PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for the period ended June 30, 2025, reflect significant corporate changes, including the deconsolidation of the UK subsidiary, resulting in a **$5.0 million** gain, and a shift from a **$2.2 million** stockholders' deficit to a **$3.6 million** equity, with net loss improving to **$1.4 million** from **$6.2 million** [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were **$4.4 million**, liabilities **$0.77 million**, and stockholders' equity **$3.6 million**, a significant improvement from a **$2.2 million** deficit in 2024 due to reduced liabilities and increased cash Consolidated Balance Sheet Summary (in $000s) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $4,275 | $3,137 | | Total current assets | $4,383 | $3,674 | | Total assets | $4,401 | $4,094 | | **Liabilities & Equity** | | | | Accounts payable | $221 | $4,599 | | Total current liabilities | $760 | $6,268 | | Total liabilities | $770 | $6,268 | | Total stockholders' equity (deficit) | $3,631 | $(2,174) | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2025, the company reported zero revenue and a net loss of **$1.4 million**, a substantial improvement from **$6.2 million** in 2024, driven by a **$4.9 million** deconsolidation gain and reduced R&D expenses Consolidated Statements of Operations Highlights (in $000s, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Revenues | $0 | $33 | | Research and development | $890 | $4,825 | | General and administrative | $5,463 | $3,207 | | Operating loss | $(6,353) | $(7,999) | | Gain on deconsolidation of subsidiary | $4,947 | $0 | | Net loss | $(1,399) | $(6,203) | | Net loss per share – basic and diluted | $(1.62) | $(509.96) | [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash used in operating activities was **$4.3 million**, offset by **$5.5 million** from financing, leading to a net increase of **$1.1 million** and an ending cash balance of **$4.3 million** Cash Flow Summary (in $000s) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,303) | $(3,567) | | Net cash used in investing activities | $0 | $0 | | Net cash provided by financing activities | $5,526 | $6,210 | | Net increase in cash and cash equivalents | $1,138 | $2,622 | | Cash and cash equivalents, end of period | $4,275 | $6,000 | [Notes to Unaudited Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail the deconsolidation of the UK subsidiary, generating a **$5.0 million** gain, two reverse stock splits, and management's substantial doubt about the company's going concern ability, with **$4.3 million** cash only funding operations into Q4 2025 - The company's UK subsidiary, Cyclacel Limited, entered into creditors voluntary liquidation and was deconsolidated as of January 24, 2025, resulting in a gain of approximately **$5.0 million**[34](index=34&type=chunk) - The company executed a **1-for-16 reverse stock split** on May 12, 2025, and a further **1-for-15 reverse stock split** on July 7, 2025, with all share and per-share data retroactively adjusted[37](index=37&type=chunk) - Management has concluded there is substantial doubt about the company's ability to continue as a going concern, as its cash and cash equivalents of **$4.3 million** as of June 30, 2025, are only sufficient to meet liquidity requirements into the fourth quarter of 2025[39](index=39&type=chunk) - In June 2025, the company raised **$3.0 million** in gross proceeds through the sale of **3,000,000 shares** of Series F Convertible Preferred Stock and associated warrants to accredited investors[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic shift to focus solely on the plogosertib clinical program, highlighting a significant going concern risk with **$4.3 million** cash expected to last only into Q4 2025, while exploring a potential business combination with FITTERS Diversified Berhad - Following the liquidation of its UK subsidiary, the company has focused its development efforts exclusively on the plogosertib ('Plogo') clinical program, having repurchased the related assets for approximately **$0.3 million**[145](index=145&type=chunk) - The company has substantial doubt about its ability to continue as a going concern, with cash of **$4.3 million** as of June 30, 2025, expected to fund operations only into Q4 2025[149](index=149&type=chunk) - The company has entered into an Exchange Agreement with FITTERS Diversified Berhad, which, if completed, will result in a business combination where Cyclacel stockholders will own approximately **80.01%** of the combined entity, and the company will be renamed Bio Green Med Solution, Inc[13](index=13&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company held **$4.3 million** in cash and **$3.6 million** in working capital, relying on equity financing with an accumulated deficit of **$441.8 million**, and faces uncertainty in raising additional capital for drug development Key Liquidity Measures (in $000s) | Measure | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,275 | $6,000 | | Working capital | $3,623 | $521 | - As of June 30, 2025, the company had an accumulated deficit of **$441.8 million** and has historically relied on equity sales to finance operations[159](index=159&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2025, R&D expenses decreased by **$3.9 million (82%)** to **$0.9 million**, while G&A expenses increased by **$2.3 million (70%)** to **$5.5 million** due to one-time costs, and other income surged by **$4.9 million** from a deconsolidation gain Research and Development Expenses by Program (in $000s) | Program | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Transcriptional Regulation (fadraciclib) | $389 | $3,244 | $(2,855) | (88)% | | Anti-mitotic (plogosertib) | $423 | $1,466 | $(1,043) | (71)% | | **Total R&D Expenses** | **$890** | **$4,825** | **$(3,935)** | **(82)%** | - General and administrative expenses increased by **$2.3 million** for the six months ended June 30, 2025, mainly due to one-time costs from two changes of control, including stock compensation (**$1.3M**), D&O insurance (**$0.7M**), and other compensation (**$0.3M**)[179](index=179&type=chunk) - Total other income increased by **$4.9 million** year-over-year, driven by a **$5.0 million** gain on the deconsolidation of the company's UK subsidiary in January 2025[181](index=181&type=chunk)[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Cyclacel is not required to provide quantitative and qualitative disclosures about market risk[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with the only change to internal control over financial reporting being the hiring of a new chief financial officer - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[190](index=190&type=chunk) - The hiring of a new chief financial officer was the only change in internal control over financial reporting during the quarter ended June 30, 2025[191](index=191&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) On August 6, 2025, a minority shareholder filed a lawsuit against the company and its CEO, alleging breach of fiduciary duty and contract, seeking over **$12.5 million** in damages, which the company deems meritless - A complaint was filed on August 6, 2025, by minority shareholder David Lazar against the company and its CEO, alleging breach of fiduciary duty, minority shareholder oppression, and breach of contract[193](index=193&type=chunk) - The lawsuit seeks damages of **$11,882,683.45** for the first two causes of action and **$629,501.36** for the third, plus interest and fees, with the company considering the claims meritless[193](index=193&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported from its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the company's risk factors from its 2024 Form 10-K were reported[194](index=194&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[195](index=195&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 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 000-50626 CYCLACEL PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) (State or Other Jurisdiction Delaware 91-170 ...

PART I. FINANCIAL INFORMATION Presents HWH International Inc.'s unaudited consolidated financial statements and related disclosures for Q2 2025 and 2024 [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents HWH International Inc.'s unaudited consolidated financial statements and detailed notes for the periods ended June 30, 2025 and 2024 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Details HWH International Inc.'s financial position, including assets, liabilities, and equity, as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheets (in US Dollars) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :----------------------------------- | :------------------------ | :------------------ | | **Assets** | | | | Total Current Assets | $9,177,600 | $9,588,697 | | Total Non-Current Assets | $1,425,100 | $933,725 | | **TOTAL ASSETS** | **$10,602,700** | **$10,522,422** | | **Liabilities & Stockholders' Equity** | | | | Total Current Liabilities | $7,146,791 | $7,424,974 | | Total Non-Current Liabilities | $135,386 | $220,249 | | Total Stockholders' Equity | $3,320,523 | $2,877,199 | | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | **$10,602,700** | **$10,522,422** | - Total assets increased slightly from **$10,522,422** at December 31, 2024, to **$10,602,700** at June 30, 2025[8](index=8&type=chunk) - Total liabilities decreased from **$7,645,223** to **$7,282,177**, while total stockholders' equity increased from **$2,877,199** to **$3,320,523**[8](index=8&type=chunk)[185](index=185&type=chunk) [Consolidated Statements of Operations and Other Comprehensive Loss](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Other%20Comprehensive%20Loss) Reports HWH International Inc.'s revenues, expenses, and net income or loss for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Operations and Other Comprehensive Loss (in US Dollars) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $310,391 | $334,882 | $605,588 | $620,992 | | Cost of revenue | $(161,501) | $(169,969) | $(309,104) | $(292,782) | | Gross profit | $148,890 | $164,913 | $296,484 | $328,210 | | Total Operating expenses | $(488,681) | $(654,740) | $(1,230,403) | $(2,150,123) | | Total Other non-operating income | $415,768 | $86,186 | $565,872 | $81,753 | | Income (loss) before income taxes | $75,977 | $(403,641) | $(368,047) | $(1,740,160) | | Net income (loss) | $75,977 | $(403,641) | $(410,995) | $(1,740,160) | | Net income (loss) attributable to common stockholders | $83,389 | $(387,923) | $(394,611) | $(1,724,761) | | Basic Loss per common share | $(0.01) | $(0.12) | $(0.06) | $(0.55) | | Diluted Loss per common share | $(0.01) | $(0.12) | $(0.06) | $(0.55) | - The company reported a **net income of $75,977** for the three months ended June 30, 2025, a significant improvement from a net loss of **$(403,641)** in the same period of 2024[10](index=10&type=chunk)[184](index=184&type=chunk) - For the six months ended June 30, 2025, the net loss decreased to **$(410,995)** from **$(1,740,160)** in the prior year period[10](index=10&type=chunk)[184](index=184&type=chunk) - Revenue decreased slightly for both the three-month and six-month periods ended June 30, 2025, compared to 2024, while gross profit also saw a decrease[10](index=10&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk) - Operating expenses significantly decreased, and other non-operating income saw a substantial increase, primarily due to a gain on disposal of subsidiaries[10](index=10&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Outlines the changes in HWH International Inc.'s stockholders' equity for the six months ended June 30, 2025 and 2024 Consolidated Statements of Changes in Stockholders' Equity (in US Dollars) | Metric | December 31, 2024 | June 30, 2025 | | :----------------------------------- | :------------------ | :------------------------ | | Common Stock | $559 | $647 | | Additional Paid-in Capital | $9,051,601 | $10,749,308 | | Accumulated Other Comprehensive Loss | $(257,598) | $(811,200) | | Accumulated Deficit | $(6,029,198) | $(6,711,621) | | Total HWH International Inc. Stockholders' Equity | $2,765,364 | $3,227,134 | | Non-controlling Interests | $111,835 | $93,389 | | Total Stockholders' Equity | $2,877,199 | $3,320,523 | - Total stockholders' equity increased from **$2,877,199** at December 31, 2024, to **$3,320,523** at June 30, 2025, driven by an increase in additional paid-in capital from common stock issuance and warrants exercised, despite an increase in accumulated other comprehensive loss and accumulated deficit[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Summarizes HWH International Inc.'s cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Consolidated Statements of Cash Flows (in US Dollars) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(528,424) | $(1,129,040) | | Net cash (used in) / provided by investing activities | $(741,523) | $20,554,735 | | Net cash provided by / (used in) financing activities | $578,857 | $(19,741,963) | | Net decrease in cash | $(691,090) | $(316,268) | | Cash at end of period | $3,729,873 | $821,353 | - Net cash used in operating activities decreased significantly from **$(1,129,040)** in H1 2024 to **$(528,424)** in H1 2025, primarily due to a gain on disposal of subsidiaries[17](index=17&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Investing activities shifted from a net cash provided of **$20.55 million** in H1 2024 to a net cash used of **$(741,523)** in H1 2025, mainly due to convertible note and loan receivables to related parties and purchase of financial assets[17](index=17&type=chunk)[193](index=193&type=chunk) - Financing activities also saw a major swing, providing **$578,857** in H1 2025 compared to using **$(19.74) million** in H1 2024, largely due to proceeds from common stock and warrants issuance[17](index=17&type=chunk)[194](index=194&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Provides detailed explanations of HWH International Inc.'s accounting policies and specific financial statement line items [NOTE 1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS](index=9&type=section&id=NOTE%201%20%E2%80%94%20DESCRIPTION%20OF%20ORGANIZATION%2C%20BUSINESS%20OPERATIONS) Describes HWH International Inc.'s business, recent corporate actions, and operational structure - HWH International Inc. operates a food and beverage (F&B) business in Singapore and South Korea, including three cafés and an online healthy food store[19](index=19&type=chunk) - The company was originally incorporated as Alset Capital Acquisition Corp. in October 2021 and completed a business combination with HWH International Inc. (Nevada) on January 9, 2024, changing its name to HWH International Inc[20](index=20&type=chunk)[21](index=21&type=chunk) - The total merger consideration was **$125,000,000**, paid in **12,500,000** shares of common stock[23](index=23&type=chunk) - On January 6, 2025, the company closed a public offering of **632,500** shares of common stock and **250,000** pre-funded warrants, generating approximately **$1.76 million** in gross proceeds[24](index=24&type=chunk) - A **1-for-5 reverse stock split** was effective on February 24, 2025[24](index=24&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines HWH International Inc.'s key accounting principles, revenue recognition, and going concern considerations - The company's financial statements are prepared in conformity with US GAAP and consolidate all majority-owned and controlled subsidiaries[26](index=26&type=chunk)[28](index=28&type=chunk) - Substantially all revenue for the six months ended June 30, 2025 and 2024, was generated by the F&B business, primarily from subsidiaries in Singapore (F&B1, HCSGPL, KPL) and South Korea (HCKI)[31](index=31&type=chunk) - HWH is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards[33](index=33&type=chunk)[34](index=34&type=chunk) - The functional and reporting currency is the U.S. dollar, while subsidiaries maintain records in local currencies[35](index=35&type=chunk) - Revenue is primarily generated from F&B product sales, recognized when control is transferred to customers[51](index=51&type=chunk)[53](index=53&type=chunk) - Cost of revenue includes finished goods, shipping, handling, contractor fees, and franchise commissions[59](index=59&type=chunk)[61](index=61&type=chunk) - Advertising expenses significantly increased from **$6,566** in H1 2024 to **$107,094** in H1 2025[63](index=63&type=chunk) - The company's net loss, operating loss, and negative cash flow from operations raise substantial doubt about its ability to continue as a going concern[73](index=73&type=chunk)[74](index=74&type=chunk) - Management believes available cash, anticipated cash from operations, and financing from related parties (Alset Inc.) are sufficient for the next 12 months, including a **$700,000** remaining credit line[76](index=76&type=chunk)[78](index=78&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE, NET](index=18&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE%2C%20NET) Details the composition and changes in HWH International Inc.'s net accounts receivable Accounts Receivable, Net (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Accounts receivable, net | $22,948 | $17,546 | - Accounts receivable, net, primarily from credit card processors in the F&B business and rent, increased to **$22,948** as of June 30, 2025, from **$17,546** as of December 31, 2024[84](index=84&type=chunk) - The allowance for credit losses remains immaterial[84](index=84&type=chunk) [NOTE 4 — INVENTORY](index=18&type=section&id=NOTE%204%20%E2%80%94%20INVENTORY) Provides information on HWH International Inc.'s inventory balances and valuation policies Inventory (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :------- | :------------ | :------------------ | | Inventory | $6,369 | $1,574 | - Inventory, consisting of finished goods, increased to **$6,369** as of June 30, 2025, from **$1,574** as of December 31, 2024[85](index=85&type=chunk) - No provision for slow-moving or obsolete inventory was recorded[85](index=85&type=chunk) [NOTE 5 — PROPERTY AND EQUIPMENT, NET](index=18&type=section&id=NOTE%205%20%E2%80%94%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) Presents HWH International Inc.'s property and equipment balances and associated depreciation expenses Property and Equipment, Net (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Total Property and equipment, net | $31,876 | $33,588 | | Depreciation expenses (3 months) | $3,380 | $15,666 | | Depreciation expenses (6 months) | $6,662 | $30,209 | - Net property and equipment decreased slightly to **$31,876** at June 30, 2025, from **$33,588** at December 31, 2024[86](index=86&type=chunk) - Depreciation expenses for the three and six months ended June 30, 2025, were **$3,380** and **$6,662**, respectively, significantly lower than the prior year periods[86](index=86&type=chunk) [NOTE 6 — INVESTMENTS AT COST](index=18&type=section&id=NOTE%206%20%E2%80%94%20INVESTMENTS%20AT%20COST) Discusses HWH International Inc.'s investments and the gain from the disposal of a subsidiary - The company impaired its **$14,010** investment in Ideal Food & Beverage Pte. Ltd. to **$0** due to net liabilities as of December 31, 2024[88](index=88&type=chunk) - On April 23, 2025, HWH completed the sale of HWH World Inc. to AES Group Inc., generating a **$383,667** gain recorded in other non-operating income[90](index=90&type=chunk) [NOTE 7 – LOAN DUE TO THIRD PARTY](index=20&type=section&id=NOTE%207%20%E2%80%93%20LOAN%20DUE%20TO%20THIRD%20PARTY) Details HWH International Inc.'s loan obligations to a third party and current negotiation status - The company entered into a Satisfaction and Discharge of Indebtedness Agreement with EF Hutton LLC (now D. Boral Capital LLC) on December 18, 2023, settling a **$3,018,750** underwriting fee with **$325,000** cash, **149,443** common shares, and a **$1,184,375** promissory note[91](index=91&type=chunk) - The first installment of the promissory note, due October 2024, was paid in January 2025, resulting in a default that is currently under negotiation[91](index=91&type=chunk) [NOTE 8 — DUE TO ALSET INC.](index=20&type=section&id=NOTE%208%20%E2%80%94%20DUE%20TO%20ALSET%20INC.) Reports amounts owed to Alset Inc. and the terms of the credit facility Due to Alset Inc. (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Amount due to AEI | $459,614 | $209,614 | | Outstanding interest on Credit Facility | $3,164 | $0 | - The amount due to Alset Inc. (AEI), the ultimate holding company, for short-term working capital advances increased to **$459,614** at June 30, 2025, from **$209,614** at December 31, 2024[92](index=92&type=chunk)[94](index=94&type=chunk) - A **$1,000,000** credit facility from AEI was amended on April 14, 2025, extending the due date for advances to April 14, 2026, with **$700,000** remaining available for draw[93](index=93&type=chunk)[94](index=94&type=chunk) [NOTE 9 — DUE TO/FROM RELATED PARTIES](index=21&type=section&id=NOTE%209%20%E2%80%94%20DUE%20TO%2FFROM%20RELATED%20PARTIES) Summarizes HWH International Inc.'s balances with various related parties for working capital and other transactions Due To/From Related Parties (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Due to Alset International Limited | $5,052,090 | $5,096,047 | | Due from Alset Business Development Pte. Limited | $4,231,148 | $4,113,701 | | Due from HotApp International Limited | $250,653 | $0 | - Amounts due to Alset International Limited (AIL) for working capital advances decreased slightly to **$5,052,090** at June 30, 2025[95](index=95&type=chunk) - AIL was released from its financial support obligations to the company on April 14, 2025[97](index=97&type=chunk) - Amounts due from Alset Business Development Pte. Limited increased to **$4,231,148**, and a new amount of **$250,653** is due from HotApp International Limited as of June 30, 2025[98](index=98&type=chunk)[99](index=99&type=chunk) [NOTE 10 — RELATED PARTY TRANSACTIONS](index=22&type=section&id=NOTE%2010%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Describes HWH International Inc.'s transactions with related parties, including convertible notes and new acquisitions - The company has multiple convertible promissory notes (CN 1-7) and warrants with Sharing Services Global Corporation (SHRG), a related party[102](index=102&type=chunk)[103](index=103&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - As of June 30, 2025, the total fair value of warrants and convertible loans receivable from SHRG was **$1,084,861**, up from **$757,924** at December 31, 2024[116](index=116&type=chunk) - The company also provided loans to SHRG totaling **$280,000** in April 2025[116](index=116&type=chunk) - HWH acquired a **60%** interest in L.E.H. Insurance Group, LLC (LEH) on February 27, 2025, for **$75,000**, recording **$77,480** of goodwill which was immediately written off[123](index=123&type=chunk)[124](index=124&type=chunk) - LEH is an early-stage insurance agency with no employees and no profit yet[125](index=125&type=chunk) - The company also has a joint venture, HapiTravel Holding Pte. Ltd. (HTHPL), and HTHPL owed HWH **$171,343** as of June 30, 2025[126](index=126&type=chunk)[127](index=127&type=chunk) [NOTE 11 — STOCKHOLDERS' EQUITY](index=27&type=section&id=NOTE%2011%20%E2%80%94%20STOCKHOLDERS'%20EQUITY) Details HWH International Inc.'s capital structure, including common stock, warrants, and recent equity offerings - The company's authorized capital stock consists of **55,000,000** shares of common stock and **1,000,000** shares of preferred stock, with no preferred stock outstanding[129](index=129&type=chunk) - A **1-for-5 reverse stock split** was effected on February 24, 2025[138](index=138&type=chunk) - As of June 30, 2025, there were **909,874** warrants outstanding with a weighted average exercise price of **$57.5** and a remaining contractual term of **3.53 years**[143](index=143&type=chunk) - On January 3, 2025, the company priced a public offering of **3,162,500** common shares and **1,250,000** pre-funded warrants, generating approximately **$1.76 million** in gross proceeds before expenses[139](index=139&type=chunk) [NOTE 12 —LEASES](index=29&type=section&id=NOTE%2012%20%E2%80%94LEASES) Provides information on HWH International Inc.'s operating lease assets, liabilities, and expenses Leases (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Right-of-use assets | $325,130 | $548,757 | | Lease liabilities - current | $197,235 | $340,651 | | Lease liabilities - non-current | $135,386 | $220,249 | | Total lease liabilities | $332,621 | $560,900 | - The company has operating leases for office spaces and F&B stores in South Korea and Singapore[144](index=144&type=chunk) - The weighted-average remaining lease term is **1.78 years** with a weighted-average discount rate of **2.95%**[146](index=146&type=chunk) - Total lease expenses for the six months ended June 30, 2025, were **$174,679**, down from **$260,139** in the prior year[146](index=146&type=chunk) [NOTE 13 — COMMITMENTS AND CONTINGENCIES](index=30&type=section&id=NOTE%2013%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) States that HWH International Inc. is not currently involved in any material litigation or claims - As of the report date, the company is not a party to any pending material litigation, government actions, administrative actions, investigations, or claims that are expected to have a material adverse effect on its business and financial condition[147](index=147&type=chunk) [NOTE 14 — CONCENTRATION RISK](index=31&type=section&id=NOTE%2014%20%E2%80%94%20CONCENTRATION%20RISK) Highlights HWH International Inc.'s concentration risks related to cash balances and key suppliers - The company maintains uninsured cash balances of **$3,143,531** as of June 30, 2025, and **$3,861,339** as of December 31, 2024, at various financial institutions[149](index=149&type=chunk) - For the three and six months ended June 30, 2025, five suppliers accounted for over **59%** and **70%** of the company's total costs of revenue, respectively, indicating significant supplier concentration[150](index=150&type=chunk) [NOTE 15– CORRECTION OF AN IMMATERIAL ERRORS IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS](index=31&type=section&id=NOTE%2015%E2%80%93%20CORRECTION%20OF%20AN%20IMMATERIAL%20ERRORS%20IN%20PREVIOUSLY%20ISSUED%20FINANCIAL%20STATEMENTS) Explains the correction of immaterial errors in HWH International Inc.'s prior financial statements - The company identified and corrected immaterial errors in previously issued financial statements for the three months ended March 31, 2024, and the year ended December 31, 2024[152](index=152&type=chunk) - These corrections included an overstatement of Retained Earnings by **$645,860**, an understatement of general and administrative expenses by **$159,263**, and an understatement of unrealized gain on convertible note receivable by **$287,812**[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) - The corrections did not materially impact net income or total equity for the periods presented[156](index=156&type=chunk)[157](index=157&type=chunk) [NOTE 16— SUBSEQUENT EVENTS](index=31&type=section&id=NOTE%2016%E2%80%94%20SUBSEQUENT%20EVENTS) Confirms that HWH International Inc. has evaluated and found no subsequent events requiring disclosure - The company has evaluated events occurring after the balance sheet date through the report date and determined that no subsequent events or transactions require recognition or disclosure in the consolidated financial statements[158](index=158&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, results of operations, liquidity, capital resources, and Nasdaq compliance for Q2 2025 and 2024 [Cautionary Note Regarding Forward-Looking Statements](index=32&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Warns that this report contains forward-looking statements subject to risks and uncertainties - This report contains forward-looking statements based on current expectations and projections, which are subject to known and unknown risks, uncertainties, and assumptions that may cause actual results to differ materially[161](index=161&type=chunk) [Overview](index=32&type=section&id=Overview) Provides an overview of HWH International Inc.'s business initiatives, including Hapi Marketplace and Hapi Wealth Builder program - HWH International Inc. launched its business-to-consumer Hapi Marketplace on November 4, 2024, initially in the U.S. with plans to expand to South Korea, Hong Kong, and other parts of Asia, featuring over **47** product categories and expanding into robotics[162](index=162&type=chunk)[163](index=163&type=chunk) - The company operates Hapi Cafés in Seoul and Singapore, with a new café opened in Seoul in May 2024, aiming to build community and raise awareness for HWH products[164](index=164&type=chunk)[165](index=165&type=chunk) - The Hapi Wealth Builder program, targeting a rollout in selected regions in late 2025, will offer education in equity investment and wealth-building strategies, with a China headquarters opening to support this initiative[166](index=166&type=chunk)[167](index=167&type=chunk) [Our Revenue Model](index=33&type=section&id=Our%20Revenue%20Model) Describes HWH International Inc.'s primary revenue sources and geographical distribution Revenue and Net Loss (in US Dollars) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $310,391 | $334,882 | $605,588 | $620,992 | | Net Loss | $(675,774) | $(403,641) | $(1,162,746) | $(1,740,160) | - Food and beverage sales accounted for approximately **100%** of the company's revenue for both the three and six months ended June 30, 2025 and 2024[169](index=169&type=chunk) - Geographically, **90%** of total revenue for the six months ended June 30, 2025, was recognized in Singapore, with **10%** in South Korea[170](index=170&type=chunk) [Matters that May or Are Currently Affecting Our Business](index=33&type=section&id=Matters%20that%20May%20or%20Are%20Currently%20Affecting%20Our%20Business) Identifies key factors influencing HWH International Inc.'s business performance and growth - Ability to improve revenue through cross-selling and revenue-sharing arrangements within the group[171](index=171&type=chunk) - Ability to identify and integrate complementary businesses for acquisition, and obtain necessary financing[171](index=171&type=chunk) - Ability to attract skilled technical and sales personnel at acceptable compensation levels[171](index=171&type=chunk) - Ability to control operating expenses while expanding businesses and product/service offerings[171](index=171&type=chunk) [Summary of Significant Accounting Policies](index=34&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) Summarizes HWH International Inc.'s critical accounting policies and management estimates - The consolidated financial statements are prepared in accordance with U.S. GAAP, consolidating all wholly-owned subsidiaries[172](index=172&type=chunk) - Management's significant estimates include allowance for credit losses, recoverability and useful lives of property, plant and equipment, deferred tax valuation allowance, contingencies, and equity compensation[173](index=173&type=chunk)[174](index=174&type=chunk) - Revenue from product sales and food and beverage is recognized when control is transferred to customers, net of taxes, allowances, and returns[175](index=175&type=chunk)[176](index=176&type=chunk) - Cost of revenue includes finished goods, shipping, and handling fees[177](index=177&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Analyzes HWH International Inc.'s financial performance for the three and six months ended June 30, 2025 and 2024 [Revenue](index=35&type=section&id=Revenue) Details HWH International Inc.'s revenue trends for the three and six months ended June 30, 2025 and 2024 Revenue (in US Dollars) | Period | 2025 Revenue | 2024 Revenue | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Three Months Ended June 30 | $310,391 | $334,882 | -7.31% | | Six Months Ended June 30 | $605,588 | $620,992 | -2.48% | - Revenue decreased slightly for both the three and six months ended June 30, 2025, compared to the same periods in 2024[179](index=179&type=chunk) - The company attributes the increase in 2025 revenue (relative to the prior year's trend) to increased F&B business in Singapore following a new café opening in April 2024[179](index=179&type=chunk) [Cost of revenue](index=35&type=section&id=Cost%20of%20revenue) Examines HWH International Inc.'s cost of revenue and gross margin changes for the reporting periods Cost of Revenue and Gross Margin (in US Dollars) | Period | 2025 Cost of Revenue | 2024 Cost of Revenue | Change (%) | | :-------------------- | :------------------- | :------------------- | :--------- | | Three Months Ended June 30 | $161,501 | $169,969 | -4.98% | | Six Months Ended June 30 | $309,104 | $292,782 | +5.57% | | Gross Margin (3 months) | $148,890 | $164,913 | -9.72% | | Gross Margin (6 months) | $296,484 | $328,210 | -9.67% | - Cost of revenues decreased for the three months ended June 30, 2025, but increased for the six months ended June 30, 2025, reflecting changes in F&B sales[180](index=180&type=chunk) - Gross margin decreased for both periods, despite the increase in F&B revenue[181](index=181&type=chunk) [Operating expenses](index=35&type=section&id=Operating%20expenses) Analyzes HWH International Inc.'s operating expenses, highlighting significant decreases Operating Expenses (in US Dollars) | Period | 2025 Operating Expenses | 2024 Operating Expenses | Change (%) | | :-------------------- | :---------------------- | :---------------------- | :--------- | | Three Months Ended June 30 | $488,681 | $654,740 | -25.36% | | Six Months Ended June 30 | $1,230,403 | $2,150,123 | -42.78% | - Operating expenses significantly decreased for both the three and six months ended June 30, 2025, primarily due to lower general and administrative expenses, specifically reduced professional fees related to 10-Q and S-4 filings[182](index=182&type=chunk) [Other non-operating income (expense)](index=35&type=section&id=Other%20non-operating%20income%20(expense)) Discusses HWH International Inc.'s other non-operating income, primarily from subsidiary disposal Other Non-Operating Income (in US Dollars) | Period | 2025 Other Non-Operating Income | 2024 Other Non-Operating Income | Change (%) | | :-------------------- | :------------------------------ | :------------------------------ | :--------- | | Three Months Ended June 30 | $415,768 | $86,186 | +382.42% | | Six Months Ended June 30 | $565,872 | $81,753 | +592.10% | - Other non-operating income saw a substantial increase for both periods, mainly driven by a **$383,667** gain on disposal of subsidiaries in 2025[183](index=183&type=chunk) [Net income (loss)](index=35&type=section&id=Net%20income%20(loss)) Reports HWH International Inc.'s net income or loss and significant improvements for the reporting periods Net Income (Loss) (in US Dollars) | Period | 2025 Net Income (Loss) | 2024 Net Income (Loss) | Change ($) | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Three Months Ended June 30 | $75,977 | $(403,641) | +$479,618 | | Six Months Ended June 30 | $(410,995) | $(1,740,160) | +$1,329,165 | - The company achieved a **net income of $75,977** for the three months ended June 30, 2025, a significant improvement from a net loss in the prior year[184](index=184&type=chunk) - The net loss for the six months ended June 30, 2025, also substantially decreased compared to the same period in 2024[184](index=184&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses HWH International Inc.'s cash position, liabilities, and ability to meet short-term obligations Liquidity and Capital Resources (in US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :--------- | :------------ | :------------------ | | Cash | $3,729,873 | $4,341,746 | | Liabilities | $7,282,177 | $7,645,223 | | Total Assets | $10,602,700 | $10,522,422 | - Cash decreased from **$4,341,746** at December 31, 2024, to **$3,729,873** at June 30, 2025[185](index=185&type=chunk) - Liabilities decreased, while total assets slightly increased[185](index=185&type=chunk) - Despite a net loss and negative operating cash flow, management believes current cash, anticipated operations, and related-party financing (including a **$700,000** available credit line from Alset Inc.) are sufficient for the next 12 months[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) [Summary of Cash Flows for the Six Months Ended June 30, 2025 and 2024](index=36&type=section&id=Summary%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Provides a summary of HWH International Inc.'s cash flow activities for the six-month periods [Cash Flows from Operating Activities](index=36&type=section&id=Cash%20Flows%20from%20Operating%20Activities) Details HWH International Inc.'s cash flows from operating activities and key drivers of change Net Cash Used in Operating Activities (in US Dollars) | Period | Net Cash Used in Operating Activities | | :-------------------- | :---------------------------------- | | Six Months Ended June 30, 2025 | $(528,424) | | Six Months Ended June 30, 2024 | $(1,129,040) | - Net cash used in operating activities decreased by over **50%** to **$(528,424)** in H1 2025, primarily due to a **$383,667** gain on disposal of subsidiaries[191](index=191&type=chunk)[192](index=192&type=chunk) [Cash Flows from Investing Activities](index=36&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Explains HWH International Inc.'s cash flows from investing activities, including shifts in investment patterns Net Cash (Used in) / Provided by Investing Activities (in US Dollars) | Period | Net Cash (Used in) / Provided by Investing Activities | | :-------------------- | :------------------------------------------ | | Six Months Ended June 30, 2025 | $(741,523) | | Six Months Ended June 30, 2024 | $20,554,735 | - Investing activities shifted from a net cash provided of **$20,554,735** in H1 2024 to a net cash used of **$(741,523)** in H1 2025[191](index=191&type=chunk)[193](index=193&type=chunk) - This change was driven by payments for convertible note receivables (**$360,000**), loan receivables (**$280,000**), and financial asset purchases (**$100,152**) in 2025, contrasting with significant cash withdrawals from trust accounts in 2024[193](index=193&type=chunk) [Cash Flows from Financing Activities](index=36&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Summarizes HWH International Inc.'s cash flows from financing activities and major funding sources Net Cash Provided by / (Used in) Financing Activities (in US Dollars) | Period | Net Cash Provided by / (Used in) Financing Activities | | :-------------------- | :------------------------------------------ | | Six Months Ended June 30, 2025 | $578,857 | | Six Months Ended June 30, 2024 | $(19,741,963) | - Financing activities generated **$578,857** in cash in H1 2025, a significant turnaround from a net cash outflow of **$(19,741,963)** in H1 2024[191](index=191&type=chunk)[194](index=194&type=chunk) - This was primarily due to proceeds from common stock and warrants issuance (**$1,409,983**) and advances from related parties (**$1,055,702**) in 2025, offsetting repayments to related parties and notes payable[194](index=194&type=chunk) [Nasdaq Compliance](index=37&type=section&id=Nasdaq%20Compliance) Reports on HWH International Inc.'s compliance status with Nasdaq listing requirements - HWH received multiple notices from Nasdaq regarding non-compliance with listing rules, including minimum market value of listed securities (MVLS), market value of publicly held shares, and minimum bid price[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - Following a **1-for-5 reverse stock split** effective February 24, 2025, the company regained compliance with the minimum bid price requirement on March 10, 2025, and is currently listed on the Nasdaq Capital Market[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) [Contractual Obligations](index=37&type=section&id=Contractual%20Obligations) States HWH International Inc.'s contractual obligations as of June 30, 2025 - As of June 30, 2025, the company did not have any long-term debt obligations, capital lease obligations, purchase obligations, or long-term liabilities[203](index=203&type=chunk) [Administrative Services Agreement](index=38&type=section&id=Administrative%20Services%20Agreement) Describes the termination of HWH International Inc.'s administrative services agreement - The company ceased paying monthly fees of **$10,000** to Alset Management Group Inc. for administrative services upon the completion of the initial Business Combination[204](index=204&type=chunk) [Underwriting Agreement](index=38&type=section&id=Underwriting%20Agreement) Details HWH International Inc.'s settlement of underwriting fees and related agreements - The company settled a deferred underwriting fee of **$3,018,750** with EF Hutton (now D. Boral Capital LLC) through a combination of cash, common stock, and a promissory note[205](index=205&type=chunk) - EF Hutton also holds an irrevocable right of first refusal for future equity and debt offerings for **24 months** post-Business Combination[206](index=206&type=chunk) [Merger Agreement](index=38&type=section&id=Merger%20Agreement) Summarizes the key terms and closing of HWH International Inc.'s business combination - The Business Combination, approved by stockholders on August 1, 2023, and closed on January 9, 2024, involved the merger of HWH Merger Sub Inc. into HWH International Inc. (Nevada)[207](index=207&type=chunk) - Certain closing conditions, including minimum cash in the Trust Account and net tangible assets, were waived by the parties[207](index=207&type=chunk) [Registration Rights Agreement](index=38&type=section&id=Registration%20Rights%20Agreement) Outlines HWH International Inc.'s obligations regarding the registration of certain securities - Under the Registration Rights Agreement, the company is obligated to register certain securities, including common stock and warrants held by the Sponsor and those issued in the Private Placement, within **15 business days** after the Business Combination closing and use best efforts to make the registration statement effective within **60 business days**[208](index=208&type=chunk) [Lock-Up Agreements](index=39&type=section&id=Lock-Up%20Agreements) Describes the lock-up restrictions on HWH International Inc.'s common stock held by certain parties - HWH Holders with over **5%** of common stock and certain management team members entered Lock-Up Agreements, restricting the transfer of their shares for a period commencing from the Closing and ending on the earlier of **nine months** after closing, or when the stock price reaches **$12.00 per share** for **20 trading days** within a **30-trading day** period after **150 days** post-closing, or upon a liquidation/merger event[210](index=210&type=chunk) [Impact of Inflation](index=39&type=section&id=Impact%20of%20Inflation) Assesses the impact of inflation on HWH International Inc.'s operations and financial results - Management believes inflation has not had a material impact on the company's results of operations for the six months ended June 30, 2025, or the year ended December 31, 2024, but cannot assure that future inflation will not have an adverse impact[211](index=211&type=chunk) [Impact of Foreign Exchange Rates](index=39&type=section&id=Impact%20of%20Foreign%20Exchange%20Rates) Discusses the impact of foreign exchange rate fluctuations on HWH International Inc.'s intercompany loans - Fluctuations in foreign currency transaction gains or losses are primarily due to the effects of foreign exchange rate changes on intercompany loans between Singapore and South Korea, which were approximately **$0.8 million** at June 30, 2025[212](index=212&type=chunk) - These fluctuations are expected to continue in 2025 due to anticipated volatility in exchange rates, as the intercompany loan balances are not expected to be repaid in the short term[212](index=212&type=chunk) [Emerging Growth Company Status](index=39&type=section&id=Emerging%20Growth%20Company%20Status) Explains HWH International Inc.'s status as an emerging growth company and related exemptions - As an 'emerging growth company' under the JOBS Act, HWH has elected to take advantage of exemptions from certain reporting requirements, including delaying the adoption of new or revised accounting standards until they apply to private companies[213](index=213&type=chunk) [Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20Regarding%20Market%20Risk) As a smaller reporting company, HWH is exempt from market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures regarding market risk[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures, finding them effective, but noted material weaknesses in internal control over financial reporting - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2025[220](index=220&type=chunk)[221](index=221&type=chunk) - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the company's internal control over financial reporting during the fiscal interim ended June 30, 2025[222](index=222&type=chunk) - Material weaknesses identified in internal control over financial reporting include: limited accounting personnel preventing proper segregation of duties, and lack of well-defined accounting policies and procedures leading to untimely or ineffective financial close procedures[223](index=223&type=chunk) PART II. OTHER INFORMATION Presents additional information not included in the financial statements, such as legal proceedings and exhibits [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings - There are no legal proceedings pending against the company that could reasonably be expected to have a material adverse effect on its business and financial condition[225](index=225&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, HWH International Inc. is not required to provide risk factor disclosures - As a smaller reporting company, HWH International Inc. is not required to provide the information regarding risk factors[226](index=226&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the company for the reporting period - This item is not applicable[227](index=227&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities[228](index=228&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[229](index=229&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) The company reported no other information required under this item - No other information is reported under this item[230](index=230&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - Exhibits filed include amendments to the Certificate of Incorporation, certifications of principal executive and financial officers (pursuant to Sarbanes-Oxley Act Sections 302 and 906), and various Inline XBRL documents[231](index=231&type=chunk)[232](index=232&type=chunk) SIGNATURES Provides the official signatures for the report [Signatures](index=43&type=section&id=Signatures) The report is signed on behalf of HWH International Inc. by its CEO and CFO on August 13, 2025 - The report was signed by John Thatch, Chief Executive Officer, and Rongguo Wei, Chief Financial Officer, on August 13, 2025[234](index=234&type=chunk)[235](index=235&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 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 No. 001-41254 HWH INTERNATIONAL INC. (Exact name of registrant as specified in its charter) Delaware 87-3296100 (State or ...

[Part I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Net losses widened in Q2 and H1 2025, total assets decreased to **$30.7 million**, and operating cash flow showed a larger cash use [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$30.7 million** by June 30, 2025, with stockholders' equity significantly dropping to **$0.3 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,966 | $7,261 | | Total current assets | $13,774 | $16,595 | | Total assets | $30,722 | $36,157 | | Total current liabilities | $14,004 | $14,625 | | Long-term debt, net | $15,270 | $15,192 | | Total liabilities | $30,414 | $31,185 | | Total stockholders' equity | $308 | $4,972 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenues decreased to **$7.7 million**, leading to a net loss of **$2.5 million**, a significant increase from Q2 2024, with H1 revenues also declining Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $7,663 | $8,435 | $14,475 | $15,189 | | Gross profit | $4,306 | $4,977 | $8,083 | $8,173 | | Loss from operations | $(2,224) | $(486) | $(4,239) | $(3,375) | | Net loss | $(2,489) | $(99) | $(4,921) | $(3,467) | | Net loss per share | $(0.60) | $(0.03) | $(1.18) | $(0.99) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities for H1 2025 substantially increased to **$2.5 million** due to higher net loss Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,491) | $(213) | | Net cash used in investing activities | $(138) | $(1,070) | | Net cash used in financing activities | $— | $(18) | | Net decrease in cash | $(2,629) | $(1,301) | | Cash at end of period | $5,966 | $6,817 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's medical technology business, liquidity, **$15.3 million** long-term debt, segment performance, and **$4.9 million** in sales tax disputes - The company's business focuses on XTRAC® and Pharos® excimer lasers for psoriasis and vitiligo, and the TheraClear® system for acne, with **844 XTRAC systems** placed in the U.S. under a recurring revenue model as of June 30, 2025[22](index=22&type=chunk)[23](index=23&type=chunk) - Management believes existing cash, anticipated revenues, and expense management will be sufficient for working capital needs for at least the next 12 months, despite a history of recurring losses[51](index=51&type=chunk) - The company has outstanding sales tax assessments from New York and California totaling **$4.9 million**, with New York executing on a **$1.3 million** appellate bond during Q2 2025 following an adverse ruling[109](index=109&type=chunk)[111](index=111&type=chunk) Revenue by Business Segment - Six Months Ended June 30 (in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Dermatology Recurring Procedures | $9,846 | $10,035 | | Dermatology Procedures Equipment | $4,629 | $5,154 | | **Total Revenues, net** | **$14,475** | **$15,189** | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A discusses a **9%** Q2 2025 revenue decline, gross profit margin compression to **56.2%**, increased operating expenses, and negative working capital of **$0.2 million** - Total revenues for Q2 2025 were **$7.7 million**, down from **$8.4 million** in Q2 2024, with six-month revenues also declining to **$14.5 million** from **$15.2 million** in the prior year[131](index=131&type=chunk) - Gross profit percentage for Q2 2025 decreased to **56.2%** from **59.0%** in Q2 2024, attributed to higher manufacturing overhead, increased material costs, and tariffs[139](index=139&type=chunk) - Selling and marketing expenses increased to **$3.5 million** in Q2 2025 from **$3.1 million** in Q2 2024, driven by higher employee-related expenses and increased direct-to-patient advertising[148](index=148&type=chunk) - As of June 30, 2025, the company had negative working capital of **$0.2 million**, a significant decline from positive working capital of **$2.0 million** at the end of 2024, mainly due to decreases in cash and accounts receivable[154](index=154&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This item is noted as not applicable for the company, common for smaller reporting companies - The company has indicated that this section is not applicable[166](index=166&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were not effective as of June 30, 2025, due to a material weakness in management review of account reconciliations - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025[167](index=167&type=chunk) - The ineffectiveness is due to a material weakness identified as of December 31, 2024, related to a lack of detailed management review of account reconciliations and analyses[167](index=167&type=chunk) - The company is in the process of improving processes and controls, including enhancing senior management review, to remediate the material weakness[167](index=167&type=chunk) [Part II. OTHER INFORMATION](index=35&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) No new material legal proceedings, but New York executed on a **$1.3 million** appellate bond regarding an adverse sales tax determination - During the three months ended June 30, 2025, the State of New York executed on the **$1.3 million** appellate bond related to an adverse sales tax ruling[172](index=172&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) New tariffs introduced in 2025 on goods from numerous countries pose a significant risk, potentially increasing costs and reducing profits - In 2025, the U.S. government announced additional tariffs on goods from numerous countries, which poses a significant risk to the company's business operations[174](index=174&type=chunk) - The tariffs may materially increase costs, reduce profits, and lead to higher pricing that could reduce customer demand[174](index=174&type=chunk) [Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the second quarter of 2025[176](index=176&type=chunk) [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) Exhibits include CEO and CAO certifications as required by the Sarbanes-Oxley Act - Exhibits filed include CEO and CAO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[177](index=177&type=chunk)

Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2025 and 2024 (Unaudited, expressed in thousands of United States dollars, unless otherwise stated) TABLE OF CONTENTS | Condensed Consolidated Interim Statements of Financial Position | 2 | | --- | --- | | Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) | 3 | | Condensed Consolidated Interim Statements of Changes in Equity | 4 | | Condensed Consolidated Interim Statements o ...

PART I. Financial Information This section provides comprehensive unaudited financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Creative Media & Community Trust Corporation, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing its assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$885,024** | **$889,555** | | Investments in real estate, net | $704,775 | $709,194 | | Cash and cash equivalents | $27,769 | $20,262 | | **Total Liabilities** | **$584,250** | **$562,492** | | Debt, net | $535,605 | $505,732 | | **Total Equity** | **$288,270** | **$306,264** | - Total assets slightly decreased to **$885.0 million** as of June 30, 2025, from **$889.6 million** at the end of 2024, accompanied by an increase in total liabilities to **$584.3 million** and a decrease in total equity to **$288.3 million**[10](index=10&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, outlining revenues, expenses, and net loss Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | **$29,689** | **$34,439** | **$61,984** | **$68,437** | | **Total Expenses** | **$38,245** | **$36,126** | **$75,540** | **$73,433** | | **Net Loss** | **$(9,151)** | **$(852)** | **$(15,423)** | **$(4,757)** | | Net Loss Attributable to Common Stockholders | $(14,279) | $(9,667) | $(26,177) | $(21,962) | | Basic and Diluted EPS | $(18.94) | $(98.64) | $(39.36) | $(224.10) | - The company's net loss widened significantly in Q2 2025 to **$9.2 million** from **$0.9 million** in Q2 2024, and for the first six months, the net loss grew to **$15.4 million** in 2025 from **$4.8 million** in 2024, driven by lower revenues and higher expenses[11](index=11&type=chunk) [Consolidated Statements of Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Equity) This section presents the changes in the company's equity components, including net income, dividends, and stock transactions - Total equity decreased from **$306.3 million** at the end of 2024 to **$288.3 million** as of June 30, 2025, primarily driven by a net loss of **$9.15 million** and preferred stock dividends of **$5.3 million** in Q2 2025[12](index=12&type=chunk) - During the six months ended June 30, 2025, the company redeemed Series A1 and Series A Preferred Stock by issuing **96,283** and **192,144** shares of common stock, respectively[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,271) | $5,540 | | Net cash used in investing activities | $(10,226) | $(1,388) | | Net cash provided by financing activities | $16,487 | $2,460 | | **Net Increase in Cash** | **$4,990** | **$6,612** | - For the first six months of 2025, the company experienced a net cash outflow from operations of **$1.3 million**, a significant reversal from a **$5.5 million** inflow in the same period of 2024, primarily due to a higher net loss[15](index=15&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the figures presented in the consolidated financial statements - The company primarily acquires, develops, owns, and operates premier multifamily properties and Class A/creative office assets, also including a hotel and an SBA 7(a) loan origination platform[18](index=18&type=chunk) - The company effected two reverse stock splits in 2025: a **1-for-10** split in January and a **1-for-25** split in April, with all share and per-share amounts retroactively adjusted[20](index=20&type=chunk)[22](index=22&type=chunk) - During Q2 2025, the company recognized an impairment charge of **$0.221 million** on an office property in Austin, Texas, reducing its carrying value to an estimated fair value of **$1.9 million**[74](index=74&type=chunk) - As of June 30, 2025, the company had **$535.6 million** in net debt, an increase from **$505.7 million** at year-end 2024, and in April 2025, it repaid and terminated its 2022 Credit Facility, resulting in a loss on early extinguishment of debt of **$0.088 million**[100](index=100&type=chunk)[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results, highlighting increased net losses due to lower revenues and higher expenses, alongside strategic shifts towards multifamily properties and liquidity management efforts [Executive Summary](index=43&type=section&id=Executive%20Summary) This section provides an overview of the company's strategic focus on multifamily properties and a snapshot of its current portfolio performance - The company's strategy is to increase its focus on acquiring, developing, and operating premier multifamily properties, while opportunistically disposing of assets that do not fit this strategy[215](index=215&type=chunk)[217](index=217&type=chunk) Portfolio Snapshot as of June 30, 2025 | Segment | Metric | Value | | :--- | :--- | :--- | | Office Properties | Occupancy | 68.1% | | Multifamily Properties | Occupancy | 83.4% | | Hotel | RevPAR (H1 2025) | $171.63 | - The decrease in office portfolio occupancy to **68.1%** from **82.5%** a year prior was primarily due to a tenant exercising a partial termination option at an office property in Oakland, California[223](index=223&type=chunk)[229](index=229&type=chunk) [2025 Results of Operations (Comparison of the Three Months Ended June 30, 2025 to 2024)](index=47&type=section&id=2025%20Results%20of%20Operations%20%28Q2%20Comparison%29) This section analyzes the company's financial performance for the second quarter of 2025 compared to the same period in 2024, highlighting key revenue and expense trends Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $29,689 | $34,439 | $(4,750) | (13.8)% | | Total Expenses | $38,245 | $36,126 | $2,119 | 5.9% | | **Net Loss** | **$(9,151)** | **$(852)** | **$(8,299)** | **NM** | - The increase in net loss for Q2 2025 was primarily due to a **$6.4 million** decrease in segment net operating income and a **$1.3 million** increase in interest expense[239](index=239&type=chunk) - FFO attributable to common stockholders decreased by **$4.6 million** to **$(7.9) million** in Q2 2025 from **$(3.3) million** in Q2 2024, mainly due to lower segment net operating income and higher interest expense[244](index=244&type=chunk) - Office revenue decreased by **15.8%** due to lower occupancy in an Oakland property, while multifamily revenue dropped **27.6%** due to lower occupancy and rents[249](index=249&type=chunk)[251](index=251&type=chunk) [2025 Results of Operations (Comparison of the Six Months Ended June 30, 2025 to 2024)](index=51&type=section&id=2025%20Results%20of%20Operations%20%28H1%20Comparison%29) This section analyzes the company's financial performance for the first half of 2025 compared to the same period in 2024, detailing revenue and expense trends H1 2025 vs H1 2024 Performance (in thousands) | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $61,984 | $68,437 | $(6,453) | (9.4)% | | Total Expenses | $75,540 | $73,433 | $2,107 | 2.9% | | **Net Loss** | **$(15,423)** | **$(4,757)** | **$(10,666)** | **224.2%** | - The increased net loss for the first half of 2025 was primarily driven by an **$8.3 million** decrease in segment net operating income and a **$2.4 million** increase in interest expense[268](index=268&type=chunk) - FFO attributable to common stockholders for H1 2025 was **$(13.3) million**, a decrease of **$4.1 million** from **$(9.2) million** in H1 2024, driven by lower segment operating income and higher interest expense, partially offset by lower preferred stock dividends and redemptions[272](index=272&type=chunk) [Cash Flow Analysis](index=55&type=section&id=Cash%20Flow%20Analysis) This section provides an analysis of the company's cash flow changes across operating, investing, and financing activities - Net cash used in operating activities was **$1.3 million** for H1 2025, a significant decrease from **$5.5 million** provided by operations in H1 2024, primarily due to a higher net loss[295](index=295&type=chunk) - Net cash used in investing activities increased to **$10.2 million** in H1 2025 from **$1.4 million** in H1 2024, mainly due to a **$9.0 million** increase in capital expenditures[296](index=296&type=chunk) - Net cash provided by financing activities increased to **$16.5 million** in H1 2025 from **$2.5 million** in H1 2024, driven by higher net proceeds from debt and lower cash redemptions and dividends for preferred stock[297](index=297&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its financial obligations and fund operations, including sources and uses of capital - The company's principal demands for funds include asset acquisitions, property development, debt service, and preferred stock distributions/redemptions[298](index=298&type=chunk) - The company plans to satisfy some or all redemption requests for its Preferred Stock with shares of Common Stock during 2025 to preserve liquidity[304](index=304&type=chunk) - In June 2025, a subsidiary entered into a new **$20.0 million** revolving credit facility secured by SBA 7(a) loans, with **$8.3 million** outstanding and no additional availability as of June 30, 2025[313](index=313&type=chunk) - The company regained compliance with the Nasdaq minimum bid price requirement in April 2025 but notes that maintaining compliance is not guaranteed[308](index=308&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily interest rate fluctuations, and its strategies for mitigation - As of June 30, 2025, **17.7%** (**$96.0 million**) of the company's debt was floating rate[331](index=331&type=chunk) - A **50 basis point** change in the SOFR interest rate would impact annual earnings by approximately **$0.48 million**[331](index=331&type=chunk) - The company utilizes interest rate cap agreements with a total notional amount of **$176.8 million** to manage its exposure to interest rate fluctuations[332](index=332&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[334](index=334&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[335](index=335&type=chunk) PART II. Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and other relevant disclosures [Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings beyond routine litigation arising in the ordinary course of business - The company states it is not currently involved in any material pending or threatened legal proceedings outside of routine litigation incidental to its business[337](index=337&type=chunk) [Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K were reported - No material changes to the risk factors disclosed in the 2024 Form 10-K were reported[338](index=338&type=chunk) [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 made no common stock repurchases during the three and six months ended June 30, 2025, under its $10.0 million share repurchase program - No common stock repurchases were made during the three and six months ended June 30, 2025[339](index=339&type=chunk) - As of June 30, 2025, the company has repurchased a total of **2,650** shares for **$4.7 million** under its existing share repurchase program[339](index=339&type=chunk) [Other Information](index=61&type=section&id=Item%205.%20Other%20Information) The company plans to delist its Common Stock from the Tel Aviv Stock Exchange by August 15, 2025, while maintaining its Nasdaq Capital Market listing - The company has filed to voluntarily delist its Common Stock from the Tel Aviv Stock Exchange (TASE), with the delisting expected to be effective on **August 15, 2025**[344](index=344&type=chunk) - The company's common stock will continue to be listed for trading on the Nasdaq Capital Market[344](index=344&type=chunk)

PART I - FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Jerash Holdings (US), Inc. and its subsidiaries, including balance sheets, statements of operations, changes in equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20(Unaudited)%20and%20March%2031%2C%202025) The balance sheet shows a slight decrease in total assets and total liabilities from March 31, 2025, to June 30, 2025. Cash significantly decreased, while accounts receivable increased, reflecting changes in operational cash management and collection timing | Metric | June 30, 2025 ($) | March 31, 2025 ($) | | :-------------------------- | :-------------- | :--------------- | | Total Assets | $81,739,077 | $82,975,526 | | Cash | $5,796,830 | $13,346,791 | | Accounts receivable, net | $9,979,463 | $3,076,074 | | Total Current Liabilities | $18,751,869 | $19,818,770 | | Total Equity | $62,789,975 | $62,869,109 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(Unaudited)) The company reported a net profit of **$0.32 million** for the three months ended June 30, 2025, a significant improvement from a net loss of **$1.37 million** in the prior year. This turnaround was driven by a substantial increase in gross profit and a shift from operating loss to operating income, despite a slight decrease in overall revenue | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | Change (YoY) | | :------------------------------------------------- | :----------------------------- | :----------------------------- | :------------ | | Revenue, net | $39,629,308 | $40,935,716 | (3.2%) | | Cost of goods sold | $33,540,428 | $36,295,845 | (7.5%) | | Gross Profit | $6,088,880 | $4,639,871 | 31.2% | | Income (Loss) from Operations | $958,996 | $(828,808) | 215.6% | | Net profit (loss) | $323,630 | $(1,366,697) | 123.6% | | Basic and diluted EPS | $0.03 | $(0.11) | 127.3% | [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(Unaudited)) Total equity experienced a minor decrease from March 31, 2025, to June 30, 2025, primarily influenced by dividend payments, which were partially offset by the net profit generated during the period and stock-based compensation expenses | Metric | June 30, 2025 ($) | March 31, 2025 ($) | | :------------------------------------------------- | :-------------- | :--------------- | | Total Equity | $62,789,975 | $62,869,109 | | Dividend payments (3 months ended June 30, 2025) | $(634,997) | N/A | | Net profit (loss) attributable to Common Stockholders (3 months ended June 30, 2025) | $318,676 | N/A | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(Unaudited)) The company experienced a net decrease in cash and restricted cash of **$7.56 million** for the three months ended June 30, 2025, a significant increase from the **$1.06 million** decrease in the prior year. This was primarily driven by increased cash used in operating activities and investing activities, while financing activities shifted from providing cash to using cash | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(6,478,515) | $(2,200,948) | | Net cash used in investing activities | $(714,919) | $(386,965) | | Net cash (used in) provided by financing activities | $(378,710) | $1,516,001 | | Net decrease in cash and restricted cash | $(7,562,415) | $(1,062,995) | | Cash and restricted cash, end of period | $7,501,624 | $12,973,872 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's organizational structure, significant accounting policies, recent accounting pronouncements, and specific financial statement line items, offering crucial context for the condensed consolidated financial statements [NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS](index=9&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) Jerash Holdings (US), Inc. is a holding company with manufacturing and trading subsidiaries primarily in Jordan and Hong Kong, focused on producing customized ready-made sportswear and outerwear. The company is terminating operations for one joint venture (J&B) while planning a significant **$29.9 million** investment in a new fabric facility in Jordan through another joint venture (Jerash Newtech) - Jerash Holdings is a holding company; its subsidiaries are primarily in Jordan (manufacturing) and Hong Kong (support, trading, joint ventures), engaged in manufacturing and exporting customized ready-made sportswear and outerwear[19](index=19&type=chunk)[25](index=25&type=chunk)[30](index=30&type=chunk) - J&B International Limited (51% owned joint venture) approved termination of business operations and dissolution, expected to complete by April 2027[27](index=27&type=chunk) - Jerash Newtech (51% owned joint venture) plans to invest approximately **$29.9 million** to establish a fabric facility in Jordan[28](index=28&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's accounting policies, including U.S. GAAP compliance, consolidation principles, and specific treatments for assets, liabilities, revenue, and expenses. It highlights the company's primary business as manufacturing outerwear and details exposure to credit, customer, and geopolitical risks, including a contingency plan for production relocation - The company's unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[31](index=31&type=chunk) - Revenue is primarily derived from product sales of customized ready-made outerwear, with performance obligations typically satisfied upon shipment[49](index=49&type=chunk) - The company is exposed to credit risk from cash deposits in Jordan, China, and Hong Kong, and from accounts receivable[67](index=67&type=chunk) - Customer concentration: For the three months ended June 30, 2025, two customers accounted for **63%** and **12%** of total revenue, respectively[69](index=69&type=chunk) - Operational risks include political, economic, and legal environments in Jordan, foreign currency fluctuations, and recent conflicts in the Middle East. A contingency plan for production relocation is in place, approved by major customers, in case of port disruptions[71](index=71&type=chunk)[72](index=72&type=chunk) [NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS](index=19&type=section&id=NOTE%203%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The company is currently evaluating the potential impact of two new FASB ASUs: ASU 2023-09, which modifies income tax disclosures, and ASU 2024-03/2025-01, which requires disaggregation of income statement expenses - ASU 2023-09 (Income Taxes): Requires disaggregated effective tax rate reconciliation and income taxes paid information, effective for annual periods beginning after December 15, 2024[73](index=73&type=chunk) - ASU 2024-03/2025-01 (Expense Disaggregation): Requires disclosure of inventory purchases, employee compensation, depreciation, amortization, and depletion in expense captions, effective for annual periods beginning after December 15, 2026[74](index=74&type=chunk) [NOTE 4 – ACCOUNTS RECEIVABLE, NET](index=20&type=section&id=NOTE%204%20%E2%80%93%20ACCOUNTS%20RECEIVABLE%2C%20NET) Accounts receivable, net, significantly increased to **$9.98 million** as of June 30, 2025, from **$3.08 million** as of March 31, 2025, with no allowances for credit loss recorded in either period | Metric | As of June 30, 2025 ($) | As of March 31, 2025 ($) | | :------------------------ | :-------------------- | :-------------------- | | Trade accounts receivable | $9,979,463 | $3,076,074 | | Less: allowances for credit loss | - | - | | Accounts receivable, net | $9,979,463 | $3,076,074 | [NOTE 5 – INVENTORIES](index=20&type=section&id=NOTE%205%20%E2%80%93%20INVENTORIES) Total inventory slightly decreased to **$27.32 million** as of June 30, 2025, from **$27.70 million** as of March 31, 2025. This change was driven by a decrease in raw materials and work-in-progress, partially offset by an increase in finished goods, with **99.9%** of inventory backed by actual orders | Metric | As of June 30, 2025 ($) | As of March 31, 2025 ($) | | :---------------- | :-------------------- | :-------------------- | | Raw materials | $7,834,974 | $13,101,508 | | Work-in-progress | $2,116,717 | $2,888,090 | | Finished goods | $17,365,335 | $11,715,231 | | Total inventory | $27,317,026 | $27,704,829 | - As of June 30, 2025, **99.9%** of the company's inventory was arranged based on actual orders received[76](index=76&type=chunk) [NOTE 6 – ADVANCE TO SUPPLIERS, NET](index=20&type=section&id=NOTE%206%20%E2%80%93%20ADVANCE%20TO%20SUPPLIERS%2C%20NET) Advances to suppliers, net, increased to **$6.98 million** as of June 30, 2025, from **$6.64 million** as of March 31, 2025, with no allowances for impairment recorded in either period | Metric | As of June 30, 2025 ($) | As of March 31, 2025 ($) | | :--------------------- | :-------------------- | :-------------------- | | Advance to suppliers | $6,983,612 | $6,644,194 | | Less: allowances for impairment | - | - | | Advance to suppliers, net | $6,983,612 | $6,644,194 | [NOTE 7 – LEASES](index=21&type=section&id=NOTE%207%20%E2%80%93%20LEASES) The company maintains 37 operating leases for manufacturing facilities, offices, and staff dormitories. Both operating lease right-of-use assets and liabilities decreased from March 31, 2025, to June 30, 2025, with a weighted average remaining lease term of **1.4 years** and a discount rate of **6.25%** | Metric | As of June 30, 2025 ($) | As of March 31, 2025 ($) | | :-------------------------------- | :-------------------- | :-------------------- | | Operating lease right of use assets | $712,723 | $850,172 | | Total operating lease liabilities | $533,999 | $627,226 | | Weighted average remaining lease term | 1.4 years | 1.6 years | | Weighted average discount rate | 6.25% | 6.25% | - Total operating lease expenses were **$0.58 million** for the three months ended June 30, 2025, a decrease from **$0.65 million** for the same period in 2024[80](index=80&type=chunk) [NOTE 8 – PROPERTY, PLANT, AND EQUIPMENT, NET](index=22&type=section&id=NOTE%208%20%E2%80%93%20PROPERTY%2C%20PLANT%2C%20AND%20EQUIPMENT%2C%20NET) Property, plant, and equipment, net, slightly decreased to **$24.91 million** as of June 30, 2025, from **$25.02 million** as of March 31, 2025. Depreciation and amortization expenses increased year-over-year, reflecting ongoing asset utilization | Metric | As of June 30, 2025 ($) | As of March 31, 2025 ($) | | :-------------------------------- | :-------------------- | :-------------------- | | Property, plant, and equipment, net | $24,912,364 | $25,023,681 | - Depreciation and amortization expenses were **$0.74 million** for the three months ended June 30, 2025, compared to **$0.61 million** for the same period in 2024[82](index=82&type=chunk) [NOTE 9 – EQUITY](index=23&type=section&id=NOTE%209%20%E2%80%93%20EQUITY) The company had **12,699,940 shares** of common stock outstanding as of June 30, 2025. A cash dividend of **$0.05 per share** was declared and paid during the quarter. Jordanian and PRC subsidiaries are required to make appropriations to statutory reserves, which are not available for dividend distribution - Common stock outstanding: **12,699,940 shares** as of June 30, 2025, and March 31, 2025[85](index=85&type=chunk) - A cash dividend of **$0.05 per share** of common stock was declared on May 20, 2025, and paid in full on June 6, 2025, totaling **$0.63 million**[87](index=87&type=chunk) - Jordanian and PRC subsidiaries are required to make appropriations to statutory reserves, which are not available for dividend distribution[86](index=86&type=chunk) [NOTE 10 – STOCK-BASED COMPENSATION](index=24&type=section&id=NOTE%2010%20%E2%80%93%20STOCK-BASED%20COMPENSATION) As of June 30, 2025, the company had **150,000 fully vested stock options** and **907,840 Restricted Stock Units (RSUs)** outstanding. Total stock-based compensation expenses decreased significantly year-over-year, with **$1.57 million** in unrecognized RSU expenses remaining - Stock options outstanding: **150,000 shares** (fully vested) with a weighted average exercise price of **$6.25** and a weighted average remaining life of **3.5 years**[90](index=90&type=chunk) - RSUs outstanding: **907,840 shares** with a weighted average grant date fair value of **$3.00**[93](index=93&type=chunk) - Unrecognized stock-based compensation expenses for RSUs: **$1.57 million** to be recognized through March 2027[92](index=92&type=chunk) - Total stock-based compensation expenses: **$0.22 million** for the three months ended June 30, 2025, a **52% decrease** from **$0.47 million** in the same period in 2024[93](index=93&type=chunk) [NOTE 11 – RELATED PARTY TRANSACTIONS](index=25&type=section&id=NOTE%2011%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) The company maintains consulting agreements with two related parties: Yukwise Limited (wholly owned by the CEO) and Multi-Glory Corporation Limited (wholly owned by a significant stockholder), each incurring **$75,000** in consulting fees for the quarter - Consulting fees to Yukwise Limited (wholly owned by the CEO): **$75,000** for the three months ended June 30, 2025 and 2024[95](index=95&type=chunk) - Consulting fees to Multi-Glory Corporation Limited (wholly owned by a significant stockholder): **$75,000** for the three months ended June 30, 2025 and 2024[96](index=96&type=chunk) [NOTE 12 – CREDIT FACILITIES](index=25&type=section&id=NOTE%2012%20%E2%80%93%20CREDIT%20FACILITIES) The company utilizes supply chain financing programs with customers for early payments, incurring early payment charges. It also has a **$5.0 million** banking facility with DBSHK, with **$4.77 million** outstanding as of June 30, 2025, at a weighted average interest rate of **5.7%** - Early payment charge from supply chain financing: **$0.29 million** for the three months ended June 30, 2025, a decrease from **$0.41 million** in the same period in 2024[97](index=97&type=chunk) - DBSHK facility outstanding: **$4.77 million** as of June 30, 2025, compared to **$4.51 million** as of March 31, 2025[99](index=99&type=chunk) - Weighted average interest rate on DBSHK facility: **5.7%** as of June 30, 2025, down from **6.3%** as of March 31, 2025[99](index=99&type=chunk) [NOTE 13 – NONCONTROLLING INTEREST](index=26&type=section&id=NOTE%2013%20%E2%80%93%20NONCONTROLLING%20INTEREST) The company holds a **51% equity interest** in J&B and Jerash Newtech. J&B's business operations are being terminated, while Jerash Newtech is a new joint venture for a fabric facility. Noncontrolling interest increased to **$57,735** as of June 30, 2025 - Noncontrolling interest: **$57,735** as of June 30, 2025, compared to **$22,860** as of June 30, 2024[33](index=33&type=chunk)[103](index=103&type=chunk) - J&B International Limited (51% owned) approved termination of business operations and dissolution, expected to complete by April 2027[104](index=104&type=chunk) - Net profit (loss) generated by J&B: **$11,160** for the three months ended June 30, 2025, a significant improvement from a net loss of **$(43,485)** in the same period in 2024[103](index=103&type=chunk) - Net profit (loss) generated by Jerash Newtech: **$(1,048)** for the three months ended June 30, 2025, compared to a net loss of **$(354)** in the same period in 2024[103](index=103&type=chunk) [NOTE 14 – EARNINGS (LOSS) PER SHARE](index=26&type=section&id=NOTE%2014%20%E2%80%93%20EARNINGS%20(LOSS)%20PER%20SHARE) Basic and diluted earnings per share for the three months ended June 30, 2025, was **$0.03**, a significant improvement from a loss of **$0.11** in the prior year, reflecting the company's return to profitability | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Net profit (loss) attributable to Common Stockholders | $318,676 | $(1,345,216) | | Basic and diluted earnings (loss) per share | $0.03 | $(0.11) | | Weighted Average Number of Shares (Basic & Diluted) | 12,699,940 | 12,294,840 | - **1,057,840 RSUs** and stock options were excluded from the EPS calculation for the three months ended June 30, 2025, as their inclusion would have been anti-dilutive[105](index=105&type=chunk) [NOTE 15 – SEGMENT REPORTING](index=27&type=section&id=NOTE%2015%20%E2%80%93%20SEGMENT%20REPORTING) The company operates as a single reportable segment, primarily manufacturing outerwear. Revenue decreased by **3%** year-over-year, with a notable shift in geographic sales: US sales decreased by **13%**, while sales to China and Hong Kong surged by **306%** - The company has one operating segment, primarily manufacturing outerwear, which accounted for approximately **81.7%** of total revenue for the three months ended June 30, 2025[109](index=109&type=chunk) | Region | 3 Months Ended June 30, 2025 (Amount) ($) | 3 Months Ended June 30, 2025 (%) | 3 Months Ended June 30, 2024 (Amount) ($) | 3 Months Ended June 30, 2024 (%) | Change (YoY) | | :------------------ | :------------------------------------ | :-------------------------------- | :------------------------------------ | :-------------------------------- | :------------ | | United States | $32,052,018 | 81% | $37,034,398 | 90% | (13)% | | China and Hong Kong | $6,126,728 | 15% | $1,509,561 | 4% | 306% | | Germany | $537,047 | 2% | $1,120,063 | 3% | (52)% | | Jordan | $455,745 | 1% | $740,257 | 2% | (38)% | | Others | $457,770 | 1% | $531,437 | 1% | (14)% | | Total | $39,629,308 | 100% | $40,935,716 | 100% | (3)% | - As of June 30, 2025, **75.6%** of long-lived assets were located in Jordan and **23.5%** in Hong Kong[110](index=110&type=chunk) [NOTE 16 – COMMITMENTS AND CONTINGENCIES](index=28&type=section&id=NOTE%2016%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) The company has a remaining capital contribution commitment of approximately **$0.6 million** to Jiangmen Treasure Success by December 31, 2029. Additionally, it is involved in a legal dispute concerning PPE products, where management, based on legal advice, believes the chance of loss is remote and thus no accrual has been made - Remaining capital contribution commitment to Jiangmen Treasure Success: HKD 5 million (approximately **$0.6 million**) by December 31, 2029[111](index=111&type=chunk) - Jerash Garments is appealing an adverse court ruling in a case claiming PPE product inconsistencies, despite having won a prior related case for collection of proceeds. Management, based on external legal advice, concluded the chance of loss is remote[113](index=113&type=chunk)[115](index=115&type=chunk) [NOTE 17 – INCOME TAX](index=30&type=section&id=NOTE%2017%20%E2%80%93%20INCOME%20TAX) Jordanian subsidiaries are subject to a **20% income tax rate** plus a **1% social contribution**. The company is also subject to the U.S. GILTI regime and has a **$0.42 million** Toll Charge payable within one year. The consolidated effective tax rate significantly increased to **50.4%** for the three months ended June 30, 2025 - Jordanian subsidiaries' income tax rate: **20%** plus a **1%** social contribution, effective January 1, 2024[117](index=117&type=chunk) - The company is subject to the U.S. Global Intangible Low-Taxed Income (GILTI) regime and has a **$0.42 million** Toll Charge payable within one year[118](index=118&type=chunk) - Consolidated effective tax rate: **50.4%** for the three months ended June 30, 2025, compared to **(8.9%)** for the same period in 2024[119](index=119&type=chunk) - Uncertain tax positions: **$0.18 million** as of June 30, 2025, with an estimated **$0.24 million** of unrecognized tax provision (including penalties and interest) potentially recognized in the next 12 months[119](index=119&type=chunk) [NOTE 18 – SUBSEQUENT EVENTS](index=30&type=section&id=NOTE%2018%20%E2%80%93%20SUBSEQUENT%20EVENTS) On August 8, 2025, the Board of Directors approved a dividend payment of **$0.05 per share** - Dividend payment approved: **$0.05 per share** on August 8, 2025[120](index=120&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&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 performance and condition for the three months ended June 30, 2025. It details the results of operations, liquidity, capital resources, and critical accounting estimates, highlighting key drivers of financial changes and future outlook [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Revenue decreased by **3%** year-over-year to **$39.6 million**, mainly due to shipment delays caused by switching ports. However, gross profit increased by **31%** and gross profit margin improved to **15%** due to lower import logistic costs and better production planning. Net income significantly improved to **$0.3 million** from a net loss of **$1.4 million** in the prior year - Revenue decreased by approximately **$1.3 million**, or **3%**, to **$39.6 million** for the three months ended June 30, 2025, mainly due to delayed shipments from switching ports[128](index=128&type=chunk) | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | Change (YoY) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------ | | Gross profit | $6,089,000 | $4,640,000 | 31% | | Gross profit margin | 15% | 11% | +4 ppts | | Net income (loss) | $323,000 | $(1,367,000) | 124% | - The increase in gross profit margin was primarily driven by better execution of logistic and production plans with import sea routes resuming to Aqaba Port in Jordan, shortening lead times and lowering costs[137](index=137&type=chunk) | Customer | 3 Months Ended June 30, 2025 (Sales) ($) | 3 Months Ended June 30, 2025 (%) | | :--------------- | :----------------------------------- | :------------------------------- | | VF Corporation | $25,156,000 | 63% | | New Balance | $4,796,000 | 12% | | Suzhou Unitex | $3,781,000 | 10% | - The U.S. imposed a **10% baseline tariff** on imports from Jordan effective April 5, 2025, later modified to **15%** on July 31, 2025, which could impact customer demand[132](index=132&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and restricted cash decreased by **$7.56 million** to **$7.50 million** as of June 30, 2025, primarily due to increased accounts receivable from delayed shipments and higher cash used in operating activities. Despite this, the company maintains a strong current ratio of **2.8 to 1** and relies on dividends from subsidiaries and supply chain financing for liquidity | Metric | June 30, 2025 ($) | March 31, 2025 ($) | | :-------------------------- | :-------------- | :--------------- | | Cash and restricted cash | $7,501,624 | $15,064,039 | | Net cash used in operating activities (3 months) | $(6,478,515) | $(2,200,948) | | Current Assets | $53,362,531 | $54,420,209 | | Current Liabilities | $18,751,869 | $19,818,770 | | Current Ratio | 2.8 to 1 | 2.7 to 1 | - The decrease in cash was mainly due to more shipments completed at the end of June 2025, with receivables collected in early July 2025 through supply chain financing programs[143](index=143&type=chunk) - The company participates in supply chain financing programs with major customers to receive early payments for approved sales invoices, subject to early payment charges, enhancing liquidity without traditional bank financing[147](index=147&type=chunk) - As of June 30, 2025, **$4.8 million** was outstanding under the DBSHK banking facility[149](index=149&type=chunk) - Statutory reserves of **$0.4 million** as of June 30, 2025, represent **0.66%** of consolidated net assets and are not available for dividend distribution[160](index=160&type=chunk) [Capital Expenditures](index=36&type=section&id=Capital%20Expenditures) Capital expenditures increased to **$0.7 million** for the three months ended June 30, 2025, primarily for plant and machinery. The company projects significant future capital expenditures of **$1.3 million** for fiscal 2026 and **$7.8 million** for fiscal 2027 to enhance production capacity and construct new facilities, funded by operations - Capital expenditures were approximately **$0.7 million** for the three months ended June 30, 2025, compared to **$0.4 million** for the same period in 2024, mainly for purchases of plant and machinery[161](index=161&type=chunk) - Projected capital expenditures: approximately **$1.3 million** for fiscal year ending March 31, 2026, and **$7.8 million** for fiscal year ending March 31, 2027, for further enhancement of production capacity and construction of dormitory and production facilities[163](index=163&type=chunk) - The company completed a dormitory and dormitory kitchen in fiscal year 2025 with approximately **$10.6 million** in capital expenditures[162](index=162&type=chunk) [Off-balance Sheet Commitments and Arrangements](index=36&type=section&id=Off-balance%20Sheet%20Commitments%20and%20Arrangements) The company has not entered into any material off-balance sheet commitments or arrangements, including financial guarantees or derivative contracts indexed to its own shares - The company has not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties[164](index=164&type=chunk) - The company has not entered into any derivative contracts that are indexed to its own shares or not reflected in its consolidated financial statements[164](index=164&type=chunk) [Critical Accounting Estimates](index=37&type=section&id=Critical%20Accounting%20Estimates) The company prepares its financial statements in conformity with U.S. GAAP, which requires judgments and estimates. No material changes have been made to accounting estimates in the past two years, and no critical accounting estimates have been identified - No material changes were made to the accounting estimates and assumptions in the past two years[165](index=165&type=chunk) - The company has not identified any critical accounting estimates[165](index=165&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 3 for a discussion of recent accounting pronouncements and their potential impact on the company's financial statements - Refer to Note 3—Recent Accounting Pronouncements in the notes to the unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Jerash Holdings (US), Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[167](index=167&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting. Management concluded that disclosure controls were ineffective as of June 30, 2025, due to IT general control deficiencies, with remediation efforts ongoing [Disclosure Controls and Procedures](index=37&type=section&id=Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were ineffective as of June 30, 2025, primarily due to ineffective information technology general controls related to privileged user access and review. Remedial actions are in their preliminary stages and require further managerial review and fine-tuning - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025[168](index=168&type=chunk) - The ineffectiveness was due to ineffective information technology general controls in the areas of privileged user access and the review of user access over certain information technology systems supporting financial reporting processes[169](index=169&type=chunk)[171](index=171&type=chunk) - Remedial actions have been implemented, including a comprehensive review and strengthening of user authorization, access log control, password control, and documentation for IT systems, but are still in preliminary stages[172](index=172&type=chunk) - Despite material weaknesses, management concluded that the unaudited condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[173](index=173&type=chunk) [Changes in Internal Control Over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Other than ongoing remediation efforts related to disclosure controls and procedures, there were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting during the quarter ended June 30, 2025, other than ongoing remediation efforts[174](index=174&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, although it anticipates being involved in legal actions in the ordinary course of business, which could potentially incur material expenses or adverse outcomes - The company is not currently involved in any material legal proceedings[176](index=176&type=chunk) - The company anticipates involvement in legal proceedings, claims, and litigation arising in the ordinary course of business[176](index=176&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A%20Risk%20Factors) As a smaller reporting company, Jerash Holdings (US), Inc. is not required to provide the information regarding risk factors - The company is not required to provide risk factor information as a smaller reporting company[177](index=177&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=39&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report during the period - None to report[178](index=178&type=chunk) [Defaults Upon Senior Securities](index=39&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period - Not applicable[179](index=179&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company for the reporting period - Not applicable[180](index=180&type=chunk) [Other Information](index=39&type=section&id=Item%205%20Other%20Information) There is no other information to report under this item for the reporting period - None to report[181](index=181&type=chunk) [Exhibits](index=39&type=section&id=Item%206%20Exhibits) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents, employment contracts, various certifications (Sarbanes-Oxley Act), and Inline XBRL documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Specimen Certificate for Common Stock, an Employment Contract, and certifications from principal executive and financial officers (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002)[184](index=184&type=chunk) - Inline XBRL Instance Document and related taxonomy extension documents are also filed as exhibits[184](index=184&type=chunk) SIGNATURES [Signatures](index=41&type=section&id=Signatures) The Quarterly Report on Form 10-Q was duly signed on behalf of Jerash Holdings (US), Inc. by Gilbert K. Lee, Chief Financial Officer, on August 13, 2025 - The report was signed by Gilbert K. Lee, Chief Financial Officer (Principal Financial Officer), on behalf of Jerash Holdings (US), Inc[189](index=189&type=chunk) - Date of signing: August 13, 2025[188](index=188&type=chunk)

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Western Digital, a leading HDD data storage provider, now focuses on its HDD business for cloud data centers and AI infrastructure after its Flash business separation - Western Digital completed the separation of its HDD and Flash business units on February 21, 2025, to create two independent public companies, now focusing on its existing HDD business[21](index=21&type=chunk) - HDDs are considered the preferred technology for storing large volumes of data due to their economical solution for mass storage needs in cloud data centers, especially in the age of AI[22](index=22&type=chunk)[30](index=30&type=chunk) - The company's product portfolio addresses three main end markets: Cloud (public/private cloud, enterprise), Client (OEM and channel customers for desktops/notebooks), and Consumer (external storage products)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - Western Digital holds approximately **4,500 active patents** covering data storage technologies and invests substantial resources in R&D to develop new products and improve existing ones, focusing on areal density and cost leadership[31](index=31&type=chunk)[32](index=32&type=chunk)[37](index=37&type=chunk) - The company's business strategy centers on leadership, innovation, and execution, with foundational elements including enhanced customer focus, product/technology leadership, rigorous financial discipline, operational excellence, innovation/growth, and high-performance teams[34](index=34&type=chunk)[35](index=35&type=chunk) - International sales represented **55%**, **58%**, and **57%** of net revenue for 2025, 2024, and 2023, respectively, indicating significant global market presence[46](index=46&type=chunk) - As of the end of 2025, Western Digital employed approximately **40,000 people worldwide**, with **88% in Asia Pacific** and **11% in the Americas**[51](index=51&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from global conditions, supply chain disruptions, technology transitions, intense competition, customer concentration, high debt, and legal/compliance issues - Adverse global or regional conditions (e.g., volatility in financial markets, inflation, trade wars, geopolitical tensions) could significantly harm demand, increase costs, and reduce profitability[67](index=67&type=chunk) - Dependence on a limited number of qualified suppliers for critical components and services poses a risk of supply chain disruptions, increased costs, or inability to meet demand[73](index=73&type=chunk)[74](index=74&type=chunk) - The separation of the Flash business unit (Sandisk) introduces risks such as potential business disruption, diversion of management time, impact on talent retention, and increased vulnerability as a smaller, less diversified company[88](index=88&type=chunk)[89](index=89&type=chunk) - Failure to properly manage technology transitions (e.g., to HAMR technology) and product development, or accurately forecast demand, can negatively impact competitiveness and operating results[93](index=93&type=chunk)[94](index=94&type=chunk)[108](index=108&type=chunk) - The company operates in a highly competitive industry subject to variations in average selling prices (ASPs), demand, and technological change, including competition from alternative storage technologies like flash memory[97](index=97&type=chunk)[98](index=98&type=chunk) - Increased revenue concentration in the Cloud end market (**88% of total revenue in 2025**) and among top customers (top 10 accounted for **68% in 2025**) makes the company vulnerable to changes in their demand patterns or loss of key customers[103](index=103&type=chunk) - High debt levels may limit liquidity, restrict operations, and increase vulnerability to adverse economic conditions, with **$1.6 billion in convertible notes** classified as current debt as of June 27, 2025, due to a conversion trigger[116](index=116&type=chunk)[117](index=117&type=chunk) - The company is subject to evolving laws and regulations concerning data privacy, cybersecurity, and intellectual property, with non-compliance potentially leading to penalties, litigation, and reputational harm[129](index=129&type=chunk)[133](index=133&type=chunk)[137](index=137&type=chunk) [Item 1B. Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are applicable to the company - No unresolved staff comments are applicable[147](index=147&type=chunk) [Item 1C. Cybersecurity](index=29&type=section&id=Item%201C.%20Cybersecurity) Western Digital maintains a robust cybersecurity framework with board oversight, and known threats have not materially impacted its business or financial condition - The company's cybersecurity strategy is dynamic and adaptive, influenced by frameworks like NIST-CSF, and includes advanced security protocols, vulnerability management, access controls, third-party risk management, and employee training[149](index=149&type=chunk) - A dedicated 24x7 Security Operations Center handles security incidents, determining severity, initiating notification protocols, and triaging events based on a pre-established incident severity matrix[150](index=150&type=chunk) - The Cyber Incident Response Plan follows NIST guidelines for incident prevention, detection, analysis, escalation, notification, containment, eradication, and recovery[151](index=151&type=chunk) - The Board of Directors, through its Audit Committee, oversees cybersecurity risk management, receiving regular reports from the Chief Information Security Officer[157](index=157&type=chunk) - As of the report date, the company does not believe known risks from cybersecurity threats have materially affected its business strategy, results of operations, or financial condition[154](index=154&type=chunk) [Item 2. Properties](index=31&type=section&id=Item%202.%20Properties) Western Digital's principal offices are in San Jose, California, with major facilities across the US and Asia, deemed adequate for current needs - Principal executive offices are in San Jose, California[159](index=159&type=chunk) Principal Facilities as of June 27, 2025 | Location | Buildings Owned or Leased | Approximate Square Footage (in thousands) | Description | |:---|:---|:---|:---| | **United States** | | | | | California (Fremont) | Leased | 295 | Manufacturing and R&D | | California (Irvine) | Leased | 258 | R&D, administrative, marketing and sales | | California (San Jose) | Owned | 1,957 | Manufacturing, R&D, administrative, marketing and sales | | Colorado (Colorado Springs) | Leased | 54 | R&D | | Minnesota (Rochester) | Leased | 111 | R&D | | **Asia** | | | | | China (Shenzhen) | Owned and Leased | 614 | Manufacturing | | Japan (Fujisawa) | Owned | 638 | R&D | | Malaysia (Johor) | Owned | 277 | Manufacturing | | Malaysia (Kuala Lumpur) | Owned | 145 | R&D and administrative | | Malaysia (Kuching) | Owned | 529 | Manufacturing and R&D | | Malaysia (Penang) | Owned | 1,192 | Manufacturing | | Philippines (Laguna) | Owned | 632 | Manufacturing and administrative | | Thailand (Bang Pa-In) | Owned and Leased | 1,595 | Manufacturing and R&D | | Thailand (Prachinburi) | Owned | 1,568 | Manufacturing | [Item 3. Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 17 of the Consolidated Financial Statements - Legal proceedings information is detailed in Note 17 of the Consolidated Financial Statements[161](index=161&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[162](index=162&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Western Digital's common stock is listed on Nasdaq, with a new dividend program and a $2.0 billion share repurchase authorization, impacting stockholder returns - Common stock is listed on the Nasdaq Global Select Market under the symbol 'WDC'[164](index=164&type=chunk) - A quarterly cash dividend program was authorized on April 29, 2025, with **$0.10 per share** paid in fiscal 2025, totaling **$36 million**[165](index=165&type=chunk) - A **$2.0 billion** share repurchase program was authorized on May 9, 2025; in fiscal 2025, **2.8 million shares** were repurchased for **$149 million**, leaving **$1.85 billion** available[168](index=168&type=chunk)[190](index=190&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended June 27, 2025) | Period | Total Number of Shares Purchased (millions) | Average Price Paid per Share ($) | Total Number of Shares Purchased As Part of Publicly Announced Program (millions) | Maximum Value of Shares that May Yet be Purchased Under the Program ($ millions) | |:---|:---|:---|:---|:---| | Mar. 29, 2025 - Apr. 25, 2025 | — | — | — | 2,000 | | Apr. 26, 2025 - May 23, 2025 | 0.5 | 49.74 | 0.5 | 1,975 | | May 24, 2025 - Jun. 27, 2025 | 2.3 | 54.92 | 2.3 | 1,851 | | **Total for the quarter ended Jun. 27, 2025** | **2.8** | **53.97** | **2.8** | | Total Return Analysis (Assumes $100 investment at market close on July 3, 2020) | | July 3, 2020 | July 2, 2021 | July 1, 2022 | June 30, 2023 | June 28, 2024 | June 27, 2025 | |:---|:---|:---|:---|:---|:---|:---| | Western Digital Corporation | $100.00 | $165.43 | $102.31 | $88.60 | $178.53 | $197.73 | | S&P 500 Index | $100.00 | $141.23 | $125.94 | $149.04 | $185.64 | $212.67 | | Dow Jones U.S. Technology Hardware & Equipment Index | $100.00 | $156.60 | $137.50 | $207.56 | $315.78 | $352.49 | [Item 6. [Reserved]](index=34&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews Western Digital's financial performance, including the Flash business separation, revenue growth, improved profitability, and liquidity, alongside critical accounting policies - Western Digital focuses on HDD technology for cloud and hyperscale data center markets after the Flash business separation[176](index=176&type=chunk) - The company completed the separation of its HDD and Flash business units on February 21, 2025, distributing **80.1% of Sandisk shares** to stockholders and retaining a **19.9% stake**[179](index=179&type=chunk) - In fiscal 2025, the company reduced its principal debt by **$2.78 billion** through actions including redeeming senior unsecured notes and exchanging Term Loan A-3 for Sandisk shares[186](index=186&type=chunk)[187](index=187&type=chunk) - A quarterly cash dividend program was adopted in April 2025, and a **$2.0 billion** share repurchase program was authorized in May 2025[188](index=188&type=chunk)[190](index=190&type=chunk) - The One Big Beautiful Bill Act of 2025 (OBBBA) allows for immediate expensing of domestic R&D expenditures starting fiscal year 2026, which is expected to lower future cash tax payments[214](index=214&type=chunk)[257](index=257&type=chunk) Summary Comparison of Consolidated Statements of Operations (in millions, except percentages) | | 2025 | % of Net Revenue | 2024 | % of Net Revenue | 2023 | % of Net Revenue | |:---|:---|:---|:---|:---|:---|:---| | Revenue, net | $9,520 | 100.0% | $6,317 | 100.0% | $6,255 | 100.0% | | Cost of revenue | 5,828 | 61.2% | 4,544 | 71.9% | 4,864 | 77.8% | | Gross profit | 3,692 | 38.8% | 1,773 | 28.1% | 1,391 | 22.2% | | Total operating expenses | 1,358 | 14.3% | 2,176 | 34.4% | 1,939 | 31.0% | | Operating income (loss) | 2,334 | 24.5% | (403) | (6.4)% | (548) | (8.8)% | | Total interest and other income, net | (1,204) | (12.6)% | (336) | (5.3)% | (301) | (4.8)% | | Income (loss) before taxes | 1,130 | 11.9% | (739) | (11.7)% | (849) | (13.6)% | | Income tax expense (benefit) | (513) | (5.4)% | 26 | 0.4% | 53 | 0.8% | | Net income (loss) from continuing operations | $1,643 | 17.3% | $(765) | (12.1)% | $(902) | (14.4)% | Disaggregated Revenue by End Market (in millions) | Revenue by end market | 2025 | 2024 | 2023 | |:---|:---|:---|:---| | Cloud | $8,341 | $5,052 | $4,753 | | Client | $556 | $577 | $691 | | Consumer | $623 | $688 | $811 | | **Total revenue** | **$9,520** | **$6,317** | **$6,255** | Cash Flows Summary (in millions) | Net cash provided by (used in): | 2025 | 2024 | 2023 | |:---|:---|:---|:---| | Operating activities | $1,691 | $(294) | $(408) | | Investing activities | $150 | $(27) | $(762) | | Financing activities | $(1,612) | $187 | $875 | | Effect of exchange rate changes on cash | $6 | $(10) | $(9) | | Net increase (decrease) in cash and cash equivalents | $235 | $(144) | $(304) | [Our Company](index=35&type=section&id=Our%20Company) Western Digital is a leading HDD technology provider, primarily serving cloud and hyperscale data center markets, with its fiscal year 2026 comprising 53 weeks - Western Digital is a leading developer, manufacturer, and provider of HDD data storage devices and solutions, leveraging its capabilities for cloud and hyperscale data center markets[176](index=176&type=chunk) - The company's broad portfolio serves Cloud (public/private cloud, enterprise), Client (OEM/channel for desktops/notebooks), and Consumer (retail/end-user products) end markets[177](index=177&type=chunk) - Fiscal years 2025, 2024, and 2023 each comprised 52 weeks; fiscal year 2026 will be 53 weeks[178](index=178&type=chunk) [Key Developments](index=35&type=section&id=Key%20Developments) Key developments include the Flash business separation, significant debt reduction, initiation of a dividend and share repurchase program, and finalization of prior-year tax resolutions - The separation of HDD and Flash business units was completed on February 21, 2025, with Western Digital focusing on HDD and Sandisk Corporation holding the Flash business[179](index=179&type=chunk) - Western Digital retained **28.8 million shares (19.9%)** of Sandisk common stock, disposing of **21.3 million shares** in June 2025 via a tax-free debt-for-equity exchange[179](index=179&type=chunk) - The company reduced its principal debt by **$2.78 billion** in fiscal 2025 through various actions, including redeeming **$1.80 billion of 4.75% senior unsecured notes** and settling **$800 million of Term Loan A-3**[186](index=186&type=chunk)[187](index=187&type=chunk) - A quarterly cash dividend program was adopted on April 29, 2025, and a **$2.0 billion** share repurchase program was authorized on May 9, 2025, with **$149 million** in repurchases during fiscal 2025[188](index=188&type=chunk)[190](index=190&type=chunk) - Final agreements were reached with the IRS for tax years 2008-2015, with **$162 million** paid in fiscal 2025, resulting in no remaining liability for those years[192](index=192&type=chunk)[223](index=223&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Western Digital's net revenue increased by 51% in 2025 to $9,520 million, driven by higher capacity HDD sales, leading to a significant improvement in gross profit and a net income of $1,643 million from continuing operations Summary Comparison of Consolidated Statements of Operations (in millions, except percentages) | | 2025 | % of Net Revenue | 2024 | % of Net Revenue | 2023 | % of Net Revenue | |:---|:---|:---|:---|:---|:---|:---| | Revenue, net | $9,520 | 100.0% | $6,317 | 100.0% | $6,255 | 100.0% | | Cost of revenue | 5,828 | 61.2% | 4,544 | 71.9% | 4,864 | 77.8% | | Gross profit | 3,692 | 38.8% | 1,773 | 28.1% | 1,391 | 22.2% | | Total operating expenses | 1,358 | 14.3% | 2,176 | 34.4% | 1,939 | 31.0% | | Operating income (loss) | 2,334 | 24.5% | (403) | (6.4)% | (548) | (8.8)% | | Total interest and other income, net | (1,204) | (12.6)% | (336) | (5.3)% | (301) | (4.8)% | | Income (loss) before taxes | 1,130 | 11.9% | (739) | (11.7)% | (849) | (13.6)% | | Income tax expense (benefit) | (513) | (5.4)% | 26 | 0.4% | 53 | 0.8% | | Net income (loss) from continuing operations | $1,643 | 17.3% | $(765) | (12.1)% | $(902) | (14.4)% | Disaggregated Revenue by End Market (in millions) | Revenue by end market | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Cloud | $8,341 | $5,052 | $4,753 | | Client | $556 | $577 | $691 | | Consumer | $623 | $688 | $811 | | **Total revenue** | **$9,520** | **$6,317** | **$6,255** | - Net revenue increased by **51% in 2025** compared to 2024, driven by a **29% increase in average selling price per unit** and a **15% increase in units sold**, primarily from high-capacity enterprise products for data centers[195](index=195&type=chunk) - Cloud revenue increased by **65% in 2025**, driven by a **36% increase in units sold** and a **20% increase in average selling price per unit** due to a shift to higher capacity drives[196](index=196&type=chunk) - Gross profit increased by **$1.92 billion in 2025**, and gross margin increased by **10.7 percentage points**, attributed to higher revenues, cost reductions, improved manufacturing efficiencies, and a more favorable product mix[205](index=205&type=chunk) - Total operating expenses decreased by **$818 million in 2025**, primarily due to a **$198 million litigation matter credit** and a **$158 million decrease in SG&A expenses**[194](index=194&type=chunk)[209](index=209&type=chunk) - Total interest and other expense, net, increased by **$868 million in 2025**, mainly due to a **$772 million mark-to-market loss** on the retained interest in Sandisk and a **$100 million loss on debt extinguishment**[212](index=212&type=chunk) Income Tax Information (in millions, except percentages) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Income (loss) before taxes | $1,130 | $(739) | $(849) | | Income tax expense (benefit) | $(513) | $26 | $53 | | Effective tax rate | (45)% | (4)% | (6)% | [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) Western Digital's liquidity significantly improved in 2025, with net cash provided by operating activities reaching $1,691 million, driven by improved cash conversion and strategic capital allocation actions Cash Flows Summary (in millions) | Net cash provided by (used in): | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Operating activities | $1,691 | $(294) | $(408) | | Investing activities | $150 | $(27) | $(762) | | Financing activities | $(1,612) | $187 | $875 | | Effect of exchange rate changes on cash | $6 | $(10) | $(9) | | Net increase (decrease) in cash and cash equivalents | $235 | $(144) | $(304) | - Net cash provided by operating activities was **$1,691 million in 2025**, a significant improvement from net cash used in 2024 and 2023[223](index=223&type=chunk) Cash Conversion Cycle (in days) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Days sales outstanding | 52 | 56 | 56 | | Days in inventory | 76 | 97 | 107 | | Days payables outstanding | (75) | (73) | (66) | | **Cash conversion cycle** | **53** | **80** | **97** | - Net cash provided by investing activities in 2025 was **$150 million**, primarily from **$401 million in net proceeds** from a subsidiary sale and **$148 million from Flash Ventures**, partially offset by **$412 million in capital expenditures**[232](index=232&type=chunk) - Net cash used in financing activities in 2025 was **$1,612 million**, mainly for **$2.09 billion in debt repayments**, **$1.37 billion cash transferred to Sandisk**, and **$149 million in share repurchases**, partially offset by **$2.15 billion from debt issuance**[233](index=233&type=chunk) - Capital expenditures for fiscal year 2026 are expected to be between **4% to 6% of net revenue**[226](index=226&type=chunk) Material Cash Requirements as of June 27, 2025 (in millions) | | Total | 1 Year (2026) | 2-3 Years (2027-2028) | 4-5 Years (2029-2030) | More than 5 Years (Beyond 2030) | |:---|:---|:---|:---|:---|:---|\ | Long-term debt, including current portion | $4,749 | $2,226 | $1,523 | $500 | $500 | | Interest on debt | 507 | 203 | 204 | 69 | 31 | | Operating leases | 165 | 36 | 53 | 30 | 46 | | Purchase obligations and other commitments | 76 | 50 | 26 | — | — | | Mandatory deemed repatriation tax | 331 | 331 | — | — | — | | **Total** | **$5,828** | **$2,846** | **$1,806** | **$599** | **$577** | - The liability for unrecognized tax benefits (excluding interest and penalties) was **$569 million** as of June 27, 2025, with **$332 million** expected to be paid within the next twelve months, offset by **$148 million in tax receivables**[238](index=238&type=chunk)[512](index=512&type=chunk)[513](index=513&type=chunk) [Recent Accounting Pronouncements](index=49&type=section&id=Recent%20Accounting%20Pronouncements) The company adopted ASU 2022-04 and ASU 2023-07, enhancing disclosures, and anticipates future changes from ASU 2024-03 and ASU 2023-09 for more detailed expense and income tax reporting - Adopted ASU 2022-04 (Supplier Finance Programs) in fiscal 2024, requiring disclosures on outstanding obligations[357](index=357&type=chunk) - Adopted ASU 2023-07 (Segment Reporting) in fiscal 2025, expanding disclosures on significant segment expenses[358](index=358&type=chunk) - ASU 2024-03 (Expense Disaggregation) is effective for fiscal years beginning after December 15, 2026, requiring more detailed expense disclosures[359](index=359&type=chunk) - ASU 2023-09 (Income Tax Disclosures) is effective for the year ending July 3, 2026, enhancing income tax disclosure requirements[360](index=360&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on significant judgments and estimates for revenue recognition, inventory valuation, income taxes, and litigation, which are subject to change and could materially impact financial results - Revenue recognition involves significant judgment in estimating variable consideration (price protection, sales incentives) using the expected value method, constrained until a significant revenue reversal is not probable[264](index=264&type=chunk)[265](index=265&type=chunk) - Inventories are valued at the lower of cost or net realizable value, requiring significant judgment in estimating average selling prices, selling expenses, and assessing potential excess or obsolescence based on market conditions and demand[266](index=266&type=chunk)[267](index=267&type=chunk) - Income taxes are accounted for using the asset and liability method, with a valuation allowance recorded for deferred tax assets when realization is not more likely than not, and liabilities for uncertain tax positions recognized based on a two-step process[268](index=268&type=chunk)[269](index=269&type=chunk) - Litigation and contingencies require significant judgment to assess the likelihood and amount of potential loss, with accruals made for probable and estimable losses, and disclosures for reasonably possible losses[271](index=271&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages foreign currency risk with short-term hedges and interest rate risk on its variable-rate Term Loan A-3, with potential impacts from market movements - The company uses short-term foreign exchange contracts (maturity 12 months or less) to hedge foreign currency fluctuations on operating expenses and product costs, primarily in non-U.S. dollar denominated transactions[272](index=272&type=chunk) - A hypothetical **10% adverse movement** in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of **$75 million** as of June 27, 2025[273](index=273&type=chunk) - As of June 27, 2025, the outstanding balance on the variable rate Term Loan A-3 was **$1.65 billion**, and a **1% increase** in the variable interest rate would increase annual interest expense by **$16 million**[275](index=275&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section provides audited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, along with the independent auditor's report - The consolidated financial statements include the balance sheets, statements of operations, comprehensive income (loss), cash flows, and convertible preferred stock and shareholders' equity for the three years ended June 27, 2025[279](index=279&type=chunk) - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 27, 2025[279](index=279&type=chunk)[280](index=280&type=chunk) - Critical audit matters included the evaluation of sufficiency of audit evidence over certain variable consideration reductions to revenue and the tax-free determination of the Flash business separation and debt-for-equity exchange[286](index=286&type=chunk)[287](index=287&type=chunk)[290](index=290&type=chunk) Consolidated Balance Sheets (in millions) | ASSETS | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Cash and cash equivalents | $2,114 | $1,551 | | Accounts receivable, net | 1,486 | 1,231 | | Inventories | 1,291 | 1,387 | | Retained interest in Sandisk | 354 | — | | Other current assets | 611 | 360 | | Current assets of discontinued operations | — | 3,531 | | **Total current assets** | **5,856** | **8,060** | | Property, plant and equipment, net | 2,343 | 2,359 | | Goodwill | 4,319 | 4,319 | | Other non-current assets | 1,484 | 837 | | Non-current assets of discontinued operations | — | 8,613 | | **Total assets** | **$14,002** | **$24,188** | | **LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY** | | | | Accounts payable | $1,266 | $1,054 | | Accrued expenses | 719 | 1,053 | | Income taxes payable | 800 | 471 | | Accrued compensation | 407 | 435 | | Current portion of long-term debt | 2,226 | 1,750 | | Current liabilities of discontinued operations | — | 1,324 | | **Total current liabilities** | **5,418** | **6,087** | | Long-term debt | 2,485 | 5,684 | | Other liabilities | 559 | 1,002 | | Non-current liabilities of discontinued operations | — | 368 | | **Total liabilities** | **8,462** | **13,141** | | Convertible preferred stock | 229 | 229 | | Common stock | 3 | 3 | | Additional paid-in capital | 4,621 | 4,752 | | Accumulated other comprehensive income (loss) | 20 | (712) | | Retained earnings | 762 | 6,775 | | Treasury stock | (95) | — | | **Total shareholders' equity** | **5,311** | **10,818** | | **Total liabilities, convertible preferred stock and shareholders' equity** | **$14,002** | **$24,188** | Consolidated Statements of Operations (in millions, except per share amounts) | | Year Ended June 27, 2025 | Year Ended June 28, 2024 | Year Ended June 30, 2023 | |:---|:---|:---|:---|\ | Revenue, net | $9,520 | $6,317 | $6,255 | | Cost of revenue | 5,828 | 4,544 | 4,864 | | Gross profit | 3,692 | 1,773 | 1,391 | | Operating expenses: | | | | | Research and development | 994 | 950 | 986 | | Selling, general and administrative | 568 | 726 | 807 | | Litigation matter | (198) | 291 | — | | Business realignment charges | (6) | 209 | 146 | | Total operating expenses | 1,358 | 2,176 | 1,939 | | Operating income (loss) | 2,334 | (403) | (548) | | Interest and other income (expense): | | | | | Interest income | 45 | 33 | 19 | | Interest expense | (357) | (414) | (310) | | Loss on retained interest in Sandisk | (772) | — | — | | Loss on extinguishment of debt | (100) | — | — | | Other income (expense), net | (20) | 45 | (10) | | Total interest and other expense, net | (1,204) | (336) | (301) | | Income (loss) before taxes | 1,130 | (739) | (849) | | Income tax expense (benefit) | (513) | 26 | 53 | | Net income (loss) from continuing operations | 1,643 | (765) | (902) | | Net income (loss) from discontinued operations, net of taxes | 246 | (33) | (782) | | **Net income (loss)** | **$1,889** | **$(798)** | **$(1,684)** | | **Net income (loss) per common share:** | | | | | Basic: | | | | | Continuing operations | $4.61 | $(2.51) | $(2.91) | | Discontinued operations | 0.70 | (0.10) | (2.46) | | Net income (loss) per share | 5.31 | (2.61) | (5.37) | | Diluted: | | | | | Continuing operations | 4.45 | (2.51) | (2.91) | | Discontinued operations | 0.67 | (0.10) | (2.46) | | Net income (loss) per share | 5.12 | (2.61) | (5.37) | Consolidated Statements of Cash Flows (in millions) | | Year Ended June 27, 2025 | Year Ended June 28, 2024 | Year Ended June 30, 2023 | |:---|:---|:---|:---|\ | **Cash flows from operating activities** | | | | | Net income (loss) | $1,889 | $(798) | $(1,684) | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operations | | | | | Depreciation and amortization | 451 | 568 | 828 | | Stock-based compensation | 265 | 295 | 318 | | Deferred income taxes | (745) | (161) | (48) | | Loss on retained interest in Sandisk | 772 | — | — | | Loss on extinguishment of debt | 100 | — | — | | Changes in operating assets and liabilities, net | (1,030) | (307) | 26 | | **Net cash provided by (used in) operating activities** | **1,691** | **(294)** | **(408)** | | **Cash flows from investing activities** | | | | | Purchases of property, plant and equipment | (412) | (487) | (821) | | Proceeds from business divestiture | 401 | — | — | | Notes receivable issuances to Flash Ventures | (266) | (243) | (627) | | Notes receivable proceeds from Flash Ventures | 239 | 482 | 641 | | **Net cash provided by (used in) investing activities** | **150** | **(27)** | **(762)** | | **Cash flows from financing activities** | | | | | Repayment of debt | (2,094) | (2,104) | (1,180) | | Proceeds from debt issuance | 2,150 | 3,000 | 1,180 | | Cash transferred to Sandisk related to Separation | (1,366) | — | — | | Repurchases of common stock | (149) | — | — | | Dividends paid to shareholders | (44) | — | — | | **Net cash provided by (used in) financing activities** | **(1,612)** | **187** | **875** | | Effect of exchange rate changes on cash | 6 | (10) | (9) | | **Net increase (decrease) in cash and cash equivalents** | **235** | **(144)** | **(304)** | | Cash and cash equivalents, end of year | $2,114 | $1,879 | $2,023 | [Note 1. Organization and Basis of Presentation](index=63&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) Western Digital, a leading HDD technology provider, operates as a single reportable segment post-Flash separation, with financial statements prepared under U.S. GAAP, relying on estimates for key accounting policies - Western Digital is a leading developer, manufacturer, and provider of HDD data storage devices and solutions, serving Cloud, Client, and Consumer end markets[308](index=308&type=chunk)[309](index=309&type=chunk) - Following the Flash business separation, the company's continuing operations consist of a single reportable segment: HDD[313](index=313&type=chunk) - Financial statements are prepared under U.S. GAAP, with estimates and assumptions that could be materially affected by changes in U.S. trade policies and tariffs[310](index=310&type=chunk)[315](index=315&type=chunk) - Key accounting policies include valuing inventories at the lower of cost or net realizable value, recognizing revenue when control is transferred and adjusting for variable consideration, and accounting for income taxes under the asset and liability method with valuation allowances[320](index=320&type=chunk)[321](index=321&type=chunk)[327](index=327&type=chunk)[333](index=333&type=chunk)[343](index=343&type=chunk) - Goodwill and In-process Research and Development (IPR&D) are tested annually for impairment, with no impairment recorded in 2025, 2024, or 2023[323](index=323&type=chunk)[325](index=325&type=chunk) - The company uses foreign exchange contracts to hedge foreign currency risk, with changes in fair value for designated cash flow hedges deferred in Other comprehensive income (loss)[349](index=349&type=chunk)[350](index=350&type=chunk) [Note 2. Recent Accounting Pronouncements](index=71&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) Western Digital adopted ASU 2022-04 and ASU 2023-07, enhancing disclosures, and anticipates future changes from ASU 2024-03 and ASU 2023-09 for more detailed expense and income tax reporting - Adopted ASU 2022-04, 'Liabilities-Supplier Finance Programs,' in fiscal 2024, requiring annual and interim disclosures for supplier finance program obligations[357](index=357&type=chunk) - Adopted ASU 2023-07, 'Segment Reporting,' in fiscal 2025, expanding disclosures on significant segment expenses and other segment items[358](index=358&type=chunk) - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' is effective for fiscal years beginning after December 15, 2026, requiring more detailed expense disaggregation[359](index=359&type=chunk) - ASU 2023-09, 'Income Taxes,' is effective for the year ending July 3, 2026, calling for enhanced income tax disclosure requirements[360](index=360&type=chunk) [Note 3. Discontinued Operations](index=72&type=section&id=Note%203.%20Discontinued%20Operations) Western Digital completed the separation of its Flash business unit, Sandisk Corporation, into an independent public company on February 21, 2025, retaining a 19.9% interest and reporting historical results as discontinued operations - The separation of the Flash business unit (Sandisk Corporation) was completed on February 21, 2025, making Sandisk an independent public company[363](index=363&type=chunk) - Western Digital retained a **19.9% ownership interest (28.8 million shares)** in Sandisk, which is measured at fair value; **21.3 million shares** were exchanged for **$800 million of Term Loan A-3**[363](index=363&type=chunk) - The historical net income and applicable assets/liabilities of Sandisk are reported as discontinued operations for periods prior to the separation[363](index=363&type=chunk) Assets and Liabilities of Discontinued Operations (June 28, 2024, in millions) | Assets | Amount | |:---|:---|\ | Cash and cash equivalents | $328 | | Accounts receivable, net | 935 | | Inventories | 1,955 | | Other current assets | 313 | | **Current assets of discontinued operations** | **$3,531** | | Property, plant and equipment, net | $808 | | Notes receivable and investments in Flash Ventures | 991 | | Goodwill | 5,713 | | Other non-current assets | 1,101 | | **Non-current assets of discontinued operations** | **$8,613** | | **Liabilities** | | | Accounts payable | $357 | | Accounts payable to related parties | 313 | | Accrued expenses | 427 | | Income taxes payable | 54 | | Accrued compensation | 173 | | **Current liabilities of discontinued operations** | **$1,324** | | **Non-current liabilities of discontinued operations** | **$368** | Net Income (Loss) from Discontinued Operations, Net of Taxes (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Revenue, net | $4,361 | $6,686 | $6,063 | | Cost of revenue | 2,892 | 5,514 | 5,567 | | Operating income (loss) | 488 | 86 | (737) | | Income (loss) before taxes | 452 | 78 | (701) | | Income tax expense | 206 | 111 | 81 | | **Net income (loss) from discontinued operations, net of taxes** | **$246** | **$(33)** | **$(782)** | - Prior to separation, the company sold **80% of its equity interest** in SanDisk Semiconductor (Shanghai) Co. Ltd. (SDSS), resulting in a gain on divestiture of **$113 million** and net proceeds of **$401 million**[370](index=370&type=chunk) [Note 4. Segment Reporting, Disaggregated Revenue, Geographic Information, and Concentrations of Risk](index=75&type=section&id=Note%204.%20Segment%20Reporting%2C%20Disaggregated%20Revenue%2C%20Geographic%20Information%2C%20and%20Concentrations%20of%20Risk) Western Digital operates as a single HDD segment, with revenue disaggregated by end market and geography, facing significant customer and supplier concentration risks - The company operates as a single reportable segment: HDD, following the Flash business separation[374](index=374&type=chunk) Disaggregated Revenue by End Market (in millions) | Revenue by end market | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Cloud | $8,341 | $5,052 | $4,753 | | Client | $556 | $577 | $691 | | Consumer | $623 | $688 | $811 | | **Total revenue** | **$9,520** | **$6,317** | **$6,255** | Net Revenue by Geographic Region (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | United States | $4,328 | $2,636 | $2,694 | | China | 1,549 | 488 | 471 | | Hong Kong | 1,051 | 1,331 | 1,139 | | Rest of Asia | 792 | 573 | 546 | | Europe, Middle East and Africa | 1,536 | 1,067 | 1,175 | | Other | 264 | 222 | 230 | | **Total** | **$9,520** | **$6,317** | **$6,255** | - For 2025, three customers accounted for **17%**, **12%**, and **10% of net revenue**, respectively; the top 10 customers accounted for **68% of net revenue**[379](index=379&type=chunk) - As of June 27, 2025, three customers accounted for **20%**, **19%**, and **12% of net accounts receivable**[380](index=380&type=chunk) - The company relies on single-source vendors for some key components and third-party subcontractors for assembly and testing, posing supplier concentration risks[383](index=383&type=chunk) [Note 5. Supplemental Financial Statement Data](index=78&type=section&id=Note%205.%20Supplemental%20Financial%20Statement%20Data) This note provides supplemental details on accounts receivable, inventories, property, plant and equipment, product warranty liability, goodwill, and accumulated other comprehensive income (loss), highlighting changes in these key financial items - No trade accounts receivable were sold in 2025, compared to **$284 million in 2024** and **$406 million in 2023**[386](index=386&type=chunk) Inventories (in millions) | Inventories | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Raw materials and component parts | $227 | $329 | | Work-in-process | 785 | 829 | | Finished goods | 279 | 229 | | **Total inventories** | **$1,291** | **$1,387** | - Depreciation expense for property, plant and equipment totaled **$334 million in 2025**, **$347 million in 2024**, and **$389 million in 2023**[388](index=388&type=chunk) - Goodwill carrying amount was **$4.32 billion** as of June 27, 2025, with no impairment charges in 2025, 2024, or 2023[393](index=393&type=chunk) Product Warranty Accrual (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Warranty accrual, beginning of period | $142 | $202 | $293 | | Charges to operations | 99 | 79 | 76 | | Utilization | (83) | (119) | (143) | | Changes in estimate related to pre-existing warranties | (6) | (20) | (24) | | **Warranty accrual, end of period** | **$152** | **$142** | **$202** | Accumulated Other Comprehensive Income (Loss) (in millions) | | Actuarial Pension Gains (Losses) | Foreign Currency Translation Adjustment | Unrealized Gains (Losses) on Derivative Contracts | Total Accumulated Comprehensive Income (Loss) | |:---|:---|:---|:---|:---|\ | Balance at June 30, 2023 | $(2) | $(389) | $(157) | $(548) | | Net current-period other comprehensive income (loss) | 16 | (116) | (64) | (164) | | Balance at June 28, 2024 | 14 | (505) | (221) | (712) | | Net current-period other comprehensive income | 2 | 45 | 139 | 186 | | Distribution in connection with the Separation | — | 458 | 88 | 546 | | **Balance at June 27, 2025** | **$16** | **$(2)** | **$6** | **$20** | [Note 6. Fair Value Measurements and Investments](index=81&type=section&id=Note%206.%20Fair%20Value%20Measurements%20and%20Investments) The company classifies financial assets and liabilities at fair value into Level 1, 2, and 3, with total assets at fair value of $649 million and liabilities of $4 million as of June 27, 2025 Financial Instruments Carried at Fair Value (June 27, 2025, in millions) | | Level 1 | Level 2 | Level 3 | Total | |:---|:---|:---|:---|:---|\ | **Assets:** | | | | | | Retained interest in Sandisk | $354 | — | — | $354 | | Cash equivalents – Money market funds | 285 | — | — | 285 | | Foreign exchange contracts | — | 10 | — | 10 | | **Total assets at fair value** | **$639** | **$10** | **$—** | **$649** | | **Liabilities:** | | | | | | Foreign exchange contracts | $— | $4 | $— | $4 | | **Total liabilities at fair value** | **$—** | **$4** | **$—** | **$4** | Financial Instruments Not Carried at Fair Value (in millions) | | June 27, 2025 Carrying Value | June 27, 2025 Fair Value | June 28, 2024 Carrying Value | June 28, 2024 Fair Value | |:---|:---|:---|:---|:---|\ | 4.75% senior unsecured notes due 2026 | $500 | $499 | $2,296 | $2,253 | | Variable interest rate Term Loan A-2 maturing 2027 | — | — | 2,578 | 2,539 | | Variable interest rate Term Loan A-3 maturing 2027 | 1,642 | 1,655 | — | — | | 3.00% convertible notes due 2028 | 1,575 | 2,849 | 1,568 | 2,556 | | 2.85% senior notes due 2029 | 498 | 463 | 496 | 434 | | 3.10% senior notes due 2032 | 496 | 442 | 496 | 407 | | **Total** | **$4,711** | **$5,908** | **$7,434** | **$8,189** | - The retained interest in Sandisk (**7.5 million shares** as of June 27, 2025) is valued based on quoted market prices (Level 1)[401](index=401&type=chunk) - Foreign exchange contracts are valued using an income approach based on a present value of future cash flows model, with market-based observable inputs (Level 2)[403](index=403&type=chunk) [Note 7. Derivative Instruments and Hedging Activities](index=83&type=section&id=Note%207.%20Derivative%20Instruments%20and%20Hedging%20Activities) Western Digital uses short-term foreign exchange forward contracts as cash flow or non-designated hedges to manage foreign currency risk, with immaterial net gains and losses for the periods presented - The company uses foreign exchange forward contracts (maturity 12 months or less) to hedge foreign currency risk, designated as cash flow hedges or non-designated hedges[408](index=408&type=chunk) - Unrealized gains or losses on designated cash flow hedges are recognized in Accumulated other comprehensive income (loss) and subsequently reclassified to earnings[410](index=410&type=chunk) - Total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material for 2025, 2024, and 2023[409](index=409&type=chunk) [Note 8. Debt](index=84&type=section&id=Note%208.%20Debt) Western Digital's total debt decreased to $4,749 million in 2025 due to repayments and a debt-for-equity exchange, with $1.60 billion in convertible notes classified as current liabilities due to a conversion trigger Debt Composition (in millions) | Debt | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | 4.75% senior unsecured notes due 2026 | $500 | $2,300 | | Variable interest rate Term Loan A-2 maturing 2027 | — | 2,588 | | Variable interest rate Term Loan A-3 maturing 2027 | 1,649 | — | | 3.00% convertible notes due 2028 | 1,600 | 1,600 | | 2.85% senior notes due 2029 | 500 | 500 | | 3.10% senior notes due 2032 | 500 | 500 | | **Total debt** | **$4,749** | **$7,488** | | Issuance costs | (38) | (54) | | Subtotal | 4,711 | 7,434 | | Less: current portion of long-term debt | (2,226) | (1,750) | | **Long-term debt** | **$2,485** | **$5,684** | - The company settled **$800 million of Term Loan A-3 principal** through a non-cash exchange of **21.3 million Sandisk common shares** and a **$4 million cash payment**, resulting in a **$100 million loss on extinguishment of debt**[415](index=415&type=chunk) - The **3.00% convertible notes due 2028 ($1.60 billion principal)** were classified as current liabilities as of June 27, 2025, because the sale price conditional conversion feature was triggered[427](index=427&type=chunk) - The company maintains a **$1.25 billion 2027 Revolving Credit Facility** and was in compliance with all financial covenants as of June 27, 2025[419](index=419&type=chunk)[421](index=421&type=chunk) Maturity of Debt as of June 27, 2025 (in millions) | Fiscal year | Contractual Maturity | |:---|:---|\ | 2026 | $2,226 | | 2027 | 1,523 | | 2028 | — | | 2029 | 500 | | 2030 | — | | 2031 and thereafter | 500 | | **Total debt maturities** | **$4,749** | | Issuance costs | (38) | | **Net carrying value** | **$4,711** | [Note 9. Pension and Other Post-Retirement Benefit Plans](index=88&type=section&id=Note%209.%20Pension%20and%20Other%20Post-Retirement%20Benefit%20Plans) Western Digital maintains unfunded pension plans primarily in Japan, Thailand, and the Philippines, with a projected benefit obligation of $272 million and plan assets of $204 million as of June 27, 2025 - The company's principal pension plans are in Japan, Thailand, and the Philippines[438](index=438&type=chunk) Pension Plans Obligations and Funded Status (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Projected benefit obligation at end of period | $272 | $244 | $273 | | Fair value of plan assets at end of period | 204 | 184 | 185 | | **Unfunded status** | **$68** | **$60** | **$88** | - The expected long-term rate of return on the Pension Plans' assets is **2.5%**[438](index=438&type=chunk)[442](index=442&type=chunk) - The target asset allocation for pension plans is **55% in debt securities**, **30% in equity securities**, and **15% in other assets**, with risk managed through diversification and periodic review[445](index=445&type=chunk) Pension Plans Assets Measured at Fair Value (June 27, 2025, in millions) | | Level 1 | Level 2 | Level 3 | Total | |:---|:---|:---|:---|:---|\ | **Plan assets measured at fair value:** | | | | | | Equity commingled/mutual funds | $— | $66 | $— | $66 | | Fixed income commingled/mutual funds | — | 110 | — | 110 | | Net plan assets subject to leveling | — | 176 | — | 176 | | Real estate investment trust at net asset value | — | — | — | 28 | | **Total investments at fair value** | **$—** | **$176** | **$—** | **$204** | [Note 10. Leases and Other Commitments](index=92&type=section&id=Note%2010.%20Leases%20and%20Other%20Commitments) Western Digital leases facilities and data center space under long-term operating leases, with right-of-use assets of $123 million and total liabilities of $141 million as of June 27, 2025, alongside minimum long-term purchase commitments - The company leases facilities and data center space under long-term operating leases expiring through 2034[454](index=454&type=chunk) Operating Lease Assets and Liabilities (in millions) | | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Operating lease right-of-use assets | $123 | $143 | | Current portion of long-term operating lease liabilities | 31 | 28 | | Long-term operating lease liabilities | 110 | 133 | | **Total operating lease liabilities** | **$141** | **$161** | - Lease expense was **$33 million in 2025**, **$41 million in 2024**, and **$49 million in 2023**[455](index=455&type=chunk) - The weighted average remaining lease term is **6.1 years**, and the weighted average discount rate is **5.0%** as of June 27, 2025[455](index=455&type=chunk) Minimum Long-term Commitments (in millions) | | Long-term Commitments | |:---|:---|\ | 2026 | $50 | | 2027 | 26 | | **Total** | **$76** | [Note 11. Western Digital Corporation 401(k) Plan](index=94&type=section&id=Note%2011.%20Western%20Digital%20Corporation%20401%28k%29%20Plan) Western Digital maintains a 401(k) Plan for U.S. employees, resuming matching contributions on January 1, 2024, with total contributions of $22 million in 2025 - The Western Digital Corporation 401(k) Plan covers substantially all U.S. employees, with employer matching contributions vesting immediately upon hire[459](index=459&type=chunk) - The company suspended matching contributions from February 18, 2023, and resumed them on January 1, 2024[461](index=461&type=chunk) 401(k) Plan Contributions (in millions) | Year | Contributions | |:---|:---|\ | 2025 | $22 | | 2024 | $8 | | 2023 | $13 | [Note 12. Shareholders' Equity and Convertible Preferred Stock](index=95&type=section&id=Note%2012.%20Shareholders'%20Equity%20and%20Convertible%20Preferred%20Stock) Western Digital's equity structure includes common stock, convertible preferred stock, and stock-based compensation plans, with adjustments made post-Flash separation, alongside a new share repurchase program and quarterly cash dividend - The 2021 Long-Term Incentive Plan authorizes various equity awards, including stock options, RSUs, and PSUs, with vesting periods typically ranging from two to four years[465](index=465&type=chunk) - Outstanding RSU and PSU awards have dividend equivalent rights, accumulated and paid in additional shares upon vesting[466](index=466&type=chunk) - The ESPP allows eligible employees to purchase common stock at **95% of fair market value**, with **2.0 million shares** issued in 2025 for **$77 million**[468](index=468&type=chunk)[469](index=469&type=chunk) - Following the Flash business separation, outstanding stock-based compensation awards were adjusted to preserve intrinsic value, resulting in an incremental value of approximately **$40 million** to be recognized over remaining service periods[470](index=470&type=chunk) Stock-based Compensation Expense (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | RSUs and PSUs | $151 | $182 | $201 | | ESPP | 16 | 20 | 11 | | **Total** | **$167** | **$202** | **$212** | - As of June 27, 2025, **235,000 Series A Preferred Shares** were outstanding, with an initial stated value of **$1,000 per share**, accruing a cumulative preferred dividend at **6.25% per annum**[480](index=480&type=chunk)[481](index=481&type=chunk) - The Preferred Shares are convertible into common stock at an adjusted conversion rate of approximately **$35.51 per share**[482](index=482&type=chunk) - A share repurchase program for up to **$2.0 billion** was authorized on May 9, 2025, with **$149 million** in repurchases during fiscal 2025[489](index=489&type=chunk) - A quarterly cash dividend program was adopted on April 29, 2025, with **$0.10 per share** paid in fiscal 2025, totaling **$36 million**[491](index=491&type=chunk) [Note 13. Income Taxes](index=101&type=section&id=Note%2013.%20Income%20Taxes) Western Digital reported a net income tax benefit of $513 million in 2025, driven by foreign income and tax rate differentials, with deferred tax assets increasing and significant unrecognized tax benefits Income (Loss) Before Taxes (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Foreign | $2,602 | $(492) | $(696) | | Domestic | (1,472) | (247) | (153) | | **Income (loss) before taxes** | **$1,130** | **$(739)** | **$(849)** | Income Tax Expense (Benefit) (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Current | $302 | $117 | $47 | | Deferred | (815) | (91) | 6 | | **Income tax expense (benefit)** | **$(513)** | **$26** | **$53** | Effective Tax Rate Reconciliation | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | U.S. Federal statutory rate | 21% | 21% | 21% | | Tax rate differential on international income | (36) | (22) | (22) | | Tax effect of non-deductible loss on retained interest in Sandisk | 16 | — | — | | Inter-entity asset transfer | (61) | — | — | | **Effective tax rate** | **(45)%** | **(4)%** | **(6)%** | - The OBBBA, signed July 4, 2025, allows immediate expensing of domestic R&D expenditures starting fiscal year 2026, but its tax effects are not included in 2025 results[498](index=498&type=chunk) - The company was not subject to Corporate Alternative Minimum Tax (CAMT) in fiscal 2024 and does not expect to be in fiscal 2025[499](index=499&type=chunk) - Tax holidays and incentive programs in the Philippines and Thailand increased net earnings by **$551 million in 2025**[506](index=506&type=chunk) Unrecognized Tax Benefits (excluding interest and penalties, in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Unrecognized tax benefit, beginning balance | $721 | $1,021 | $1,047 | | Gross increases related to current year tax positions | 11 | 25 | 7 | | Gross increases related to prior year tax positions | 26 | 73 | 22 | | Gross decreases related to prior year tax positions | (13) | (32) | (47) | | Settlements | (40) | (363) | (5) | | Lapse of statute of limitations | (10) | (3) | (3) | | Distribution in connection with the Separation | (126) | — | — | | **Unrecognized tax benefit, ending balance** | **$569** | **$721** | **$1,021** | - As of June 27, 2025, **$332 million of unrecognized tax benefits** (including interest and penalties) could result in potential cash payments within 12 months, offset by **$148 million in tax receivables**[512](index=512&type=chunk)[513](index=513&type=chunk) [Note 14. Net Income (Loss) Per Common Share](index=106&type=section&id=Note%2014.%20Net%20Income%20%28Loss%29%20Per%20Common%20Share) Western Digital computes net income (loss) per common share using a two-class method, reporting basic EPS of $4.61 and diluted EPS of $4.45 from continuing operations in 2025, while prior years showed anti-dilutive net losses - Net income (loss) per common share is computed using a two-class method, allocating income to common stock and participating securities[345](index=345&type=chunk) Net Income (Loss) Per Common Share (in millions, except per share data) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Net income (loss) from continuing operations attributable to common shareholders - basic | $1,598 | $(819) | $(926) | | Net income (loss) from discontinued operations, net of taxes, attributable to common shareholders | 242 | (33) | (782) | | **Net income (loss) attributable to common shareholders - basic** | **$1,840** | **$(852)** | **$(1,708)** | | Weighted average shares: Basic | 347 | 326 | 318 | | RSUs, PSUs, ESPP, and the convertible notes | 12 | — | — | | Diluted | 359 | 326 | 318 | | Net income (loss) per common share: | | | | | Continuing operations - basic | $4.61 | $(2.51) | $(2.91) | | Discontinued operations - basic | 0.70 | (0.10) | (2.46) | | **Net income (loss) per common share - basic** | **$5.31** | **$(2.61)** | **$(5.37)** | | Continuing operations - diluted | 4.45 | (2.51) | (2.91) | | Discontinued operations - diluted | 0.67 | (0.10) | (2.46) | | **Net income (loss) per common share - diluted** | **$5.12** | **$(2.61)** | **$(5.37)** | - For 2024 and 2023, all shares subject to outstanding equity awards were excluded from diluted EPS calculation due to anti-dilutive impact from net losses[520](index=520&type=chunk) [Note 15. Business Realignment Charges](index=107&type=section&id=Note%2015.%20Business%20Realignment%20Charges) Western Digital recorded a net credit of $6 million in 2025 for business realignment, primarily from a recovery of non-cancellable purchase orders, contrasting with charges in prior years - Business realignment charges are incurred to streamline operations and reduce cost structure, including employee termination benefits and asset impairments[521](index=521&type=chunk) Business Realignment Charges (in millions) | | 2025 | 2024 | 2023 | |:---|:---|:---|:---|\ | Employee termination benefits | $2 | $34 | $130 | | Asset impairments | — | 146 | 19 | | Other charges (gains): | | | | | Gain on disposition of assets and other charges | — | — | (8) | | Contract termination and other | 2 | 29 | 5 | | Recovery of non-cancellable purchase orders | (10) | — | — | | **Total business realignment charges** | **$(6)** | **$209** | **$146** | - In 2025, a net credit of **$6 million** was recorded, including a **$10 million recovery** of non-cancellable purchase orders[522](index=522&type=chunk) [Note 16. Supplier Finance Program](index=108&type=section&id=Note%2016.%20Supplier%20Finance%20Program) Western Digital operates a voluntary supplier finance program, allowing suppliers to sell receivables for early payment, with outstanding obligations of $39 million as of June 27, 2025 - The company maintains a voluntary supplier finance program, enabling participating suppliers to sell receivables to a third-party financial institution for early payment[524](index=524&type=chunk) - The company's vendor payment terms (generally 60 to 90 days) are not impacted, and no guarantees are provided to third parties[525](index=525&type=chunk) Supplier Finance Program Obligations (in millions) | | June 27, 2025 | June 28, 2024 | |:---|:---|:---|\ | Confirmed obligations outstanding | $39 | $37 | [Note 17. Legal Proceedings](index=109&type=section&id=Note%2017.%20Legal%20Proceedings) Western Digital settled intellectual property litigation with MRT for $130 million, reversing $201 million in charges, and saw a $316 million jury award in the SPEX case reduced to nominal damages - In July 2024, a jury awarded MR Technologies, GmbH (MRT) **$262 million plus $117 million in prejudgment interest** for patent infringement[528](index=528&type=chunk) - In April 2025, a global settlement of **$130 million** was reached with MRT, resulting in a reversal of **$201 million** in previously recorded litigation charges[530](index=530&type=chunk) - In the SPEX Technologies, Inc. litigation, a jury awarded **$316 million in damages**, but the court subsequently reduced it to nominal damages of **$1**, with no prejudgment interest or legal costs[531](index=531&type=chunk) - The company believes a loss in the SPEX matter is not probable and has not accrued a liability[531](index=531&type=chunk) [Note 18. Quarterly Results of Operations (unaudited)](index=110&type=section&id=Note%2018.%20Quarterly%20Results%20of%20Operations%20%28unaudited%29) Unaudited quarterly results for 2025 show consistent increases in net revenue and net income from continuing operations, contrasting with net losses in 2024, following the Sandisk separation Unaudited Quarterly Results of Operations (2025, in millions, except per share amounts) | | First | Second | Third | Fourth | |:---|:---|:---|:---|:---|\ | Revenue, net | $2,212 | $2,409 | $2,294 | $2,605 | | Gross profit | 806 | 907 | 912 | 1,067 | | Net income from continuing operations | 153 | 466 | 772 | 252 | | Net income | 493 | 594 | 520 | 282 | | Net income per common share: | | | | | | Continuing operations - basic | $0.43 | $1.32 | $2.17 | $0.70 | | Earnings per common share - basic | 1.40 | 1.68 | 1.46 | 0.78 | | Continuing operations - diluted | 0.42 | 1.28 | 2.11 | 0.67 | | Earnings per common share - diluted | 1.35 | 1.63 | 1.42 | 0.75 | Unaudited Quarterly Results of Operations (2024, in millions, except per share amounts) | | First | Second | Third | Fourth | |:---|:---|:---|:---|:---|\ | Revenue, net | $1,194 | $1,367 | $1,752 | $2,004 | | Gross profit | 244 | 313 | 519 | 697 | | Net income (loss) from continuing operations | (365) | (146) | (8) | (246) | | Net income (loss) | (685) | (287) | 135 | 39 | | Net income (loss) per common share: | | | | | | Continuing operations - basic | $(1.18) | $(0.49) | $(0.07) | $(0.77) | | Earnings (loss) per common share - basic | (2.17) | (0.92) | 0.35 | 0.08 | | Continuing operations - diluted | (1.18) | (0.49) | (0.07) | (0.77) | | Earnings (loss) per common share - diluted | (2.17) | (0.92) | 0.35 | 0.08 | [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=111&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[536](index=536&type=chunk) [Item 9A. Controls and Procedures](index=111&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of June 27, 2025, with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 27, 2025[538](index=538&type=chunk) - Management concluded that internal control over financial reporting was effective as of June 27, 2025, based on the COSO 2013 framework[540](index=540&type=chunk) - KPMG LLP issued an audit report concurring with management's assessment of the effectiveness of internal control over financial reporting[540](index=540&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 27, 2025[541](index=541&type=chunk) [Item 9B. Other Information](index=112&type=section&id=Item%209B.%20Other%20Information) CEO Irving Tan and EVP Cynthia Tregillis adopted Rule 10b5-1 Plans for company securities transactions during the quarter - CEO Irving Tan adopted a Rule 10b5-1 Plan on May 12, 2025, for the sale of up to **80,000 shares** before May 26, 2026[544](index=544&type=chunk) - Cynthia Tregillis, EVP, Chief Legal Officer and Secretary, adopted a Rule 10b5-1 Plan on May 23, 2025, for the sale of up to **17,502 shares** before May 26, 2026[544](index=544&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=112&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[543](index=543&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=113&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[546](index=546&type=chunk) - The Code of Business Ethics, applicable to all directors, employees, and officers, is available on the company's website[546](index=546&type=chunk) [Item 11. Executive Compensation](index=113&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[547](index=547&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=113&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and related stockholder matters are incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[548](index=548&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=113&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[549](index=549&type=chunk) [Item 14. Principal Accountant Fees and Services](index=113&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Principal accountant fees and services information is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[550](index=550&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=114&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number: 001-37685 PAVMED INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of (IRS Employer ...