenues and gross profit for both the three and six months ended June 30, 2025, compared to 2024, but also experienced a higher net loss due to increased selling, general and administrative expenses and other expenses, including losses on debt extinguishment and fair value changes Selected Statements of Operations Data | Metric (USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $8,511,491 | $5,009,124 | $17,499,834 | $10,383,031 | | Cost of Revenues | $5,538,614 | $3,039,203 | $11,513,224 | $6,809,589 | | Gross Profit | $2,972,877 | $1,969,921 | $5,986,610 | $3,573,442 | | Selling, General and Administrative Expenses | $6,292,160 | $3,013,658 | $12,579,336 | $6,031,817 | | Loss from Operations | $(3,319,283) | $(1,449,395) | $(6,592,726) | $(2,864,033) | | Total Other Income (Expense), net | $(86,825) | $(767,891) | $(3,790,721) | $(1,956,626) | | Net Loss | $(3,406,108) | $(2,217,286) | $(10,383,447) | $(4,820,659) | | Basic and Diluted Net Loss Per Share | $(0.06) | $(0.17) | $(0.24) | $(0.36) | [Condensed Consolidated Statements of Stockholders' Deficit](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024%20(unaudited)) The statements of stockholders' deficit show a significant increase in common stock shares and additional paid-in capital for the six months ended June 30, 2025, primarily due to issuances of common stock to settle claims, extinguish obligations, and in connection with acquisitions, despite a growing accumulated deficit Selected Stockholders' Deficit Data | Metric (USD) | December 31, 2024 | June 30, 2025 | | :--------------------------------------- | :------------------ | :-------------- | | Common Stock Shares | 29,093,289 | 71,631,073 | | Common Stock Amount | $2,910 | $7,163 | | Additional Paid-In Capital | $20,152,919 | $42,541,947 | | Accumulated Deficit | $(45,426,099) | $(55,988,573) | | Total Stockholders' Deficit | $(23,786,507) | $(11,581,232) | - Issuance of common stock to extinguish obligations to vendors and lenders under 3a10 plan: **10,069,573 shares** with a fair value of **$5,411,498**[19](index=19&type=chunk) - Issuance of common stock in connection with the conversion of convertible debt and accrued interest under 3(a)(9) settlement: **15,290,930 shares** with a fair value of **$7,740,915**[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202025%20and%202024%20(unaudited)) For the six months ended June 30, 2025, the company experienced increased cash used in operating activities, a shift to cash received from investing activities, and a significant increase in cash provided by financing activities, leading to an overall increase in cash and cash equivalents Selected Cash Flow Data | Cash Flow Activity (USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(4,204,478) | $(2,424,368) | | Net cash received from (used in) investing activities | $285,822 | $(145,923) | | Net cash provided by financing activities | $4,204,866 | $2,219,157 | | Cash, beginning of the period | $2,407,843 | $1,160,368 | | Cash, end of the period | $2,658,044 | $819,575 | - Net cash used in operating activities increased by **73.4%** to **$4,204,478** for the six months ended June 30, 2025, primarily due to a net loss of **$10,383,447**, partially offset by non-cash items and changes in operating assets and liabilities[21](index=21&type=chunk)[211](index=211&type=chunk) - Net cash provided by financing activities increased by **89.5%** to **$4,204,866** for the six months ended June 30, 2025, driven by proceeds from convertible debt (**$3,556,000**), issuance of debt (**$735,000**), and stock subscription agreements (**$805,000**)[21](index=21&type=chunk)[215](index=215&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering the company's business, significant accounting policies, financial condition, and recent transactions [Note 1: Organization and Operations](index=11&type=section&id=NOTE%201%3A%20ORGANIZATION%20AND%20OPERATIONS) ConnectM Technology Solutions, Inc. operates through subsidiaries, offering solutions for decarbonization, business-to-business transportation, and industrial internet of things (IIoT) management, powered by its AI-driven energy intelligence platform. The company also provides managed solutions services and physical products. The financial statements reflect a reverse recapitalization from July 2024, with prior period adjustments - ConnectM offers solutions for decarbonization (energy management, weatherization, HVAC, solar, battery, EV charging), business-to-business transportation (last mile delivery), and connected operations management (IIoT platform)[22](index=22&type=chunk) - The company's offerings include an AI-driven intelligent heat pump system and display clusters, digital control units, and vehicle control units[23](index=23&type=chunk) - On July 12, 2024, the company consummated a Business Combination accounted for as a reverse recapitalization, with Legacy ConnectM deemed the accounting acquirer[24](index=24&type=chunk) [Note 2: Summary of Significant Accounting Policies](index=13&type=section&id=NOTE%202%3A%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company's significant accounting policies remain largely unchanged, emphasizing the use of estimates, segment reporting across four operating segments (Owned Service Network, Managed Solutions, Logistics, Transportation), and the treatment of business combinations and net loss per share. Several new accounting pronouncements are under evaluation for future impact - The company's four operating and reportable segments are: Owned Service Network, Managed Solutions, Logistics, and Transportation[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[42](index=42&type=chunk) - Potentially dilutive securities totaling **19,870,608** (options, warrants, convertible notes) were excluded from diluted EPS computation due to their anti-dilutive effect given the net loss position[43](index=43&type=chunk)[44](index=44&type=chunk) - The company is evaluating the potential impact of recently issued accounting pronouncements, including ASU 2023-06 (Disclosure Improvements), ASU 2024-02 (Codification Improvements), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03/2025-01 (Expense Disaggregation Disclosures)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 3: Going Concern](index=17&type=section&id=NOTE%203%3A%20GOING%20CONCERN) The company's ability to continue as a going concern is in substantial doubt due to a significant working capital deficit, ongoing net losses, negative operating cash flow, Nasdaq delisting, and technical defaults on several debt agreements. Management is seeking additional financing and expense management to address these challenges - As of June 30, 2025, the company had a working capital deficit of approximately **$20,634,015**[50](index=50&type=chunk) - The company incurred a net loss of approximately **$10,383,447** and generated negative cash flow from operating activities of approximately **$4,204,478** for the six months ended June 30, 2025[50](index=50&type=chunk) - The company's common stock was delisted from the Nasdaq Capital Market on May 7, 2025, due to non-compliance with listing rules[51](index=51&type=chunk)[52](index=52&type=chunk) - The company is in technical default under the SEPA Convertible Note and four secured promissory notes due to missed scheduled payments[53](index=53&type=chunk)[54](index=54&type=chunk) [Note 4: Acquisitions](index=19&type=section&id=NOTE%204%3A%20ACQUISITIONS) In April 2025, ConnectM completed two significant acquisitions: ATS and SESB for $3.141 million in common stock, expanding its residential/commercial heating, cooling, and solar services; and CER for a capital infusion of $1.13 million, resulting in a bargain purchase gain of $2.487 million and expanding its presence in India's energy-management sectors. These acquisitions are integrated into the Owned Service Network segment - On April 28, 2025, the company acquired Air Temp Service Co, Inc. (ATS) and Solar Energy Systems of Brevard, Inc (SESB) for approximately **$3,141,000** in common stock (**4,900,000 shares**)[58](index=58&type=chunk) - On April 25, 2025, ConnectM India acquired **100%** of Cambridge Energy Resources Pvt. Ltd. (CER) under a court-supervised insolvency resolution plan, resulting in a bargain purchase gain of approximately **$2,487,000**[60](index=60&type=chunk)[61](index=61&type=chunk) - CER expands the company's operating presence in India's rooftop solar distributed energy and telecommunications enterprise energy-management sectors, contributing approximately **$28,000** in revenue from acquisition date to June 30, 2025[64](index=64&type=chunk)[77](index=77&type=chunk) Acquisition Summary | Acquired Entity | Acquisition Date | Total Assets Acquired | Total Liabilities Assumed | Net Assets Acquired | Goodwill | Non-controlling Interest | | :---------------- | :--------------- | :-------------------- | :------------------------ | :------------------ | :------- | :----------------------- | | ATS | April 28, 2025 | $847,645 | $861,647 | $(14,002) | $2,612,975 | — | | SESB | April 28, 2025 | $228,171 | $56,010 | $172,161 | $817,705 | — | | CER | April 25, 2025 | $5,051,773 | $2,335,748 | $2,716,025 | — | $228,520 | [Note 5: Accounts Payable](index=23&type=section&id=NOTE%205%3A%20ACCOUNTS%20PAYABLE) Accounts payable includes trade payables, accrued vendor obligations, and credit card payable balances, which increased from December 31, 2024, to June 30, 2025 Accounts Payable Details | Metric (USD) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Accounts Payable | $7,540,595 | $10,497,488 | | Credit Card Payable Balances | $733,000 | $612,000 | [Note 6: Other Payable](index=23&type=section&id=NOTE%206%3A%20OTHER%20PAYABLE) In January 2025, the company entered into a 3(a)(10) Settlement Agreement with Last Horizon, LLC, to settle $8.908 million in overdue liabilities by issuing common stock. This resulted in a loss on extinguishment and the recognition of a new obligation at fair value, which decreased to $3.645 million by June 30, 2025, after partial settlement through stock issuance. The company triggered default events in April and May 2025 - The company entered into a 3(a)(10) Settlement Agreement in January 2025 to settle approximately **$8,908,000** in overdue liabilities by issuing common stock to Last Horizon, LLC[73](index=73&type=chunk) - A loss on extinguishment of approximately **$2,716,000** was recognized on January 29, 2025, and an additional **$1,323,000** and **$1,128,000** loss for the three and six months ended June 30, 2025, respectively, from debt-to-equity conversion[75](index=75&type=chunk)[80](index=80&type=chunk) 3(a)(10) Settlement Agreement Details | Metric (USD) | January 29, 2025 (Issuance) | June 30, 2025 | | :--------------------------------------- | :-------------------------- | :------------ | | Fair Value of 3(a)(10) Settlement Agreement | $11,624,000 | $3,645,042 | | Shares Issued to Settle Obligation (6 months) | — | 13,744,131 | - The company triggered an event of default in April 2025 for not filing its Form 10-K timely and in May 2025 for being delisted from NASDAQ[76](index=76&type=chunk) [Note 7: Convertible Debt](index=25&type=section&id=NOTE%207%3A%20CONVERTIBLE%20DEBT) The company issued $3.556 million in 2025 Convertible Notes with 20% interest and varying maturity/conversion terms, measured at fair value. Modifications were made to 2024 Convertible Notes due to stock price volatility, and $1.84 million of these notes were extinguished through conversion into common stock - The company entered into eighteen 2025 Convertible Note agreements for aggregate gross proceeds of **$3,556,000**, bearing **20.0%** interest per annum[81](index=81&type=chunk)[82](index=82&type=chunk) - The fair value of the 2025 Convertible Notes was approximately **$3,556,000** at issuance and **$3,728,000** at June 30, 2025[84](index=84&type=chunk) - The 2024 Convertible Notes were modified to extend maturity and conversion option periods due to stock price volatility[87](index=87&type=chunk) - The company extinguished **$1,840,000** of outstanding 2024 Convertible Notes through conversion into common stock during the six months ended June 30, 2025[88](index=88&type=chunk) [Note 8: Debt](index=27&type=section&id=NOTE%208%3A%20DEBT) The company settled two Sale of Future Receipts (SFR) agreements, recognizing gains on extinguishment. It also assumed approximately $187,000 in debt from the ATS and SESB acquisitions. The January 2025 Seller Note, initially $176,000, was amended twice, extending its maturity and increasing interest. Additionally, $7.465 million in convertible and promissory notes were converted into 15,290,930 shares of common stock under a 3(a)(9) debt-to-equity conversion, resulting in a $690,000 loss - Settled September 2024 SFR Agreement for **$25,000** cash payment, extinguishing **$69,000** balance and recording a **$12,000** gain[89](index=89&type=chunk) - Settled November 2024 SFR Agreement for **$30,000**, extinguishing **$53,000** balance and recording a **$2,000** gain[90](index=90&type=chunk) - Assumed approximately **$187,000** in debt from ATS and SESB acquisitions, classified as current[91](index=91&type=chunk) - Converted **$7,464,939** of 2024 convertible notes and promissory notes into **15,290,930 shares** of common stock under Section 3(a)(9), resulting in a total loss of approximately **$690,000**[95](index=95&type=chunk)[96](index=96&type=chunk) [Note 9: Derivative Financial Instruments](index=29&type=section&id=NOTE%209%3A%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The company settled Share Reset Derivative Liabilities by issuing 2,737,168 shares of common stock with a fair value of $1,712,005. The Forward Purchase Agreement (FPA) with Meteora was mutually terminated, resulting in a $500,000 termination consideration received by the company - **2,737,168 shares** were issued on February 24, 2025, with a fair value of **$1,712,005**, to settle Share Reset Derivative Liabilities[98](index=98&type=chunk) - The Amended 2024 FPA with Meteora was mutually terminated on April 2, 2025, in exchange for **$500,000** termination consideration received by the company[99](index=99&type=chunk) [Note 10: Fair Value Measurements](index=29&type=section&id=NOTE%2010%3A%20FAIR%20VALUE%20MEASUREMENTS) The company measures certain liabilities, including derivative liabilities, the 3(a)(10) Settlement Agreement, contingent consideration, and convertible debt, at fair value using Level 3 inputs. Significant changes in fair value were observed for convertible debt and the 3(a)(10) Settlement Agreement, with specific assumptions used for valuation models Fair Value of Liabilities | Liability (USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Derivative Liabilities | $3,061,948 | $4,229,478 | | 3(a)(10) Settlement Agreement | $3,645,042 | — | | Contingent Consideration | $434,174 | $434,174 | | Convertible Debt | $7,195,476 | $8,542,323 | | Total Liabilities at Fair Value | $14,336,640 | $13,205,975 | - The change in fair value on convertible debt resulted in a loss of approximately **$733,783** for the three months and **$1,053,478** for the six months ended June 30, 2025[105](index=105&type=chunk) - The fair value of the 3(a)(10) Settlement Agreement was determined using a Monte Carlo simulation, resulting in a loss of **$1,115,594** for the three months and **$617,966** for the six months ended June 30, 2025[111](index=111&type=chunk)[112](index=112&type=chunk) - The fair value of derivative liabilities decreased from **$4,229,478** at December 31, 2024, to **$3,061,948** at June 30, 2025, with a change in fair value resulting in a loss of **$544,209** for the six months ended June 30, 2025[100](index=100&type=chunk)[101](index=101&type=chunk)[114](index=114&type=chunk) [Note 11: Related Party Transactions](index=33&type=section&id=NOTE%2011%3A%20RELATED%20PARTY%20TRANSACTIONS) The company engaged in various transactions with related parties, including the Sponsor of MCAC, Related Party Investors, and the CEO. These involved converting unsecured promissory notes and other liabilities into common stock, settling share reset adjustments, and generating revenue/incurring costs from related party managed solutions customers. The CEO also holds promissory notes with the company - The Sponsor of MCAC converted approximately **$555,000** of unsecured promissory notes and **$132,000** of accounts payable into **343,248 shares** of common stock in September 2024[118](index=118&type=chunk) - Related Party Investors received one-time share reset adjustments, settled during Q1 2025 through the issuance of **1,460,130** and **795,675 shares** of common stock[121](index=121&type=chunk) Related Party Managed Solutions Financials | Metric (USD) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--------------------------------------- | :------------------------------- | :----------------------------- | | Revenue from Related Party Managed Solutions Customers | $131,000 | $346,000 | | Cost of Revenues from Related Party Managed Solutions Customers | $66,000 | $266,000 | | SG&A from Related Party Managed Solutions Customers | $47,000 | $66,000 | - The company's CEO holds promissory notes with principal balances of approximately **$83,000** (2016 note) and **$93,000** (2024 note), incurring interest expense of **$10,300** for the six months ended June 30, 2025[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Note 12: Commitments and Contingencies](index=37&type=section&id=NOTE%2012%3A%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in routine legal proceedings and a specific litigation related to the Florida Solar acquisition, where plaintiffs allege contract breaches. The company believes these claims lack merit and is asserting counterclaims. An employment agreement settlement in January 2025 requires the issuance of 26,087 shares, pending legal counsel's opinion - The company is a defendant in a lawsuit (Zrallack and RJZ Holdings LLC v. Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.) alleging breach of stock purchase agreement, promissory notes, and a services agreement related to the 2022 acquisition of Florida Solar[132](index=132&type=chunk)[133](index=133&type=chunk) - In January 2025, the company entered into a settlement agreement for an employment dispute, requiring the issuance of **26,087 shares** of common stock, subject to certain conditions[135](index=135&type=chunk) [Note 13: Employee Retention Credit (ERC)](index=37&type=section&id=NOTE%2013%3A%20EMPLOYEE%20RETENTION%20CREDIT%20(ERC)) In March 2025, the company received IRS approval for Employee Retention Credit (ERC) claims totaling $279,524, which was recognized as other income for the six months ended June 30, 2025 - The company received IRS approval for ERC claims totaling **$279,524** in March 2025[136](index=136&type=chunk) - The full amount of **$279,524** (net of service fees) was recognized within Other income (expense), net for the six months ended June 30, 2025[136](index=136&type=chunk)[137](index=137&type=chunk) [Note 14: Revenues](index=39&type=section&id=NOTE%2014%3A%20REVENUES) The company's revenue increased significantly for both the three and six months ended June 30, 2025, primarily from the United States and India. Contract assets decreased slightly during the six-month period Revenues by Geographic Area | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $7,734,601 | $4,580,577 | $15,988,957 | $9,673,721 | | India | $776,890 | $428,547 | $1,510,877 | $709,310 | | Total Revenues | $8,511,491 | $5,009,124 | $17,499,834 | $10,383,031 | Contract Asset Activity | Contract Asset Activity (USD) | Amount | | :---------------------------- | :----- | | Balance as of December 31, 2024 | $206,750 | | Net change during the six months ended June 30, 2025 | $(22,227) | | Balance as of June 30, 2025 | $184,523 | [Note 15: Income Taxes](index=39&type=section&id=NOTE%2015%3A%20INCOME%20TAXES) The company recorded no income tax expense or benefit for the three and six months ended June 30, 2025 and 2024, due to net operating losses. A full valuation allowance is maintained against its net deferred tax assets, as realization of benefits is not considered more likely than not - The company's tax rate for the three and six months ended June 30, 2025, was **21%**, in line with the federal statutory rate[141](index=141&type=chunk) - No income tax expense (benefit) was recorded for the three and six months ended June 30, 2025 and 2024, due to net operating losses[143](index=143&type=chunk) - A full valuation allowance is maintained against net deferred tax assets as of December 31, 2024, and June 30, 2025, due to a history of cumulative net losses[144](index=144&type=chunk) [Note 16: Inventory](index=39&type=section&id=NOTE%2016%3A%20INVENTORY) The company's inventory, consisting of parts and finished goods, increased from December 31, 2024, to June 30, 2025 Inventory Breakdown | Inventory Component (USD) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Parts | $257,994 | $164,131 | | Finished Goods | $631,183 | $386,564 | | Total | $889,177 | $550,695 | [Note 17: Reportable Segments](index=41&type=section&id=NOTE%2017%3A%20REPORTABLE%20SEGMENTS) The company's operations are organized into four reportable segments: Owned Service Network, Managed Solutions, Logistics, and Transportation. The Owned Service Network and Logistics segments were the primary drivers of revenue growth for the three and six months ended June 30, 2025, while Corporate expenses significantly contributed to the overall loss from operations Segment Performance and Assets | Segment (USD) | Revenues (3M Q2 2025) | Revenues (6M Q2 2025) | Loss from Operations (3M Q2 2025) | Loss from Operations (6M Q2 2025) | Total Assets (June 30, 2025) | | :-------------------- | :-------------------- | :-------------------- | :-------------------------------- | :-------------------------------- | :--------------------------- | | Owned Service Network | $4,445,226 | $8,692,767 | $(1,079,549) | $(2,131,955) | $9,422,417 | | Managed Solutions | $608,951 | $2,365,319 | $(92,996) | $(110,586) | $1,803,751 | | Logistics | $2,874,783 | $5,412,213 | $172,475 | $347,354 | $3,380,374 | | Transportation | $582,531 | $1,029,535 | $(7,710) | $(96,627) | $6,331,671 | | Corporate | — | — | $(2,311,503) | $(4,600,912) | $899,764 | | Total | $8,511,491 | $17,499,834 | $(3,319,283) | $(6,592,726) | $21,837,977 | - Total assets located outside the United States increased significantly from approximately **$1,260,000** at December 31, 2024, to **$6,332,000** at June 30, 2025[147](index=147&type=chunk) - For the three and six months ended June 30, 2025, one customer represented more than **10%** of total company revenue[147](index=147&type=chunk) [Note 18: Stock-Based Compensation](index=44&type=section&id=NOTE%2018%3A%20STOCK-BASED%20COMPENSATION) During May and June 2025, the company issued 585,000 shares of common stock to advisors (fair value $133,000) and 1,622,222 shares to directors and employees (fair value $372,000) as one-time grants for past services - Issued **585,000 shares** of common stock to advisors with a fair value of approximately **$133,000**[149](index=149&type=chunk) - Issued **1,622,222 shares** of common stock to directors and employees with a fair value of approximately **$372,000** for past services[149](index=149&type=chunk) [Note 19: Subsequent Events](index=44&type=section&id=NOTE%2019%3A%20SUBSEQUENT%20EVENTS) Subsequent events include the issuance of $1.9 million in Q3 2025 Convertible Notes, shareholder approval for a reverse stock split (terms not finalized), ongoing technical default under the SEPA Convertible Note, and further amendments to the January 2025 Seller Note extending its maturity - From July 1, 2025, to the filing date, the company issued five convertible note agreements (Q3 2025 Convertible Notes) for aggregate gross proceeds of **$1,900,000**[151](index=151&type=chunk) - Shareholders approved a reverse stock split and issuance of up to **25,000,000 shares** via a standby equity purchase agreement on April 11, 2025, with terms not yet finalized[152](index=152&type=chunk) - The company remains in technical default under the SEPA Convertible Note due to missed payments and untimely SEC filings, with ongoing discussions for resolution[154](index=154&type=chunk) - The January 2025 Seller Note was amended twice in July and August 2025, extending its maturity date to September 30, 2025, and increasing the interest rate[155](index=155&type=chunk)[156](index=156&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting its business model, recent developments, key factors affecting performance, and detailed analysis of revenues, expenses, and cash flows, alongside disclosures on liquidity and critical accounting policies [Executive Overview](index=47&type=section&id=Executive%20Overview) ConnectM Technology Solutions, Inc. is a public company focused on connecting and powering next-generation equipment, mobility, and distributed energy through its proprietary AI-driven Energy Intelligence Network (EIN) platform. It serves residential, commercial, and OEM customers, aiming to optimize energy efficiency, reduce costs, and support sustainable innovation across four business segments - ConnectM became a publicly listed company on July 12, 2024, following a Business Combination with Monterey Capital Acquisition Corporation (MCAC)[159](index=159&type=chunk) - The company delivers an AI-driven Energy Intelligence Network (EIN) platform for residential and commercial service providers and OEMs to optimize energy efficiency and operational performance[160](index=160&type=chunk) - Revenue is derived from the sale of hardware, software, and services across four business segments: Owned Service Network, Managed Solutions, Transportation, and Logistics[163](index=163&type=chunk) [Recent Developments](index=47&type=section&id=Recent%20Developments) Recent developments include the settlement of $8.908 million in liabilities through common stock issuance, an HBE project in India, settlement of share reset derivative liabilities, termination of a forward purchase agreement, shareholder approval for a reverse stock split, and acquisitions of CER, ATS, and SESB. The company also designated Series A and B Preferred Stock, was delisted from Nasdaq, and engaged in various debt and equity financing activities - The company settled **$8,908,000** in overdue liabilities with Last Horizon, LLC, by issuing **13,744,131 shares** of common stock under a 3(a)(10) Settlement Agreement[164](index=164&type=chunk) - Acquired Cambridge Energy Resources Pvt. Ltd. (CER) on April 25, 2025, expanding India operations and projecting an increase from **5%** to **15%** of global revenue (approximately **$10,000,000** annualized) over the next twelve months[170](index=170&type=chunk) - Acquired Air Temp Service Co, Inc. (ATS) and Solar Energy Systems of Brevard, Inc (SESB) on April 28, 2025, for **4,900,000 shares** of common stock valued at approximately **$3,141,000**[171](index=171&type=chunk) - The company's common stock was delisted from the Nasdaq Capital Market on May 7, 2025[173](index=173&type=chunk) - Issued **15,290,930 shares** of common stock with a fair value of **$8,224,386** in exchange for **$7,464,939** of secured promissory notes and convertible notes during April and May 2025[174](index=174&type=chunk) [Comparability of Financial Information](index=51&type=section&id=Comparability%20of%20Financial%20Information) The company's historical financial results may not be comparable to current results due to the Business Combination in July 2024 and the transition to a public company, which necessitates additional personnel, procedures, and increased annual expenses for compliance and administrative resources - Historical financial statements may not be comparable due to the Business Combination on July 12, 2024, and becoming a public company[184](index=184&type=chunk) - Expects to incur additional annual expenses as a public company for directors' and officers' liability insurance, director fees, and increased accounting, legal, and administrative resources[184](index=184&type=chunk) [Key Factors Affecting Operating Results](index=51&type=section&id=Key%20Factors%20Af%20ecting%20Operating%20Results) The company's future success hinges on expanding revenue streams from high-margin recurring products, leveraging existing networks for service offerings, enhancing software and AI capabilities, growing its customer base through referrals, and continuing international expansion - Future revenue is expected from existing high-margin recurring revenue products and expanded service offerings[187](index=187&type=chunk) - Growth drivers include expanding existing software and AI capabilities to solve pain points and increase profitability for B2B customers[187](index=187&type=chunk) - An expanded customer base through client referrals and a customized sales process, along with continued international expansion, are key to future success[187](index=187&type=chunk) [Reportable Segments](index=53&type=section&id=Reportable%20Segments) The company operates through four reportable segments: Owned Service Network (electrification and distributed energy solutions with AI platform), Managed Solutions (HR, procurement, marketing, and working capital loans for service providers), Logistics (B2B heavy goods transportation via last-mile delivery software), and Transportation (IIoT platform for OEMs to manage connected operations) - Owned Service Network: Provides installation and maintenance for electrified heating/cooling and distributed energy solutions, connected to an AI-driven energy intelligence platform[193](index=193&type=chunk) - Managed Solutions: Offers third-party service providers access to HR management, procurement, omnichannel marketing, lead generation, and short-term working capital loans[193](index=193&type=chunk) - Logistics: Facilitates business-to-business transportation of heavy goods using a last-mile delivery platform and software[193](index=193&type=chunk) - Transportation: Manages connected operations using an IIoT platform to remotely monitor and control equipment performance for OEMs and enterprise customers[193](index=193&type=chunk) [Key Components of Our Results of Operations](index=53&type=section&id=Key%20Components%20of%20Our%20Results%20of%20Operations) Revenue is recognized from equipment/product sales, installation, service agreements, managed services, and delivery. Cost of Revenue includes personnel, facility, and equipment-related expenses. Selling, General and Administrative (SG&A) expenses cover personnel, depreciation, amortization, professional fees, and public company operating costs, which are expected to increase - Revenue sources include equipment and product sales, installation, service agreements, managed services, and delivery services[188](index=188&type=chunk) - Cost of Revenue comprises personnel-related expenses, facility costs, and expenses for equipment and professional services[191](index=191&type=chunk) - Selling, General and Administrative expenses include personnel, depreciation, amortization, allocated facility costs, professional services (legal, audit, accounting), and public company compliance costs, which are expected to increase[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - Other income (expense), net, includes interest expense, fair value changes of convertible debt and derivatives, gains/losses on debt extinguishment, bargain purchase gains, and miscellaneous income/expenses[195](index=195&type=chunk) [Results of Operations](index=55&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth for both the three and six months ended June 30, 2025, driven by the new Logistics segment and expansion of the Owned Service Network. However, this was accompanied by substantial increases in Cost of Revenues and Selling, General and Administrative expenses, leading to higher operating and net losses. Other income and expenses were impacted by debt extinguishments, fair value changes, and a bargain purchase gain [Revenues](index=55&type=section&id=Revenues) Revenues increased by 69.9% to $8.551 million for the three months and by 68.5% to $17.499 million for the six months ended June 30, 2025, primarily due to the new Logistics segment and expansion of the Owned Service Network Revenue Growth | Period | Revenues (2025) | Revenues (2024) | Change ($) | Change (%) | | :----------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Three Months Ended June 30 | $8,511,491 | $5,009,124 | $3,502,367 | 69.9% | | Six Months Ended June 30 | $17,499,834 | $10,383,031 | $7,116,803 | 68.5% | - The increase in revenues was primarily driven by the new Logistics segment (approximately **$2,875,000** for three months, **$5,412,000** for six months) and expanding Owned Service Network[196](index=196&type=chunk)[197](index=197&type=chunk) [Expenses](index=55&type=section&id=Expenses) Cost of Revenues increased by 82.2% for the three months and 69.1% for the six months ended June 30, 2025, mainly due to the Logistics segment. Selling, General and Administrative expenses surged by 109% for both periods, driven by public company operating costs, Owned Service Network expansion, and increased marketing Expense Analysis | Expense Category | Period | 2025 Amount | 2024 Amount | Change ($) | Change (%) | | :----------------------- | :----------------------------- | :---------- | :---------- | :--------- | :--------- | | Cost of Revenues | Three Months Ended June 30 | $5,538,614 | $3,039,203 | $2,499,411 | 82.2% | | | Six Months Ended June 30 | $11,513,224 | $6,809,589 | $4,703,635 | 69.1% | | Selling, General and Administrative Expenses | Three Months Ended June 30 | $6,292,160 | $3,013,658 | $3,278,502 | 108.8% | | | Six Months Ended June 30 | $12,579,336 | $6,031,817 | $6,547,519 | 108.5% | - Cost of Revenues increase was primarily driven by the new Logistics segment, adding approximately **$2,162,000** for the three months and **$4,172,000** for the six months ended June 30, 2025[198](index=198&type=chunk)[201](index=201&type=chunk) - SG&A increase was primarily due to increased operating costs associated with becoming a public company (approximately **$1,737,000** for three months, **$3,020,000** for six months), Logistics segment expenses (approximately **$589,000** for three months, **$942,000** for six months), and increased marketing in the Owned Service Network segment[202](index=202&type=chunk)[203](index=203&type=chunk) [Other Income (Expense)](index=57&type=section&id=Other%20Income%20(Expense)) Other income (expense) for the three and six months ended June 30, 2025, was significantly impacted by a $1.599 million and $4.106 million loss on extinguishment of debt, fair value changes in derivatives and convertible debt, and a $2.487 million bargain purchase gain. Interest expense decreased, and the company recognized $279,524 from Employee Retention Credit claims - Loss on extinguishment of debt was approximately **$1,599,000** for the three months and **$4,106,000** for the six months ended June 30, 2025[204](index=204&type=chunk) - Recognized a bargain purchase gain of approximately **$2,487,000** during the three and six months ended June 30, 2025[205](index=205&type=chunk) - Interest expense decreased by approximately **$539,000** (three months) and **$557,000** (six months) due to a decrease in debt from conversions[206](index=206&type=chunk) - Recognized **$279,524** from Employee Retention Credit (ERC) claims for the six months ended June 30, 2025[207](index=207&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The company's ability to continue as a going concern is in substantial doubt due to its financial condition, including a working capital deficit, net losses, and negative operating cash flow. It is also required to maintain a minimum cash balance of approximately $1,666,000 as of June 30, 2025, under its standby equity purchase agreement - Substantial doubt exists about the company's ability to continue as a going concern for twelve months from the report's issuance date[208](index=208&type=chunk) - As of June 30, 2025, the company was required to maintain a minimum cash balance of approximately **$1,666,000**[209](index=209&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) Cash flows for the six months ended June 30, 2025, show increased cash used in operating activities, a shift to cash received from investing activities, and a significant increase in cash provided by financing activities compared to the prior year [Net cash used in operating activities](index=58&type=section&id=Net%20cash%20used%20in%20operating%20activities) Net cash used in operating activities increased to approximately $4.204 million for the six months ended June 30, 2025, primarily due to a higher net loss and increased operating expenses, partially offset by non-cash adjustments and cash provided by changes in operating assets and liabilities Operating Cash Flow | Metric (USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(4,204,478) | $(2,424,368) | $(1,780,110) | 73.4% | - Primary drivers for cash used in operating activities in 2025 included a net loss of approximately **$10,383,000** and increased operating expenses, partially offset by **$4,350,000** of non-cash items (e.g., loss on extinguishment of debt, fair value changes) and **$1,829,000** from changes in operating assets and liabilities[211](index=211&type=chunk) [Net cash used in investing activities](index=58&type=section&id=Net%20cash%20used%20in%20investing%20activities) Net cash received from investing activities was approximately $286,000 for the six months ended June 30, 2025, a significant change from the $146,000 used in the prior year, driven by cash receipts from non-controlling interest offsetting capitalized software and property/equipment purchases Investing Cash Flow | Metric (USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash received from (used in) investing activities | $285,822 | $(145,923) | $431,745 | (295.9)% | - Investing activities in 2025 included capitalized software development costs of approximately **$292,000** and property and equipment purchases of approximately **$24,000**, offset by cash receipt of non-controlling interest of **$560,000**[213](index=213&type=chunk) [Net cash provided by financing activities](index=58&type=section&id=Net%20cash%20provided%20by%20financing%20activities) Net cash provided by financing activities increased to approximately $4.205 million for the six months ended June 30, 2025, primarily from proceeds of convertible debt, debt issuance, and stock subscription agreements, partially offset by debt and lease repayments Financing Cash Flow | Metric (USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash provided by financing activities | $4,204,866 | $2,219,157 | $1,985,709 | 89.5% | - Financing activities in 2025 included proceeds from convertible debt (**$3,556,000**), debt issuance (**$735,000**), and stock subscription agreements (**$805,000**), offset by debt repayments (**$1,267,000**) and payments on convertible notes and finance leases (**$124,000**)[215](index=215&type=chunk) [Off-Balance Sheet Arrangements](index=58&type=section&id=Of%20-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements during the periods presented and currently has none - The company did not have any off-balance sheet arrangements during the periods presented and currently has none[217](index=217&type=chunk) [Commitments and Contractual Obligations](index=60&type=section&id=Commitments%20and%20Contractual%20Obligations) The company incurs contractual obligations and financial commitments in the normal course of operations and financing activities, with details provided in the accompanying financial statement notes - Future contractual obligations and commitments are based on relevant agreements and U.S. GAAP classification, with details available in Notes 5, 6, 7, and 8 of the financial statements[218](index=218&type=chunk)[219](index=219&type=chunk) [Critical Accounting Policies and Significant Management Estimates](index=60&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Management%20Estimates) There have been no material changes to the company's critical accounting policies since the 2024 Annual Report on Form 10-K, except for the valuation of the 3(a)(10) Settlement Agreement, which is a variable share settled obligation measured at fair value using a Monte Carlo simulation model - No material changes to critical accounting policies since the 2024 Annual Report on Form 10-K, except as disclosed[220](index=220&type=chunk) - The 3(a)(10) Settlement Agreement is a variable share settled obligation measured at fair value each period using a Monte Carlo simulation model, with changes recognized in income[221](index=221&type=chunk)[222](index=222&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is omitted as it is not required for a smaller reporting company - This item is omitted as it is not required for a smaller reporting company[223](index=223&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting. A remediation plan has been initiated, and no material changes in internal control occurred during the quarter [Evaluation of Disclosure Controls and Procedures](index=60&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2025, the Chief Executive Officer concluded that the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting. A remediation plan is underway - Disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[224](index=224&type=chunk) - Management has initiated a remediation plan to address these material weaknesses, including strengthening financial reporting resources and enhancing documentation[225](index=225&type=chunk) [Changes in Internal Control over Financial Reporting](index=60&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no changes in the company's internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[226](index=226&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings and a specific lawsuit concerning the 2022 Florida Solar acquisition, where plaintiffs allege contract breaches. The company disputes these claims and is asserting counterclaims, with the case currently in arbitration - The company is subject to various routine litigation and regulatory matters in the ordinary course of business[228](index=228&type=chunk) - A lawsuit was filed on February 26, 2024, by Robert Zrallack and RJZ Holdings LLC against the company's subsidiaries (Aurai LLC, ConnectM Florida RE LLC, and Florida Solar Products, Inc.) alleging contract claims related to the 2022 Florida Solar acquisition[229](index=229&type=chunk)[230](index=230&type=chunk) - The company believes the plaintiffs' claims have no merit and plans to assert counterclaims; the case is currently in arbitration[133](index=133&type=chunk)[230](index=230&type=chunk) [Item 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors detailed in the company's Form 10-K for the year ended December 31, 2024, noting no material changes except for updates provided elsewhere in this Quarterly Report - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the Form 10-K for the year ended December 31, 2024[232](index=232&type=chunk) - No material changes to the risk factors have occurred, except for updates provided elsewhere in this Quarterly Report on Form 10-Q[232](index=232&type=chunk) [Item 2. Unregistered Sale of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Between January 1, 2025, and the filing date, the company issued an aggregate of 42,537,784 shares of common stock in unregistered transactions. These issuances were for equity compensation, debt-to-equity exchanges, acquisitions, and common stock subscriptions, utilizing exemptions such as Section 4(a)(2), Rule 701, Section 3(a)(9), Section 3(a)(10), and Rule 506(b) of Regulation D - The company issued an aggregate of **42,537,784 shares** of common stock in unregistered transactions between January 1, 2025, and the filing date[233](index=233&type=chunk) - Issuances included **2,207,222 shares** for equity compensation, **18,028,098 shares** for debt-to-equity exchanges/conversions, **4,900,000 shares** for an acquisition, and **3,658,333 shares** for common stock subscription agreements[233](index=233&type=chunk) - Exemptions from registration used include Section 4(a)(2), Rule 701, Section 3(a)(9), Section 3(a)(10), and Rule 506(b) of Regulation D[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) [Item 3. Defaults Upon Senior Securities](index=63&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report - None[237](index=237&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[238](index=238&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205.%20Other%20Information) There is no other information to report in this section - None[239](index=239&type=chunk) [Item 6. Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including certificates of designations, various note agreements, certifications, and XBRL documents - Exhibits include Certificates of Designations for Series A and B Convertible Preferred Stock, forms for Q1, Q2, and Q3 2025 Convertible Notes, Note Exchange Agreement, Promissory Note Agreement, Amendment of Business Loan and Security Agreement, and certifications from executive officers[240](index=240&type=chunk) - Also included are Inline XBRL Instance Document and related Taxonomy Extension documents[240](index=240&type=chunk) Signatures This section contains the required signatures of the company's principal executive officer, principal financial officer, and directors, certifying the filing of the report - The report is signed by Bhaskar Panigrahi (Chief Executive Officer and Chairman), Mahesh Choudhury (Principal Financial Officer), Bala Padmakumar (Vice Chairman), Kathy Cuocolo (Director), Stephen Markscheid (Director), and Gautam Barua (Director)[243](index=243&type=chunk)[245](index=245&type=chunk) - All signatures are dated September 16, 2025[243](index=243&type=chunk)[245](index=245&type=chunk)

[Company Announcements & Business Updates](index=1&type=section&id=Company%20Announcement%20%26%20Business%20Update) The company announced new Bed Bath & Beyond Home store openings, the sale of Kirkland's Home IP, and strategic plans for store conversions and wholesale expansion, alongside CEO commentary on Q2 challenges [Recent Business Highlights](index=1&type=section&id=Recent%20Business%20Highlights) The Brand House Collective announced the successful opening of its first Bed Bath & Beyond Home store, sold Kirkland's Home IP, and plans to accelerate store conversions and wholesale market expansion - The company sold Kirkland's Home intellectual property to Bed Bath & Beyond, Inc. for **$10 million** on September 15, 2025, and secured a **$20 million** extension to its existing credit facility to support operations and store conversions[5](index=5&type=chunk) - The first Bed Bath & Beyond Home store successfully opened in Nashville on August 8, 2025, receiving strong customer response and national media attention[5](index=5&type=chunk) - The company plans to open **5 additional Bed Bath & Beyond Home stores** in FY2025 and convert all Kirkland's Home stores to Bed Bath & Beyond stores within the next **24 months**, with the first buybuy Baby store expected to open in FY2026[5](index=5&type=chunk) - The company is in the early planning stages of expanding Kirkland's Home into the wholesale market to create new growth channels[5](index=5&type=chunk) [CEO Commentary on Q2 Performance](index=1&type=section&id=CEO%20Commentary%20on%20Q2%20Performance) CEO Amy Sullivan noted Q2 performance was severely impacted by tornado damage to the distribution center and inventory liquidation for Bed Bath & Beyond expansion, leading to reduced profitability and sales pressure - Q2 performance was significantly impacted by two major events: tornado damage to the distribution center and inventory liquidation to expand the Bed Bath & Beyond product line[4](index=4&type=chunk) - These factors were the primary causes of a year-over-year decline in profitability and short-term pressure on sales, particularly e-commerce[4](index=4&type=chunk) - Inventory actions are strategic, aiming to reallocate space and capital to the Bed Bath & Beyond product line for stronger future growth[4](index=4&type=chunk) [Q2 Fiscal 2025 Financial Summary](index=1&type=section&id=Q2%20Fiscal%202025%20Financial%20Summary) The Q2 FY2025 financial summary details key performance indicators, including declining sales and profitability, and provides a snapshot of the company's balance sheet [Key Financial Metrics](index=1&type=section&id=Key%20Financial%20Metrics) The company's Q2 FY2025 net sales and gross profit declined year-over-year, primarily due to comparable sales decline, inventory liquidation, and tornado-related costs, leading to expanded net and adjusted EBITDA losses Q2 Fiscal 2025 Key Financial Metrics | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change (%) | | :------------------- | :------------------- | :------------------- | :------------- | | Net Sales | 75.8 | 86.3 | -12.16% | | Comparable Sales (Consolidated) | -9.7% | - | - | | Comparable Store Sales | +0.4% | - | - | | E-commerce Sales | -38.5% | - | - | | Gross Profit | 12.4 | 17.7 | -30.06% | | Gross Margin | 16.3% | 20.5% | -4.2 pp | | Net Loss | (20.2) | (14.5) | +39.31% | | Diluted Loss Per Share | (0.90) | (1.11) | -18.92% | | Adjusted Net Loss* | (17.8) | (13.9) | +28.06% | | Adjusted EBITDA* | (14.3) | (10.2) | +40.20% | - Gross profit decreased primarily due to lower merchandise margins and reduced leverage of store operating costs from lower sales, with merchandise margin decline attributed to inventory liquidation for Bed Bath & Beyond expansion, tornado-damaged inventory write-offs, and additional tariff costs[6](index=6&type=chunk) - Operating expenses were **$31.1 million** (**41.1% of net sales**), up from **$31.0 million** (**35.9% of net sales**) in the prior year, mainly due to increased insurance costs related to tornado damage[9](index=9&type=chunk) [Balance Sheet Snapshot](index=2&type=section&id=Balance%20Sheet%20Snapshot) As of August 2, 2025, the company's store count decreased to 309, inventory declined, cash balance was $3.6 million, and total debt included $41.5 million in revolving credit and $13.7 million in related-party debt - The company closed **5 stores** during the quarter, ending with a total of **309 stores**[9](index=9&type=chunk) Inventory and Cash Balance | Metric | August 2, 2025 (Millions USD) | August 3, 2024 (Millions USD) | | :-------- | :------------------- | :------------------- | | Inventory | 81.7 | 92.8 | | Cash Balance | 3.6 | - | - As of August 2, 2025, the company had **$41.5 million** in outstanding borrowings and **$5.1 million** in outstanding letters of credit, along with **$13.7 million** in debt to affiliate Beyond; as of September 16, 2025, it had **$49.0 million** in outstanding borrowings, **$5.1 million** in outstanding letters of credit, **$13.7 million** in the Beyond term loan, and **$20.0 million** available from Beyond[9](index=9&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the unaudited consolidated condensed statements of operations, balance sheets, and cash flows for the specified periods, detailing the company's financial position and performance [Unaudited Consolidated Condensed Statements of Operations](index=5&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Operations) The company recorded year-over-year declines in net sales and gross profit for both Q2 and the 26-week period of FY2025, resulting in expanded operating and net losses, reflecting business transformation challenges [13-Week Period Ended August 2, 2025](index=5&type=section&id=13-Week%20Period%20Ended%20August%202%2C%202025) This section details the unaudited consolidated condensed statements of operations for the 13-week period ended August 2, 2025, showing net sales, gross profit, and net loss 13-Week Period Consolidated Condensed Statements of Operations (Thousands USD) | Metric | August 2, 2025 | August 3, 2024 | | :------------------------------------------ | :----------- | :----------- | | Net Sales | $75,788 | $86,289 | | Cost of Sales | 63,419 | 68,629 | | Gross Profit | 12,369 | 17,660 | | Operating Expenses: | | | | Compensation and benefits | 17,827 | 18,653 | | Other operating expenses | 12,643 | 11,384 | | Depreciation | 591 | 925 | | Asset impairment | 52 | 20 | | Total operating expenses | 31,113 | 30,982 | | Operating Loss | (18,744) | (13,322) | | Interest expense | 1,464 | 1,420 | | Other income | (39) | (120) | | Loss before income taxes | (20,169) | (14,622) | | Income tax expense (benefit) | 10 | (118) | | Net Loss | $(20,179) | $(14,504) | | Loss Per Share (Basic and Diluted) | $(0.90) | $(1.11) | | Weighted Average Shares Outstanding (Basic and Diluted) | 22,460 | 13,074 | [26-Week Period Ended August 2, 2025](index=6&type=section&id=26-Week%20Period%20Ended%20August%202%2C%202025) This section details the unaudited consolidated condensed statements of operations for the 26-week period ended August 2, 2025, showing net sales, gross profit, and net loss 26-Week Period Consolidated Condensed Statements of Operations (Thousands USD) | Metric | August 2, 2025 | August 3, 2024 | | :------------------------------------------ | :----------- | :----------- | | Net Sales | $157,292 | $178,042 | | Cost of Sales | 124,639 | 133,314 | | Gross Profit | 32,653 | 44,728 | | Operating Expenses: | | | | Compensation and benefits | 35,681 | 37,939 | | Other operating expenses | 24,909 | 25,702 | | Depreciation | 1,251 | 1,886 | | Asset impairment | 72 | 31 | | Total operating expenses | 61,913 | 65,558 | | Operating Loss | (29,260) | (20,830) | | Interest expense | 2,812 | 2,547 | | Other income | (123) | (236) | | Loss before income taxes | (31,949) | (23,141) | | Income tax expense | 54 | 193 | | Net Loss | $(32,003) | $(23,334) | | Loss Per Share (Basic and Diluted) | $(1.44) | $(1.79) | | Weighted Average Shares Outstanding (Basic and Diluted) | 22,277 | 13,019 | [Unaudited Consolidated Condensed Balance Sheets](index=7&type=section&id=Unaudited%20Consolidated%20Condensed%20Balance%20Sheets) As of August 2, 2025, the company's total assets and liabilities decreased, and shareholder deficit expanded, reflecting the impact of business restructuring and losses Consolidated Condensed Balance Sheets (Thousands USD) | Metric | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | **Assets** | | | | | Cash and cash equivalents | $3,641 | $3,820 | $4,461 | | Inventory, net | 81,693 | 81,899 | 92,760 | | Total current assets | 91,646 | 91,304 | 105,437 | | Property and equipment, net | 18,749 | 22,062 | 25,454 | | Operating lease right-of-use assets | 108,672 | 121,229 | 128,046 | | Total assets | $221,930 | $242,188 | $266,219 | | **Liabilities and Shareholder Deficit** | | | | | Accounts payable | $56,583 | $43,935 | $59,967 | | Total current liabilities | 116,882 | 152,672 | 119,525 | | Operating lease liabilities (long-term) | 83,100 | 95,085 | 100,565 | | Related party debt, net (long-term) | 11,895 | — | — | | Long-term debt, net | 41,520 | 10,003 | 61,396 | | Total liabilities | 257,091 | 261,205 | 285,924 | | Shareholder deficit | (35,161) | (19,017) | (19,705) | | Total liabilities and shareholder deficit | $221,930 | $242,188 | $266,219 | [Unaudited Consolidated Condensed Statements of Cash Flows](index=8&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) For the 26-week period ended August 2, 2025, the company's operating cash outflow significantly decreased, while financing cash inflow primarily came from revolving credit borrowings and common stock issuance, with a slight decrease in period-end cash balance 26-Week Period Consolidated Condensed Statements of Cash Flows (Thousands USD) | Metric | August 2, 2025 | August 3, 2024 | | :------------------------------------------ | :----------- | :----------- | | **Cash Flows From Operating Activities:** | | | | Net loss | $(32,003) | $(23,334) | | Net cash used in operating activities | (10,066) | (26,388) | | **Cash Flows From Investing Activities:** | | | | Capital expenditures | (1,026) | (1,193) | | Net cash used in investing activities | (1,008) | (1,176) | | **Cash Flows From Financing Activities:** | | | | Revolving credit borrowings | 88,644 | 22,800 | | Revolving credit repayments | (90,124) | (4,100) | | Proceeds from common stock issuance | 8,000 | — | | Net cash provided by financing activities | 10,895 | 28,220 | | **Cash and Cash Equivalents:** | | | | Net (decrease) increase | (179) | 656 | | Beginning balance | 3,820 | 3,805 | | Ending balance | $3,641 | $4,461 | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) This section defines the company's non-GAAP financial measures and provides detailed reconciliations of net loss, EBITDA, operating loss, and diluted loss per share to their adjusted non-GAAP counterparts [Non-GAAP Definitions and Purpose](index=9&type=section&id=Non-GAAP%20Definitions%20and%20Purpose) The company uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted Operating Loss, Adjusted Net Loss, and Adjusted Diluted Loss Per Share to supplement GAAP metrics, providing additional insight into operational performance, not as substitutes for GAAP - Non-GAAP financial measures include EBITDA, Adjusted EBITDA, Adjusted Operating Loss, Adjusted Net Loss, and Adjusted Diluted Loss Per Share, used to supplement GAAP financial statements[21](index=21&type=chunk) - EBITDA is defined as net loss plus income tax expense, interest expense, other income, and depreciation; Adjusted EBITDA further adjusts for asset impairment, share-based compensation, severance, tornado-related costs, and financing-related legal or professional fees not eligible for capitalization[22](index=22&type=chunk) - Adjusted Operating Loss and Adjusted Net Loss include similar adjustments; these non-GAAP metrics are intended to provide additional information and should not be considered in isolation or as substitutes for GAAP results[23](index=23&type=chunk)[24](index=24&type=chunk) [Reconciliation of Net Loss to EBITDA and Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20EBITDA%20and%20Adjusted%20EBITDA) The company provided a reconciliation of net loss to EBITDA and Adjusted EBITDA, showing that Adjusted EBITDA loss expanded for both the 13-week and 26-week periods after considering various adjustments Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (Thousands USD) | Metric | 13-Week Period (August 2, 2025) | 13-Week Period (August 3, 2024) | 26-Week Period (August 2, 2025) | 26-Week Period (August 3, 2024) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net Loss | $(20,179) | $(14,504) | $(32,003) | $(23,334) | | Income tax expense (benefit) | 10 | (118) | 54 | 193 | | Interest expense | 1,464 | 1,420 | 2,812 | 2,547 | | Other income | (39) | (120) | (123) | (236) | | Depreciation | 2,060 | 2,513 | 4,150 | 5,137 | | **EBITDA** | $(16,684) | $(10,809) | $(25,110) | $(15,693) | | **Adjustments:** | | | | | | Asset impairment | 52 | 20 | 72 | 31 | | Share-based compensation expense | 82 | 264 | 321 | 556 | | Beyond transaction costs (non-capitalizable) | 100 | — | 229 | — | | Severance | 157 | 317 | 283 | 390 | | Tornado-related expenses, net | 1,974 | — | 1,974 | — | | **Total Adjustments** | 2,365 | 601 | 2,879 | 977 | | **Adjusted EBITDA** | $(14,319) | $(10,208) | $(22,231) | $(14,716) | [Reconciliation of Operating Loss to Adjusted Operating Loss](index=10&type=section&id=Reconciliation%20of%20Operating%20Loss%20to%20Adjusted%20Operating%20Loss) The company provided a reconciliation of operating loss to adjusted operating loss, indicating an improvement in adjusted operating loss for both periods after deducting specific non-recurring or non-cash adjustments Reconciliation of Operating Loss to Adjusted Operating Loss (Thousands USD) | Metric | 13-Week Period (August 2, 2025) | 13-Week Period (August 3, 2024) | 26-Week Period (August 2, 2025) | 26-Week Period (August 3, 2024) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Operating Loss | $(18,744) | $(13,322) | $(29,260) | $(20,830) | | **Adjustments:** | | | | | | Asset impairment | 52 | 20 | 72 | 31 | | Share-based compensation expense | 82 | 264 | 321 | 556 | | Beyond transaction costs (non-capitalizable) | 100 | — | 229 | — | | Severance | 157 | 317 | 283 | 390 | | Tornado-related expenses, net | 1,974 | — | 1,974 | — | | **Total Adjustments** | 2,365 | 601 | 2,879 | 977 | | **Adjusted Operating Loss** | $(16,379) | $(12,721) | $(26,381) | $(19,853) | [Reconciliation of Net Loss to Adjusted Net Loss and Adjusted Diluted Loss Per Share](index=10&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20Net%20Loss%20and%20Adjusted%20Diluted%20Loss%20Per%20Share) The company provided a reconciliation of net loss to adjusted net loss and adjusted diluted loss per share, showing improvements in both after considering adjustments and their tax impact Reconciliation of Net Loss to Adjusted Net Loss and Adjusted Diluted Loss Per Share (Thousands USD, except per share data) | Metric | 13-Week Period (August 2, 2025) | 13-Week Period (August 3, 2024) | 26-Week Period (August 2, 2025) | 26-Week Period (August 3, 2024) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net Loss | $(20,179) | $(14,504) | $(32,003) | $(23,334) | | **Adjustments:** | | | | | | Asset impairment | 52 | 20 | 72 | 31 | | Share-based compensation expense | 82 | 264 | 321 | 556 | | Beyond transaction costs (non-capitalizable) | 100 | — | 229 | — | | Severance | 157 | 317 | 283 | 390 | | Tornado-related expenses, net | 1,974 | — | 1,974 | — | | **Total Adjustments** | 2,365 | 601 | 2,879 | 977 | | Tax benefit on adjustments | 10 | 4 | 20 | 18 | | **Total Adjustments (after tax)** | 2,375 | 605 | 2,899 | 995 | | **Adjusted Net Loss** | $(17,804) | $(13,899) | $(29,104) | $(22,339) | | Diluted Loss Per Share | $(0.90) | $(1.11) | $(1.44) | $(1.79) | | **Adjusted Diluted Loss Per Share** | $(0.79) | $(1.06) | $(1.31) | $(1.72) | | Diluted Weighted Average Shares Outstanding | 22,460 | 13,074 | 22,277 | 13,019 | [Additional Company Information](index=3&type=section&id=Additional%20Company%20Information) This section provides an overview of The Brand House Collective, Inc., outlines forward-looking statements, and details the upcoming conference call for Q2 FY2025 results [About The Brand House Collective, Inc.](index=4&type=section&id=About%20The%20Brand%20House%20Collective%2C%20Inc.) The Brand House Collective, Inc. is a multi-brand merchandising, supply chain, and retail operator managing an iconic portfolio of home and family brands including Kirkland's Home and Bed Bath & Beyond - The company is a multi-brand merchandising, supply chain, and retail operator managing brands including Kirkland's Home, Bed Bath & Beyond Home, Bed Bath & Beyond, buybuy Baby, and Overstock[13](index=13&type=chunk) - Currently operates **over 300 stores** in **35 U.S. states** and maintains e-commerce websites such as www.kirklands.com and www.bedbathandbeyondhome.com[13](index=13&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements involving potential future circumstances and developments, subject to various known and unknown risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the company's quarterly financial and accounting procedures[14](index=14&type=chunk) - Risks and uncertainties include the impact of the Beyond transaction, unexpected costs, litigation, continued availability of capital and financing, ability to realize synergies, success of new store openings or rebranding, marketing capabilities, liquidity risks, ability to continue as a going concern, natural disasters, inflation, tariff impacts, supply chain disruptions, and information technology system security breaches[14](index=14&type=chunk) - The company undertakes no obligation to update any forward-looking statements unless required by law[14](index=14&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) The Brand House Collective management will host a conference call on September 16, 2025, to discuss Q2 FY2025 financial results and provide a Q&A session - The conference call will be held on Tuesday, September 16, 2025, at **9:00 AM ET**, hosted by President and CEO Amy Sullivan and SVP and CFO Andrea Courtois[10](index=10&type=chunk) - The call will be webcast live and an archived replay will be available through the investor relations section of the company's website, with a telephone replay service available until September 23, 2025[11](index=11&type=chunk)[12](index=12&type=chunk)

[Executive Summary & Business Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Highlights) [First Quarter Fiscal 2026 Overview](index=1&type=section&id=First%20Quarter%20Fiscal%202026%20Overview) Ocean Power Technologies reported a significant surge in backlog and pipeline for Q1 Fiscal 2026, indicating accelerating growth. Despite a slight decrease in revenue, the company expanded key partnerships, upgraded its AI-enabled maritime solution, and strengthened its market presence Key Financial Metrics | Metric | 1Q26 (July 31, 2025) | 1Q25 (July 31, 2024) | Change (%) | | :----------------------- | :------------------- | :------------------- | :--------- | | Backlog | $15.0 million | $5.3 million | +184% | | Pipeline | $133.5 million | $92.0 million | +45% | | Revenues | $1.2 million | $1.3 million | -9% | - Cash operating expenses remained consistent with the prior year, with the year-over-year increase primarily due to **non-cash stock compensation expense**[3](index=3&type=chunk) [Key Business Developments](index=1&type=section&id=Key%20Business%20Developments) OPT made significant strides in Q1 FY26 by expanding its strategic partnership with Unique Group in the UAE, enhancing its AI-enabled Merrows™ Maritime Domain Awareness Solution, and establishing a new U.S. office to bolster its presence in the uncrewed systems market [Strategic Partnerships & Market Expansion](index=1&type=section&id=Strategic%20Partnerships%20%26%20Market%20Expansion) OPT expanded its partnership with UAE-based Unique Group through a Master Services Agreement, positioning Unique Group as its execution partner for non-defense WAM-V® USV projects in the UAE. This includes immediate leasing of a WAM-V 22 and plans for fleet expansion and revenue sharing. Additionally, OPT opened a new U.S. office in Washington, D.C., at the AUVSI headquarters to enhance access to government and industry stakeholders - Expanded partnership with UAE-based Unique Group via a Master Services Agreement, designating them as OPT's execution partner for non-defense WAM-V® USV projects in the UAE, with plans for fleet expansion and revenue sharing[3](index=3&type=chunk) - Established a new U.S. office at the AUVSI headquarters in Washington, D.C., to strengthen strategic position in the uncrewed systems market and enhance access to key government and industry stakeholders[3](index=3&type=chunk) [Product & Technology Enhancements](index=1&type=section&id=Product%20%26%20Technology%20Enhancements) The company unveiled a major upgrade to its AI-enabled Merrows™ Maritime Domain Awareness Solution (MDAS), significantly improving its performance, stability, security, and interoperability across various platforms, enhancing its role as an ISR node - Unveiled a major upgrade to the AI-enabled Merrows™ Maritime Domain Awareness Solution (MDAS), enhancing performance, stability, security, and interoperability across surface, subsurface, and aerial platforms[3](index=3&type=chunk) [Industry Leadership & Policy Engagement](index=1&type=section&id=Industry%20Leadership%20%26%20Policy%20Engagement) OPT reinforced its role as a policy and industry thought leader by testifying before the New Jersey Legislature, highlighting the state's opportunity to lead the U.S. marine energy sector and how OPT's technologies can shape favorable policy - Testified before the New Jersey Legislature on the state's opportunity to lead the emerging U.S. marine energy sector, emphasizing OPT's role in shaping policy and unlocking market opportunities[3](index=3&type=chunk) [Management Outlook](index=2&type=section&id=Management%20Outlook) Dr. Philipp Stratmann, President and CEO, highlighted accelerating market momentum, evidenced by record backlog and pipeline expansion. He noted increasing customer demand for OPT's integrated solutions combining maritime autonomy, renewable power, and advanced analytics, positioning the company for leadership in autonomous maritime systems - Management observes accelerating market momentum, reflected in **record backlog and pipeline expansion**[4](index=4&type=chunk) - Customers are increasingly seeking OPT's solutions that integrate maritime autonomy, renewable power, and advanced analytics for critical ocean data as a service[4](index=4&type=chunk) - OPT is positioned to capture new opportunities and expand its leadership in autonomous, persistent, and resident maritime systems[4](index=4&type=chunk) [Financial Performance](index=2&type=section&id=Financial%20Performance) [Key Financial Highlights](index=2&type=section&id=Key%20Financial%20Highlights) For the first quarter of fiscal 2026, OPT experienced a 9% decrease in revenues and a shift from gross profit to gross loss. Operating expenses significantly increased due to higher non-cash stock compensation, leading to a larger net loss. However, backlog saw a substantial 184% increase, and cash reserves improved Summary of Financial Performance | Metric | 1Q26 (July 31, 2025) | 1Q25 (July 31, 2024) | Change ($) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :--------- | :--------- | | Revenues | $1.2 million | $1.3 million | -$0.1M | -9% | | Gross Margin | -$23 thousand | $0.4 million | -$0.423M | -105% | | Operating Expenses | $7.1 million | $4.9 million | +$2.1M | +44% | | Net Loss | $7.4 million | $4.5 million | +$2.9M | +64% | | Backlog | $15.0 million | $5.3 million | +$9.7M | +184% | | Cash, cash equivalents & short-term investments | $10.0 million | $3.3 million (start of FY) | +$6.7M | +203% | | Net cash used in operating activities | $5.6 million | $6.1 million | -$0.5M | -8% | - The increase in operating expenses and net loss was primarily driven by a **$2.1 million increase in non-cash stock compensation expenses**[8](index=8&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show a decline in revenue and a significant increase in operating expenses, primarily due to higher share-based compensation, resulting in a larger net loss for the three months ended July 31, 2025, compared to the same period in 2024 Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three months ended July 31, 2025 | Three months ended July 31, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Revenues | $1,182 | $1,301 | | Cost of revenues | $1,205 | $854 | | Gross margin | ($23) | $447 | | Operating expenses | $7,055 | $4,920 | | Operating loss | ($7,078) | ($4,473) | | Interest (expense)/income, net | ($310) | $3 | | Other income, net | — | $17 | | Loss before income taxes | ($7,388) | ($4,453) | | Income tax benefit | — | — | | Net loss | ($7,388) | ($4,453) | | Basic and diluted net loss per common share | ($0.04) | ($0.05) | | Weighted average shares used | 172,969,163 | 81,951,002 | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of July 31, 2025, OPT's total assets increased to $36.6 million from $30.8 million at April 30, 2025, primarily driven by an increase in cash and cash equivalents, accounts receivable, and property and equipment. Total liabilities also significantly increased, mainly due to new convertible notes payable and derivative liability Consolidated Balance Sheets (in thousands) | Metric (in thousands) | July 31, 2025 | April 30, 2025 | | :-------------------- | :------------ | :------------- | | **ASSETS** | | | | Cash and cash equivalents | $9,860 | $6,715 | | Accounts receivable, net | $2,207 | $1,191 | | Contract assets | $555 | $1,088 | | Inventory | $4,865 | $4,222 | | Total current assets | $18,380 | $13,616 | | Property and equipment, net | $4,703 | $3,444 | | Total assets | $36,618 | $30,793 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Accounts payable | $1,283 | $568 | | Convertible notes payable | $7,107 | — | | Derivative liability | $570 | — | | Total current liabilities | $11,619 | $3,289 | | Total liabilities | $12,428 | $4,141 | | Total shareholders' equity | $24,190 | $26,652 | | Total liabilities and shareholders' equity | $36,618 | $30,793 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended July 31, 2025, net cash used in operating activities decreased slightly. Investing activities saw an increase in property and equipment purchases. Financing activities provided a significant cash inflow, primarily from proceeds from convertible notes and common stock issuance, leading to a substantial net increase in cash, cash equivalents, and restricted cash Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three months ended July 31, 2025 | Three months ended July 31, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | ($5,605) | ($6,124) | | Net cash used in investing activities | ($1,453) | ($374) | | Net cash provided by financing activities | $10,203 | $6,529 | | Net increase in cash, cash equivalents and restricted cash | $3,145 | $31 | | Cash, cash equivalents and restricted cash, end of period | $10,014 | $3,336 | - Share-based compensation significantly increased to **$2,399 thousand in 1Q26** from **$259 thousand in 1Q25**, impacting operating activities[17](index=17&type=chunk) - Financing activities in 1Q26 included **$9,866 thousand from convertible notes** and **$337 thousand from common stock issuance**[17](index=17&type=chunk) [Additional Information](index=2&type=section&id=Additional%20Information) [About Ocean Power Technologies](index=2&type=section&id=About%20Ocean%20Power%20Technologies) Ocean Power Technologies (OPT) specializes in intelligent maritime solutions and services for defense, security, oil and gas, science, research, and offshore wind markets. Their offerings include PowerBuoy® platforms for clean power and real-time data, and WAM-V® autonomous surface vessels (ASVs) and marine robotics services - OPT provides intelligent maritime solutions and services for defense and security, oil and gas, science and research, and offshore wind markets[6](index=6&type=chunk) - Key products include PowerBuoy® platforms for clean power and real-time data, and WAM-V® autonomous surface vessels (ASVs) and marine robotics services[6](index=6&type=chunk) [Non-GAAP Measures: Pipeline](index=2&type=section&id=Non-GAAP%20Measures%3A%20Pipeline) The 'Pipeline' metric, while not a GAAP measure, is used by OPT to track potential customer journeys and sales progress. It represents estimated future revenue, but is subject to changes due to project accelerations, cancellations, or delays - Pipeline is a non-GAAP measure used to track potential customer journeys and sales progress, divided into phases representing milestones[7](index=7&type=chunk) - Revenue estimates from the pipeline are subject to change due to project accelerations, cancellations, or delays, which can affect realization periods and levels[7](index=7&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This release contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from expectations. The company disclaims any obligation to publicly update or revise these statements - The release contains forward-looking statements, identified by terms like 'may', 'will', 'believe', 'expect', 'anticipate', 'estimate', 'intend', 'plan', 'project', and 'should'[9](index=9&type=chunk) - These statements rely on assumptions and estimates that could be inaccurate and are subject to risks and uncertainties, as detailed in the Company's Forms 10-Q and 10-K[9](index=9&type=chunk) - The Company expressly disclaims any obligation to publicly update or revise any forward-looking statements after the date of the press release[9](index=9&type=chunk) [Investor Relations & Media Contacts](index=3&type=section&id=Investor%20Relations%20%26%20Media%20Contacts) Additional financial information can be found in the Company's Annual Report on Form 10-K filed with the SEC. Contact details for investor and media inquiries are provided - Additional information is available in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission[10](index=10&type=chunk) - Contact information for investors is 609-730-0400 x401 or InvestorRelations@oceanpowertech.com[11](index=11&type=chunk) - Contact information for media is 609-730-0400 x402 or MediaRelations@oceanpowertech.com[11](index=11&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended July 31, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-42666 Pelican Acquisition Corporation (Exact Name of Registrant as Specified in Its Charter) Cayman Islands N/A (State or other jurisdiction of incorporation or organization) ...